At the end of 2023, the UN General Assembly passed a resolution on the UN Framework Convention on International Tax Cooperation, sending shock waves through the politics of global tax governance. This year, negotiations on the UN Framework Convention were held in two rounds. The first was from April 26 to May 8 for the Special Committee to develop the Terms of Reference (ToR), and the second was from July 29 to August 16 to complete the draft, which will be finalized for a vote at the 79th UN General Assembly at the end of the year. The launch of the UN Framework Convention on Taxation began with a request from Nigeria, representing the African Group, which complained that the Organisation for Economic Cooperation and Development (OECD) international tax system was fundamentally flawed.
Historically, the 2008 financial crisis paved the way for the OECD to establish structural control over international taxation, supported by the political mandate of the G20. Dismantling the interplay between bank secrecy and tax havens, and addressing tax evasion and avoidance by large multinational enterprises (MNEs), created the need for political coordination in financial and tax reform given to the OECD, leading to the creation of the World Forum on Transparency and Exchange of Information.
Moreover, the digital economy and the expansion of cross-border taxation have led to the introduction of the world's largest tax reform, called the Inclusive Framework on Base Erosion and Profit Shifting (BEPS).Again, driven by the political mandate of the G20, the OECD-led international tax regime has brought about subtle changes in international tax cooperation over the past decade.
However, the OECD leaves lingering recognition of the power imbalance between the global North and South in international tax cooperation. As the UN Secretary-General (UNSG) has reported, the international tax system administered by the OECD does not adequately address the needs of developing countries in participation, agenda setting and decision-making. That is why the world needs the UN to reform global tax governance.
The International Centre for Tax Development (ICTD) examines the current international tax system as an international institutional complex. Ideally, the optimal outcome of any institutional reform in this context would be to strengthen complementarity and coordination. The pursuit of harmonization and standardization in regulating existing international tax systems therefore positions the UN Framework Convention on Taxation as a ray of hope in an increasingly globalized and digitalized world.
Regional tax systems have played a key role in challenging the existing global tax governance. The African Tax Administration Forum (ATAF) has struggled to counter the inherent unfairness and bias in the OECD-led international tax system. In this sense, the African region has demonstrated its effectiveness and like-mindedness by bringing the African voice on tax issues to the global debate, leading to the initiative of the United Nations Framework Convention on Taxation.
In contrast to the African region, Asia-Pacific countries, mainly China, India and Indonesia, known as the founding members of the Global South movement, have a distinctive approach to global taxation. In fact, these three major Global South countries in Asia-Pacific have been key partners of the OECD for many years and are part of the G20/OECD Inclusive Framework on BEPS. However, they have clearly taken different stances in dealing with the political dynamics of international tax cooperation under the OECD-led international tax regime.
China's remarkable rise in the global economy has raised major concerns about Western hegemony, making international tax cooperation a notable battleground for China's efforts to challenge the Western liberal status quo.
Conceptually, China's international tax policy is notably shaped by its unique state capitalist system. Scholars argue that China has attempted to carve out a different path from existing international tax regimes with the establishment of the Belt and Road Initiative for Tax Administration Cooperation (BRITACOM), China's international tax regime. However, at the same time, China has attempted to uphold Western norms to favor the internationalization of its multinational corporations. Thus, China has taken a strategic dual position in the global tax environment, between defending and disrupting the established liberal international economic framework.
Like China, India also strongly resists the current international tax system. For example, India has yet to ratify its position despite constructively negotiating the OECD BEPS Inclusive Framework for International Tax Agreements in the Pillar 1 Agreement. Moreover, India appears to play a key role in swaying the interests of the G24 by conveying additional consideration to the OECD's two-pillar international tax reform in the G24's formal diplomatic negotiations with the OECD. In other words, China and India are creating a dynamic within the existing OECD-led international tax system.
Unlike China and India, Indonesia is on a different path. Indonesia hopes to continue to benefit from the OECD-led international tax regime, the Inclusive Framework on BEPS, but at the same time continues to struggle to harmonize with its evolving domestic laws. Geopolitically, Indonesia has been in the spotlight this year for having a roadmap to join the OECD. Before going through the OECD accession process, Indonesia was also offered the strategic position of joining BRICS, but it responded diplomatically and said it would carefully consider the invitation. Broadly speaking, Indonesia needs to avoid the middle-income trap and adapt its economic development blueprint to the policy settings of developed countries. Therefore, joining the OECD is the perfect place for Indonesia to anchor its policy development. Moreover, if successful, Indonesia will become the third country in Asia to join the rich club, after Japan and South Korea.
Although China, India and Indonesia have different attitudes towards the current international tax cooperation policy, in the first phase of the UN Framework Convention on Taxation negotiations, they urged the interest of the Southern Hemisphere to be brought to the inclusive, fair and effective negotiating table. According to the Tax Justice Network report, they expressed a strong stance that the interests of emerging and developing countries should be prioritized in international tax coordination and cooperation. Finally, in the second phase of the negotiations, they simultaneously voted in favor of sending the guidelines for the establishment of a UN international tax treaty to the 79th UN General Assembly.
Thus, despite their miraculous economic status in today’s global economy, China, India and Indonesia continue to push the historic opportunity for new global tax governance as a priority for the global South.
