How can a UN tax convention address inequality in Europe and beyond?

On 14 and 15 March, the international conference ‘How can a UN tax convention address inequality in Europe and beyond?‘ was held at the Paris School of Economics, promoted by the Tax Justice Network (TJN) in partnership with the European Network on Debt and Development (Eurodad), EU Tax Observatory (EUTO), Global Alliance for Tax Justice (GATJ), Independent Commission for the Reform of International Corporate Taxation (ICRICT) and World Inequality Lab (WIL). With the support of Centro de Investigação sobre Direito e Sociedade (CEDIS), NOVA School of Law,and the University of Araraquara (UNIARA), I participated in person as a delegate.

The event was attended by around thirty speakers, including lawyers, economists, tax consultants, public policy experts, government representatives, activists, and more than a hundred delegates representing institutions from different parts of the world. Together, they promoted two days of debates that provided significant contributions to advancing the discussions that will guide the first session of the Committee for the Draft Terms of Reference for a United Nations Framework Convention on International Tax Cooperation, scheduled to take place from 26 April to 8 May 2024 at the United Nations headquarters in New York.

The Paris School of Economics, which houses the EU Tax Observatory under the direction of Gabriel Zucman, hosted the opening of the Conference. In his presentation, Zucman emphasised the ‘good news and bad news’: while it is possible to see some progress with the measures implemented to achieve tax justice, tolerating tax evasion and harmful tax competition is a political choice. We then heard from Dereje Alemayehu, Executive Coordinator of the Global Alliance for Tax Justice, who reported on the emergence of the Global Alliance and its defining role for the UN draft resolution of 15 November 2023, ‘Promotion of inclusive and effective international tax cooperation at the United Nations’.

Renowned experts such as Allison Christians (H. Heward Stikeman Chair in the Law of Taxation at McGill University Faculty of Law) led prominent panel discussions on the following themes: ‘Inequality in power dynamics: impact on human rights, and inclusive governance’ and Q&A; ‘Corporate tax abuse: understanding its socioeconomic impact, and assessing potential solutions’ and ‘Taxing wealth: tools to target concentrated ownership and wealth inequality’.

Finally, Lucas Chancel, Co-director of the World Inequality Lab, in his closing speech on the first day of the event, made three points in his reflections: 1) The background to the discussion must take into account that global income and wealth inequality are at unacceptable levels; 2) Increasing corporate tax rates and taxing extreme wealth are proposals that should be incorporated into the UN Tax Convention. In fact, this new Framework can potentially change the current scenario; and 3. The use and utilisation of tax revenues deserves attention: mobilizing public agents and civil society concerning the importance of decision-making on distributing, using, and supervising tax revenues is necessary.

As a small sample of the many points raised by the speakers and debaters, I would like to highlight the following reflections:

  • Large corporate conglomerates continue to practice tax evasion. The current tax measures are insufficient to reduce tax base erosion and profit shifting significantly. The ‘Global Minim corporate tax rate’ project is not proving sufficient. Billionaires pay a total tax rate of approximately 25%, while the rest of the population in France pays between 45% and 55%, for example. Therefore, proposals such as creating a ‘Minimum tax rate on billionaires’ and increasing the ‘Global Minimim corporate tax rate’ should be put forward. In this context, without detracting from individual countries’ progress, Multilateral Conventions with a global reach are the best option.
  • When discussing taxes, we are debating choices and public policies. It is therefore necessary to reflect on this decision-making process, as it is currently not working, and so is the relationship between countries.
  • In governance, the OECD and some countries are an obstacle, so we can no longer accept that the OECD controls the narrative.
  • The number of exemptions and tax breaks instituted to create new jobs and stimulate economic growth in Brazil does not go hand in hand with adopting public fiscal policies aimed at reducing inequalities.
  • Developing countries can and should present their agendas for a Global Governance Agenda aimed at achieving fiscal justice. In this context, tax policy should be discussed with other public policies, including economic policies.
  • The existence of tax havens and the practice of tax evasion are detrimental to both developing and developed countries, although the latter suffer the most.
  • Transfer pricing rules need to be revised.
  • Inheritance tax is controversial in most countries, but it should be discussed since more than 50 per cent of global wealth is acquired through inheritance. So, not taxing inheritance is a political choice.
  • ‘Taxing extreme wealth’. Countries worldwide could close the revenue gap by introducing progressive taxes on extreme wealth. This is a necessary measure to restore the progressivity of tax systems. The proposal is based on not exempting any class of assets.
  • Although countries in the ‘Global South’ have different needs from those of developed countries, both urgently require increased revenue.

Speakers also explored design proposals for the UN Tax Convention, which included:

  • Progressive corporate taxation, including ‘taxing basic excesso’ profits at 20 per cent and ‘extra excess profits’ at 45 per cent.
  • Destination-based taxation (you tax where the company profits, not where your company is based).
  • It was emphasised that global coordination is vital, but unilateral implementation is possible.

On the second day of the event, the presentations of papers and research continued in the thematic panels: ‘Climate Finance and Tax Justice: Emissions Inequalities, Carbon Taxation, and Global Solutions’ and ‘In pursuit of a multilateral UN treaty that delivers on our collective interests‘, the latter led by Alex Cobham, executive director of the Tax Justice Network and with the participation of Sol Picciotto, emeritus professor at Lancaster University Law School. In his introductory speech, Alex stressed that after the missed chance in 2015, the Tax Justice Network and Global Alliance started to prioritise the UN Framework Convention on International Tax Cooperation without looking for other possible solutions.

The Conference ended with the main panel entitled ‘Negotiating the UN framework convention on international tax cooperation’. In this session, María Fernanda Valdés, Deputy Minister of Finance of Colombia, reported on the leading role played by Colombia, a member of the OECD, among the Latin American countries in the discussions involving the UN Framework Convention, and Bjørg Sandkjær, Secretary of State of Norway, emphasising the need to reform tax systems and the essential need to reduce inequalities, expressed Norway’s support for the implementation of the UN Tax Convention, stressing that it is a ‘golden opportunity for global coordination’.

Here are some other points raised by speakers, debaters, or delegates during the panels for reflection:

  • Connecting Climate & Tax Agendas: Sustainable development demands revenue. Tax policies can help bridge the gap in financing, promote global solutions to the energy crisis, and reduce inequalities in carbon emissions.
  • Linear carbon taxation is unpopular in Europe (only 33 per cent of Europeans support an increase in linear carbon taxes). There is room for support for a progressive carbon tax (an environmentalist preference). The proposal envisages increasing the carbon tax rate according to income or footprint. Consumption-based carbon footprints have several advantages: footprints are intuitive, they capture externalised emissions, and there is no double counting.
  • The UN Tax Convention must align the taxation of corporate profits with the Green Agenda to generate significant revenue. Furthermore, the realisation of the Climate Agenda depends on effectively combating illicit financial flows and promoting financial transparency.
  • In the current scenario, African and Latin American countries, which play a leading role in the proper use of the environment in a sustainable way, are not at the discussion table on the Climate Agenda and its connection with fiscal policies. All stakeholders must be given a voice.
  • The UN Framework Convention on International Tax Cooperation should include in its scope (i) objectives based on the SDGs of the 2030 Agenda; (ii) principles, including Mutual assistance in the assessment and collection of taxes and the Single Tax Principle; and (iii) a governance structure, as well as establishing binding obligations for states. States must be allowed to join, as well as the right to opt-out.
  • The new Framework presents itself as an opportunity to redefine and design new rules, and the OECD has been invited to participate in this process.
  • The UN Tax Convention should promote inclusive and effective tax cooperation. It must be sensitive to inclusion and gender equality. To this end, member states, as well as other stakeholders, must work to promote procedural equality first in order to promote material equality. As far as procedural equality is concerned, having more women in the decision-making process is not enough. Still, it is essential that women have a ‘voice with impact’ and are in senior positions.
  • The realisation of human rights must be a priority in tax policies. Human rights must be included in the Preamble of the UN Tax Convention, and tax justice and human rights are inextricably linked. Thus, the Preamble should cover issues such as substantive equality and non-discrimination; gender bias in tax policies; the fiscal impact of illicit financial flows and the reduction of tax abuse; regressive taxation measures and the absence of redistributive justice; the climate crisis and sustainable financing.
  • The African continent has shown remarkable leadership in constructing the UN Framework. Among the priority areas, Africa defends the effective taxation of the digital economy, the fair allocation of tax revenues, the inclusive participation of all nations, the promotion of fiscal transparency, the observance of fair share by multinationals, and investments in capacity building.
  • The UN Framework Convention must include appropriate dispute-resolution mechanisms. Among the possible mechanisms are: negotiation (provided for in the UN Charter and presented as a non-binding mechanism); arbitration (which has considerable reservations, including the reduction in the scope of the discussion due to the technicality of the judges, a mechanism that is of particular concern to the nations of the Global South); the creation of a specialised tax court (has reservations, including the high cost of maintenance); the use of the International Court of Justice – ICJ (Member States will be able to decide which disputes would be submitted to the ICJ, which can also play an advisory role).

Mariana Passos Beraldo

March 2024