UN votes to take the reins on global tax standards

The United Nations General Assembly finance committee voted unanimously on Wednesday to start talks on international tax standards, effectively kicking off a similar longstanding initiative led by advanced economies in the Paris-based Organization for Economic Co-operation and Development (OECD). is being challenged.

Wednesday’s resolution calls for “the development of an international framework or instrument for tax cooperation developed and agreed upon through a United Nations intergovernmental process.”

Such a framework has been under development at the OECD for nearly a decade, but has yet to be finalized.

At stake in the agreement are new rules on whether multinational corporations can store their profits in foreign tax havens and in which jurisdictions companies can be taxed for the use of their products.

The successful UN resolution was put forward by the 54-member African Group of Nations within the UN General Assembly, a bloc with a different economic character from the group of developed economies within the OECD and with different ideas about how financial transparency and tax administration should work.

“We note that the OECD has played a role in these areas. After a decade of efforts to reform international tax rules, it is clear that there is no substitute for the United Nations’ global, inclusive, transparent forum,” the representative of the Nigerian delegation to the UN said during Wednesday’s vote.

“The African Group urges countries to continue their commitment to developing inclusive tax tools at the United Nations and encourages the OECD to play a supporting role in this,” said the Nigerian representative.

OECD countries warned that it would be unproductive for the UN to double the OECD’s work, but did not vote against the resolution.

“We disagree with the idea implied by this resolution that there is currently no highly inclusive forum working to strengthen international tax cooperation,” the U.S. representative told the second committee.

The UN resolution “proposes a process that will undo much of the progress made in international tax cooperation since the 2008-2009 financial crisis and undermine the OECD’s inclusive framework through which so much progress is being made,” it said. the UN resolution. US delegate added.

Fears that the OECD process had stalled grew over the summer after the nation of Hungary blocked a 15 percent minimum corporate tax in the European Union, prompting the US to cancel its longstanding bilateral tax treaty with Hungary.

Hungary then sent a delegation to the US to express solidarity with Republicans who also oppose the Biden administration’s efforts to pursue international corporate tax standards.

“The actions of the Treasury Department indicate an impulsive effort to put pressure on a country that has raised legitimate concerns about the agreement,” the Republican leaders of the House Ways and Means and Senate Finance and Foreign Relations committees previously wrote in a statement. November in a letter.

International tax experts say the timing of Wednesday’s vote is related to the delay in the OECD determination determining where a company can be taxed for the use of its products, as well as low-income countries’ frustration over the amount of that tax. tax.

“There is a document that is expected to come out in December outlining what unilateral measures should be done away with, including taxes on digital services,” Daniel Bunn, president of the Tax Foundation, a Washington-based think tank, said in an interview. “The aim is to have a multilateral treaty ready for signature by the middle of next year.”

EU finance ministers will meet again in December to discuss the amount companies can be taxed – known within the agreement as the second pillar.

“The language of their announcement is that they will seek agreement on Pillar Two, but it is not clear whether that is certain. Hungary has held things back,” Bunn added.

Other analysts in Washington say developing country interests are not adequately considered within the OECD framework, an oversight that could further delay a final deal.

“While the OECD’s global minimum tax framework received broad international support last year, there were proponents concerned that a final product would not meet the needs of developing countries,” said John Buhl, an analyst with the Urban-Brookings Tax Policy Center, in a statement to The Hill.

“In the short term, it could also embolden skeptics in Congress and holdouts in the EU who already have concerns about the plan and whether it will ever reach critical mass with enough countries to make adoption worthwhile,” he added. please.

Tax justice advocates applauded Wednesday’s UN resolution, arguing that the OECD has had a chance to create a global tax treaty and that the UN is now the better organization to address the issue.

“The OECD has been unprecedentedly aggressive in its lobbying efforts, but could hardly have failed more completely as the resolution was passed by unanimous consensus,” Alex Cobham, head of the European Tax Justice Network, said in a statement. “Some OECD countries spoke out in favor of the organization’s role after the adoption of the resolution, but … the OECD’s two-pillar tax proposal is about subsistence.”

Through the work of the OECD, “countries lose $483 billion annually in tax to tax havens; and work widely identified as exclusively by countries outside of the core membership of rich countries. Ultimately, this only confirms the importance of moving tax regulation to a globally inclusive and transparent forum at the United Nations,” Cobham added.

Bunn of the Tax Foundation said that whether negotiating at the OECD or the UN, the same problems will always arise when making a deal.

“What happened at the OECD, with countries struggling to agree on major tax issues – the battle will continue no matter what the forum is,” he added.

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