ISLAMABAD: The United Nations has proposed a blueprint for a new universal tax treaty, stressing the need for a global tax treaty as a historic step towards changing the financial landscape.

The proposed UN tax treaty represents a major shift in international taxation and has the potential to change the structure of global financial systems and affect the allocation of tax revenues for the public good.

The draft UN Framework Convention on International Tax Cooperation was presented last week at a meeting of the ad hoc committee charged with drawing up the terms of reference for the treaty, which took place at UN headquarters in New York.

The draft treaty will be further developed by a UN Member State-led negotiating committee established by the UN General Assembly. This intergovernmental negotiating committee is expected to meet in 2025, 2026 and 2027, holding at least three sessions per year. The aim of the committee is to complete its work and submit the final text of the framework treaty to the UN General Assembly for review and consideration.

The draft treaty states that more inclusive and effective international cooperation on tax is crucial to enable countries to respond to existing tax challenges, from digitalisation to the global operations of large multinational companies, mobilise domestic resources and use tax policies for sustainable development.

The draft United Nations Framework Convention on International Cooperation in the Field of Taxation aims to achieve fully inclusive and effective international cooperation in the field of taxation, both in substance and in process; to establish a system of governance for international cooperation in the field of taxation that can respond on an ongoing basis to existing and future challenges in the field of taxation and related matters; to achieve an inclusive, fair, transparent, efficient, equitable and effective international tax system for sustainable development, to enhance the legitimacy, certainty, resilience and fairness of international tax rules, while addressing the challenges of strengthening domestic resource mobilization.

According to the draft treaty, efforts to achieve the objectives of the Framework Convention should be universal in approach and scope, taking fully into account the different needs, priorities and capacities of all countries, including developing countries, in particular those in special situations. In addition, it should be recognised that each Member State has the sovereign right to determine its own tax policies and practices, while also respecting the sovereignty of other Member States in such matters. In pursuing international tax cooperation, States’ obligations under international human rights law should be respected. In addition, it should contribute to achieving sustainable development by ensuring a fair allocation of taxing rights within the international tax system.

The draft treaty called for fair allocation of taxing rights, including fair taxation of multinational enterprises; tackling tax evasion and avoidance by wealthy individuals and ensuring effective taxation in the relevant Member States; international approaches to tax cooperation that contribute to achieving sustainable development in its three dimensions, economic, social and environmental, in a balanced and integrated manner; effective mutual administrative assistance in tax matters, including transparency and exchange of information for tax purposes; tackling tax-related illicit financial flows, tax avoidance, tax evasion and harmful tax practices; and effective prevention and resolution of tax disputes.

Published in Dawn, August 25, 2024