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International tax law reform through the United Nations Ongoing negotiations in the UN to draw up an international tax cooperation treaty offer the opportunity to overhaul a global tax system that has deprived countries of billions in much-needed revenue. Antonio Salvador MEMBER states of the United Nations have agreed to negotiate a convention to reform the international tax architecture, and this will be a legally binding agreement. The Intergovernmental Negotiating Committee tasked to develop the convention has met five times since April 2025, with a sixth session scheduled for 30 November to 10 December 2026 in Nairobi. Three remaining sessions will be held in the UN headquarters in New York in 2027. Thereafter, a draft shall be submitted to the UN General Assembly for adoption. The basic issue in taxation of international transactions boils down to which of the taxing jurisdictions has the right to tax, and to what extent, a particular income: the source country of the income, or the residence country of the taxpayer to whom the income accrued. No single international law or treaty currently governs international taxation. However, there is a coherent set of principles that in many ways constrain the ability of countries to adopt international tax laws as they please.1 This regime is embodied principally in the more than 3,000 existing bilateral tax treaties, but it is also incorporated in the domestic tax laws of most countries.2 In turn, the use of double-taxation agreement networks to manage international tax relations came out of the work of the League of Nations in the 1920s.3 Not surprisingly, the international tax architecture has not caught up with globalisation, international trade, and multinational conglomerates operating in different taxing jurisdictions while increasing the role of their global value chains. Corporations and rich individuals have resorted to various forms of ‘tax planning’ to evade, avoid and defer the payment of taxes. Multinational corporations (MNCs), instead of funding their subsidiaries through equity, lend an inordinate amount of funds, since dividends paid are not deductible expenses for the subsidiaries while interest payments are – leaving the subsidiary with lower net taxable income. Intangible properties (such as the extensive patents held by pharmaceutical companies) are migrated to lower-tax jurisdictions so that the royalties earned will be subjected to lower tax rates. Foreign sales and services subsidiaries are also incorporated in lower-tax jurisdictions so that their revenues need not be included in the gross revenues of the parent company in the high-tax jurisdiction. Transfer-pricing techniques are used to manipulate prices that related entities charge to each other: sister companies located in high-tax jurisdictions would book more expenses, while those in low-tax jurisdictions would take in more revenues. Digital platforms, due to the nature of their business, do not even need any physical presence or permanent establishments in market jurisdictions4 as their services are provided through the internet or other digital means. Consequently, under tax treaties and often even under the rules of the market jurisdictions themselves, they are not liable to pay income tax, even as they compete with local service providers who do pay income taxes, value-added taxes and local taxes – thus raising also a competition policy issue. The avoidance by MNCs, typically located in developed countries, of income taxes in developing countries constitutes a veritable wealth transfer from the developing countries to the developed countries where the MNCs and their corporate and individual owners reside and pay all sorts of taxes – including capital gains tax when the shares of stock are sold and income tax on dividends. There is also asymmetry in the national tax laws of most countries, both developing and developed: passive income (capital gains from the sale of property, interest, royalties and dividends), which is the source of wealth of the rich, is subject to lower tax rates than active employment income of employees. Inheritance is either not taxed or subjected to low rates, and again tax planning techniques can considerably reduce the amount of any inheritance tax to be paid. Billionaires pay very low income tax since increases in their wealth through a rise in the value of their shares of stock and the value of their property are non-taxable events. Income tax liability is triggered only when shares or other property are sold and the amount realised exceeds the adjusted basis for the property. Thus, there is a need to overhaul the international tax architecture. In July 2026, the Intergovernmental Negotiating Committee for the UN tax convention came up with the following documents, which currently form the basis of the negotiations: 1. Co-Leads’ Zero Draft of UN Framework Convention on International Tax Cooperation (Framework Convention) 2. Co-Leads’ Draft Protocol on the Taxation of Income from Cross-Border Services (Protocol 1) 3. Co-Leads’ Draft Protocol on the Prevention and Resolution of Tax Disputes (Protocol 2). Civil society organisations (CSOs) and labour unions consistently argue that there should be a system, through the Framework Convention, of ‘unitary taxation’ where an MNC and its related entities would be treated as one entity, with all revenues and all expenses accounted for in a single income statement, and with the net taxable income shared by the different taxing jurisdictions where the different entities are located using an equitable ‘formulary apportionment’5 that reflects real economic activity. This approach is possible through the only entity where each country has parity in terms of voting: the United Nations. The OECD/G20 and its existing Inclusive Framework on Base Erosion and Profit Shifting would not suffice due to the lack of parity among countries in terms of influence, as can be seen through the outcome. Pillar One of this Framework, which seeks to give market jurisdictions a share in tax revenues, has unrealistic metrics: the scope is limited only to companies with gross revenues for the year of more than €20 billion, thus letting many big corporations off scot-free. In addition, only any amount more than the 10% margin will be divided among the different market jurisdictions. ‘Any’ could mean nothing or just €100. Further, it cannot be taken for granted that companies want to make money as soon as possible. In the digital age, the incorporators might be willing to lose money for more than a decade as long as the company’s stock price increases dramatically. In contrast, consistent with the draft UN Framework Convention, including its Article 5 on Fair Allocation of Taxing Rights, unitary taxation with formulary apportionment will address the complicated and interrelated web of tax planning techniques: transfer pricing, non-taxation of digital platforms in market jurisdictions (which is also one of the main issues in Protocol 1), abuse of debt-to-equity ratios, migration of intangible property, and income tax deferral through the use of foreign personal holding companies6 and foreign base sales and service companies. The draft Framework Convention also includes a provision on high-net-worth individuals (HNWIs), thus addressing the gnawing fact that no taxable event arises from astronomical increases in wealth through surges in the prices of shares of stock and land, even as the valuation of those assets facilitates access to credit – to create even more wealth. With imposition of a wealth tax on the net worth of HNWIs, the latter will rightfully contribute to the coffers of the very government which protects their property and their businesses and whose legal system enforces the contracts they enter into. Finally, Protocol 2 is on Prevention and Resolution of Tax Disputes. CSOs in the tax justice community maintain that there should be no binding arbitration and definitely not the extremely problematic Investor-State Dispute Settlement (ISDS) provisions to handle tax disputes. Countries have been sued under ISDS, with catastrophic consequences, merely for exercising their sovereign right – and in fact duty – to impose taxes. Fortunately, developing countries, CSOs and labour unions are on the same page in pushing for a progressive and equitable international tax architecture that would contribute to sustainable development, gender equity, and the provision of basic services such as health and education – despite the immense challenges posed by the developed countries’ attempt to maintain the status quo. Antonio Salvador is a lawyer working full-time at the Third World Network on tax justice, international trade issues and labour rights, and the right to health. He also works closely with labour unions and cooperatives, and volunteers for two NGOs that provide alternative legal services in the Philippines. Notes 1. Reuven S. Avi Yonah, Diane M. Ring and Yariv Brauner, US International Taxation: Cases and Materials, 4th ed., p. 2. Ibid. 3. UNCTAD, Trade and Development Report 2024, Chapter V: The Global South and new international tax architecture: The quest for development finance, p. 179. https://unctad.org/system/files/official-document/tdr2024ch5_en.pdf. Accessed on 29 September 2026. 4. These are the countries where the clients of the digital platforms reside. Since the digital companies are non-resident foreign companies, without physical presence or permanent establishment (office, factory, branch, a mine, an oil or gas well, a place of management, etc.), they are not liable for any income tax and other types of taxes. However, both developing and developed countries have started to impose digital services taxes, also called equalisation levies, on them – which in turn is one of the most contentious issues in taxation. 5. A method used to divide a corporation’s total taxable income among different tax jurisdictions based on a fixed formula that typically measures local economic activity like sales, payroll and property. 6. Foreign personal holding company income (FPHCI) is passive income diverted to holding companies for no apparent business purpose other than to subject this income to much lower tax rates. Towards an inclusive and effective tax cooperation legal framework at the United Nations Chee Yoke Ling The context AGAINST the backdrop of a looming economic and cost-of-living crisis, rising inequalities and climate change, there is urgent need for strengthened international tax cooperation to fight tax avoidance and evasion, as well as illicit financial flows. All of these activities have a common feature – they drain resources desperately needed to address the impact of today's crises on lives and livelihoods and to invest in the Sustainable Development Goals (SDGs) and climate action. Various meetings, discussions, processes and recommendations intend to further the achievement of SDG target 16.4 (to substantially reduce illicit financial flows by 2030) and to improve domestic resource mobilisation and strengthen international tax cooperation. While resulting in some progress towards achieving those goals, these efforts also illustrate the timeliness and importance of further strengthening international tax cooperation in order to make it fully inclusive and more effective. International tax cooperation must advance progress towards a fair and effective international tax system for sustainable development, in a way that reflects the needs, priorities and capacities of countries, in the context of the current international tax landscape and beyond. The call for a comprehensive, inclusive and effective global tax system is not new. As early as 2015, civil society organisations and movements, trade unions and academia had stepped up in the Global Alliance for Tax Justice to call for a legally binding system under United Nations auspices to challenge the OECD’s dominance of rules and standards applied globally without the South at the table to make those rules and to ensure equity and fairness in taxation. In 2022, the Africa Group of countries, with the support of the Group of 77, successfully moved Resolution 77/244 at the UN General Assembly that opened the door to inclusive intergovernmental negotiations. This moment shifted the international tax debate from the OECD to a multilateral and inclusive arena at the UN. The 2022 General Assembly resolution Resolution 77/244 on ‘Promotion of inclusive and effective international tax cooperation at the United Nations’, adopted by the General Assembly on 30 December 2022, reaffirmed earlier international commitments to scale up international tax cooperation, fight illicit financial flows and combat aggressive tax avoidance and evasion. The resolution decided to begin intergovernmental discussion at the UN headquarters in New York on ways to strengthen the inclusiveness and effectiveness of international tax cooperation. Member states requested in the resolution that the UN Secretary-General prepare a report as the basis for further discussions during the Assembly’s 78th session in 2023. The report analysed relevant international legal instruments, other documents and recommendations that address international tax cooperation; evaluated additional options to strengthen the inclusiveness and effectiveness of such cooperation; and outlined potential next steps for making international tax cooperation fully inclusive and more effective. The process to intergovernmental negotiations The resolution acknowledged international tax cooperation efforts at various international forums, including (but not limited to) the UN and its Tax Committee, the Global Forum on Transparency and Exchange of Information for Tax Purposes, and the OECD/Group of 20 Inclusive Framework on Base Erosion and Profit Shifting. In preparing his report, the Secretary-General consulted widely with member states and relevant stakeholders, including civil society, business and academia, as well as the members of the Platform for Collaboration on Tax. Engaging with young persons was an important part of these consultations. The process built on multilateral and regional platforms that have made and will continue to make significant contributions to international tax cooperation. Accordingly, the Secretariat invited member states and other stakeholders to provide written inputs. Over 80 written submissions were received. All submissions were made publicly available before the 2023 UN Economic and Social Council (ECOSOC) meetings on financing, in order to facilitate multistakeholder discussions on the weaknesses and gaps in existing arrangements for international tax cooperation, as well as additional options for making such cooperation fully inclusive and more effective. The Secretary-General’s report was submitted to the General Assembly on 26 July 2023. Building on this report, the General Assembly set up an Ad Hoc Committee to Draft Terms of Reference for a United Nations Framework Convention on International Tax Cooperation, which worked through three sessions in 2024 at the UN headquarters (20–22 February; 26 April–8 May; 29 July–16 August). The report of the Committee contained, as Annex 1, the Draft Terms of Reference for a United Nations Framework Convention on International Tax Cooperation. The Draft Terms of Reference were adopted by vote by an overwhelming majority at the General Assembly through Resolution 79/235 on 24 December 2024. Accordingly, the Intergovernmental Negotiating Committee on the United Nations Framework Convention on International Tax Cooperation was established by the General Assembly to draft the text of the Framework Convention along with two early protocols. A roadmap for negotiations between 2025 and 2027 was also adopted (see box). There are three workstreams to negotiate the Framework Convention and two early protocols: • Workstream I on the Framework Convention • Workstream II on the taxation of income from cross-border services • Workstream III on dispute prevention and resolution. Chee Yoke Ling is Executive Director of the Third World Network. Sources: UN Department of Economic and Social Affairs (Financing for Development); and Global Alliance for Tax Justice
*Third World Resurgence No. 368, 2026/3, pp 8-11 |
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