UN vote challenges OECD global tax leadership

PARIS: The Organisation for Economic Cooperation and Development’s leadership on global tax coordination has come under threat after a majority of UN members backed an African-led initiative to bring international tax cooperation to the United Nations.

Many developing countries have lamented for years that they are unable to influence discussions on global tax cooperation at the OECD, where the rules for cross-border taxation are generally thrashed out.

Frustrated their voices had not been heard, on Wednesday 125 mostly developing countries backed a draft UN resolution proposed by Nigeria calling for a “framework convention on international tax cooperation”.

Some 48 mostly developed countries, including Britain, Germany, Japan and the United States were against while nine countries abstained, including OECD members Iceland, Mexico, Norway and Turkey.

Welcoming the vote as a “beacon of hope”, the African Union said in a statement that it would “facilitate the access of much needed financial resources”.

OECD head Mathias Cormann said that the 38-member group was “proud of its record of achieving consensus-based solutions” on international tax cooperation.

The Paris-based policy forum has for decades coordinated among its 38 mostly developed country members and other countries on international tax issues ranging from guidelines for intra-group transfer pricing to how tax authorities can share bank account information.

It also steered a 2021 deal among nearly 140 countries to rewrite the rules of cross-border taxation for the first time in a generation to bring them up to date for the age of digital commerce where big multinationals like Apple and Meta can book profits in low-tax countries.

The two-track deal aims to create a 15% global minimum corporate tax rate and calls for a new treaty that would shift some taxing rights on the most profitable multinationals to the countries where the companies clients are located.

While the minimum corporate tax rate is due to begin entering force next year, the new treaty on taxing rights faces a far more rocky road, not least in the United States where a two-thirds majority is needed to ratify treaties by the deeply divided Senate.

KPMG global tax policy leader Grant Wardell-Johnson said that though the two-track overhaul was backed by the G20 group of economic powers and had aimed for a global consensus, the UN vote was likely to lead to increased cooperation between it and the OECD in the future.

“It is hoped that the UN will focus on areas where there are current needs for low income economies. This includes illicit financial flows and bringing the formal economy into the formal economy,” Wardell-Johnson told Reuters.