At the end of 2023, the politics of global tax governance were shocked by the United Nations General Assembly passing a draft resolution for a UN Framework Convention on International Tax Cooperation. This year, the negotiations for UN tax framework convention were conducted in two sessions, the first from April 26 to May 8 by the Ad Hoc Committee to structure the terms of reference (ToR), and the second from July 29 to August 16 to complete the draft, which will be finalized in voting at the UNGA 79th session at the end of the year. The commencement of the UN tax framework convention began with a demand by Nigeria, representing the African Group, which complained about a fundamentally flawed international tax regime under the Organisation for Economic Co-operation and Development (OECD).
Historically, the 2008 financial crisis paved the way for the OECD to structurally command the international tax regime, backed by the G20 political mandate. Dismantling the interaction of bank secrecy & tax havens and addressing tax evasion & avoidance by large multinational enterprises (MNEs) have created the need for political coordination in financial and tax reforms given to the OECD, resulting in the Global Forum on Transparency and Exchange of Information.
Moreover, the growth of the digital economy and cross-border taxation has introduced one of the greatest global tax reforms, called the Base Erosion and Profit Shifting (BEPS) Inclusive Framework. Once again, driven by the G20 political mandate, the OECD-led international tax regime has nuanced international tax cooperation over the past decade.
Yet, the OECD has instead left a lingering understanding of the imbalance of power between global north and south in international tax cooperation. As the United Nations Secretary-General (UNSG) reported, the OECD-governed international tax systems do not adequately process the needs of developing countries in participation, agenda-setting, and decision-making. So, this is why the world needs the UN to reinvent global tax governance.
The International Centre for Tax and Development (ICTD) examines the current international tax regime as an international regime complex. Ideally, the optimal outcome for any institutional reform in this context would be to enhance complementarity and coordination. So, the pursuit of harmonization and standardization in ruling existing global tax arrangements positions the UN tax framework convention as a beacon of hope in an increasingly globalized and digitalized world.
Regional tax constellations have played a key role in challenging the existing global tax governance. The African Tax Administration Forum (ATAF) has struggled to counterbalance injustices and biases inherent in the OECD-led international tax regime. In this sense, the African region has shown its effectiveness and like-mindedness in bringing the African voice on tax matters to global discussions, leading to the initiative for a UN tax framework convention.
In contrast to the African region, the Asia-Pacific members, predominantly China, India, and Indonesia, known as founding members of the global south movements, have distinct approaches to the global tax constellation. Indeed, these three giants of the global south in the Asia-Pacific region have long been key partners of the OECD and are part of the G20/OECD BEPS Inclusive Framework. However, each of them has a clearly different stance in responding to the political dynamic of international tax cooperation under OECD-led international tax regime.
The remarkable rise of China in the global economic landscape has emerged as a substantial source of apprehension for western hegemony. So, international tax cooperation also become a noticeable battleground for China’s efforts to challenge the western-liberal status quo.
Conceptually, China’s international tax policy is notably shaped by its unique system of state capitalism. Scholars argued that China distinctly attempted to develop alternative paths from the current existing international tax regime by creating the construction of China’s international tax regime, the Belt and Road Initiative Tax Administration Cooperation Mechanism (BRITACOM). But, at the same time, China also tried to defend western norms to benefit its multinational companies as they internationalize. Thus, China is strategically maneuvering a dual position between defending and disrupting established liberal international economic frameworks in the global tax landscape.
Similarly to China, India has shown a strong resistance to the current international tax system. For example, despite constructively engaging in negotiations of the OECD BEPS Inclusive Framework for the global tax deal in the “Pillar 1″ arrangement, India has not yet ratified its position. Furthermore, in the G24 formal diplomatic engagements with the OECD, conveying additional considerations to the OECD’s two-pillar global tax reform, India appears to be a vital player in steering the G24 interest. In other words, China and India create a power dynamic within the existing OECD-led international tax regime.
Unlike China and India, Indonesia is following a different path. Within the OECD-led international tax regime, on the BEPS Inclusive Framework, Indonesia is still expecting to gain benefits from it while continuing to struggle with harmonizing with its evolving domestic legislation. Geopolitically, in this year, Indonesia has garnered attention for having a roadmap for accession to join the OECD countries. Before going through OECD’s accession process, Indonesia was also offered a strategic position to join the BRICS, but responded diplomatically, stating it would consider the invitation carefully. Broadly speaking, Indonesia needs to align its economic development blueprint to fit in with developed countries policy-settings, avoiding as the middle-income country trap. So, joining the OECD is the best place for Indonesia to anchor its policy development. Moreover, if successful, Indonesia will be the third Asian countries in the rich-country club, following Japan and South Korea.
Although, China, India and Indonesia shown a divergent attitude to the current politics of international tax cooperation, they have empowered global south concerns to the table for an inclusive, equitable and effective in the first stage of the negotiation for UN tax framework convention. As Tax Justice Networks reported, they have represented an assertive position to put emerging and developing countries’ interest on international tax coordination and cooperation. In the end, in the second stage of the negotiation, they were voted simultaneously in favor of sending guidance to the General Assembly’s 79th session to establish a UN global tax treaty.
So, despite their miracle economic positions in today’s world economy, China, India, and Indonesia still energized global south priority to the historic opportunity for a new global tax governance.
