Pacta sunt servanda: negotiating the UN Framework Convention on Tax in good faith

Pacta sunt servanda is a Latin term that encompasses a fundamental rule for international treaty relations.

It creates the rule that treaty obligations must be fulfilled in good faith. Part of this entails negotiating treaties in good faith. Acting in good faith in international relations is a well-recognised principle that relates to ‘honesty, fairness and reasonableness’. Negotiating in good faith is currently being tested in a UN-led process to develop a Framework Convention on International Tax Cooperation.

Embattled by the unfairness and the lack of inclusiveness in the international tax architecture, the African Group spearheaded two historic United Nations General Assembly (UNGA) resolutions. UNGA resolution 77/244 called for the establishment of a more inclusive forum for effective international tax cooperation at the UN and the subsequent resolution 78/230 kickstarted the process of developing a UN Framework Convention for inclusive and effective international tax cooperation.

This process has picked up this year, with member states of the United Nations (UN) engaging in the first stage of the process, which involves developing the terms of reference (TORs) for the development of the UN Framework Convention for International Tax Cooperation.  The next stages after this shall be the negotiation and drafting, and the final stage will be the negotiation and drafting of Protocols.

In all the stages described above, it is paramount that all states, particularly developed states, negotiate in good faith. But there are concerns this isn’t happening. It must be remembered that Resolution 78/230, which has kickstarted the process, was adopted through a simple majority. This means that, while 125 states voted ‘yes’, 48 states voted ‘no’, while the rest abstained.

It has not gone unnoticed that these 48 states comprise of developed countries, primarily Global North countries, that enjoy membership in the G20, or the OECD, or both. Therefore, from an outsider’s perspective, their willingness to participate in good faith in any negotiations on the UN Convention on Tax was cast in doubt.

Nevertheless, many of these countries have continued engaging actively in the negotiations, particularly during the First Substantive Session on the development of the Terms of Reference. While this is a welcome development, several concerns have arisen as to whether Global North countries are negotiating in good faith.  

The question of honesty and fairness

The key purpose of developing a forum and Framework Convention on Tax at the United Nations is to increase the inclusiveness of international tax cooperation. International tax decisions were made when many African countries lacked political independence. They did not have a seat at the table. It is no secret that the OECD has been dominating international tax decision-making, sourcing its political legitimacy at the G20.

The minimal representation of Africa in both these bodies illustrates what little bargaining power African countries have in developing the international tax architecture. While some African countries have participated in OECD/G20 led Inclusive Framework on Base Erosion and Profit Shifting (BEPS) and the Global Forum on Transparency and Exchange of Information for Tax Purposes, their experience has been a lack of equal footing with more developed countries. This was accurately captured by the UN tax report on the promotion of inclusive and effective tax cooperation at the United Nations.

Yet the discussions during the First Session reveal the hesitation to acknowledge the historic and continual imbalance of taxing rights between Global North and Global South countries from those in the north. Even worse, the ability of Global South countries to mobilise resources through taxation has been attributed to its lack of technical capacity, disregarding the economic and political circumstances that created the economic and tax imbalance that exists.

Capacity building is vital for many tax administrations in developing states. But it is arguably dishonest to suggest that capacity building is the panacea to the problem of revenue collection for the Global South, particularly in the realm of an international tax regime characterised by systemic injustices.

The lack of inclusiveness in the international tax architecture has led to the creation of clear winners and losers in the international tax game. The negotiations at the UN are meant to address this by promoting inter-nation equity in taxation and lead to a mutually beneficial outcome for both Global North and South countries.

However, as they say, equality often feels like oppression, especially for those who benefit from an unequal system. The recent negotiations at the First Session may have demonstrated this. The UN process may have felt foreign for many well-seasoned international tax experts who are not used to the openness and transparency of UN processes, in which civil society organisations are allowed to participate. Indeed, at a certain point, the extent of civil society participation was questioned.

Furthermore, it was implied that the UN tax negotiations and the resulting instruments from this process should only focus on existing gaps within the OECD/G20 body of work in international tax. This is another dishonest and unfair way of approaching negotiations, which suggests that what has been covered already in the existing processes should not be addressed by the UN despite evidence showing the lack of inclusiveness of such processes.

This argument was broached in several ways, including a discussion about the UN Framework Convention complementing existing processes and instruments. It should be noted that there is no universal instrument or process on international tax cooperation to date.

Furthermore, it’s the lack of inclusiveness in these processes that led to developing countries seeking out a forum where they would have equal footing in the first place. Global North countries that forward this argument during the negotiations without acknowledgment seem to have disingenuous intentions, with the ultimate aim being to maintain status quo, meaning an unfair system created by the G20 and the OECD, while diminishing the function of the UN to a mere complementary one.

At one point, these discussions almost derailed progress on other issues, as Global North countries were intent on ensuring that this must be captured within the Terms of Reference. Cumulatively, these actions lead to many doubting whether Global North countries are negotiating in good faith for a mutually beneficial solution, or whether they are negotiating for their own interests with a view to maintaining status quo and diminishing the overall scope and powers of the UN in the tax realm. History shows that this would not be the first time.

What we need to see

Despite the clear political divide on international tax cooperation between, the UN is meant to be the platform where countries can still find common ground and cooperate in a manner that leads to mutually beneficial outcomes. The UN has successfully done this in various instances.

The role of the UN in global tax issues has always been relegated to representing the interests of the Global South, particularly through guidance for developing countries in international tax treaties and capacity building.  We urge the Global North to adapt to the inevitable increased scope of the UN in international tax making as substantive tax rules can be adequately discussed and changed at this platform.  We want the Global North countries to trust in the integrity of these processes and systems and to take a less defensive and frankly, less dismissive stance in the tax negotiations.

The interests of the Global North and South countries align in that both want to generate adequate resources for the development of their countries and recognise that, with globalisation, international tax cooperation has become necessary for effective tax systems. This is common ground as tax is our collective ‘social superpower’.  

This message needs to be reiterated by development partners and civil society organisations based in the Global North.  These crucial partners have placed much attention and support in the Global South, sensing the movement for change. Equally, it is paramount that these partners begin to delve into what needs to be done so that Global North can meet the rest of the world halfway in the negotiations for a UN Framework Convention on International Tax Cooperation and participate in these processes in good faith.