5 reasons why the UK government should support the UN Tax Convention

The inaugural session of the formal negotiations will commence on 3 February that will run through to 2027.

Despite these negotiations having the potential to create a truly inclusive, sustainable and global tax system that works for all countries, the UK so far has taken an opposing position during previous rounds of negotiation.  Now is a critical moment to revisit what the UN Tax Convention is, how it could improve the global tax system and why the UK should review its current modus operandi and support it through constructive and collaborative participation.

What is the problem the UN Tax Convention has the potential to address?

Weak and non-transparent current international tax system: Every country depends on taxation to deliver key public goods, to meet citizens’ needs and to achieve the Sustainable Development Goals (SDGs), but this responsibility is undermined by the weakness of current international tax cooperation and by poor transparency.

Revenue losses due to cross-border tax abuse of multinational companies and by wealthy individuals with offshore assets are estimated to amount to US$492 billion each year globally, with high-income countries, including the UK, losing the greatest amounts of tax in absolute terms. Yet these losses amount to a much higher share of current tax revenues for lower-income countries. Shockingly, on average, this lost revenue is estimated to amount to almost half of their public health budgets. Unable to raise a fair share of taxes from corporations and wealthy individuals, lower-income countries are forced to apply more regressive tax systems which are known to exacerbate inequalities.

The absence of a truly global and inclusive tax system is driving a race to the bottom, making countries compete with tax rates which ultimately compromise a government’s ability to deliver critical public goods and ensure socioeconomic stability.

Limitations of the OECD: Again and again, we hear the argument that we should not duplicate what the OECD is already doing, however, necessary changes cannot be made through the current initiatives led by the OECD. As a club of rich countries, the OECD has neither the legitimacy nor the appropriate governance and mechanisms necessary to conduct globally inclusive, democratic and transparent decision-making. None of the existing OECD tax rules have been designed with global participation or been globally implemented.

The OECD’s ‘two-pillar’ Inclusive Framework embodies important technical progress, but it was not designed with global participation (only two-thirds of countries were involved) and they have lost most of their original ambition. As per the UN ToR, the ambition is to create “an inclusive, fair, transparent, efficient, equitable, and effective international tax system for sustainable development, with a view to enhancing the legitimacy, certainty, resilience, and fairness of international tax rules”. OECD’s mandate can not deliver that since the design and implementation of a truly global tax system will only come through a genuinely globally inclusive forum, which only the UN can offer.

Why should the UK support the UN Tax Convention?

1. Delivering ‘equitable partnerships’: Active support for the UN Tax Convention is an opportunity for the UK to lead the way among its G7 counterparts in rebuilding the trust of lower-income countries.  If the Labour government is serious about its commitment to taking “a new, modern approach based on genuine respect, trust and partnership with the Global South,” then constructive and collaborative participation in the UN Tax Convention is the way to demonstrate that. The UN Tax Convention process, spearheaded by the African Group made up of 54 nations, is a perfect platform for the UK to restore Britain’s reputation as a progressive development player on the world stage.

2. From words to action – delivering the UK’s commitment to a fair and equitable tax system: During the UK’s G7 2021 presidency, the then UK Chancellor, Rishi Sunak, strongly supported efforts towards a fairer tax system and we welcome the UK’s ongoing commitment to this cause. The previous UK government’s commitments in the White Paper on international development include creating a more equitable and fairer international financial system and supporting efforts to design more inclusive multilateralism, giving all countries a voice, a seat at the table and weight in the international financial system. The commitment to help “low- and middle-income countries get the revenues they are owed from the international tax system” has the potential to re-establish the UK’s global reputation as a responsible, fair partner in advancing the SDGs and overcoming our shared global challenges.

The Prime Minister, Keir Starmer also said at the UN General Assembly that the international financial system needs to be changed “to deliver a fairer deal for developing countries.” Supporting the Un Tax Convention is an opportunity to for the UK to take words to action and demonstrate this commitment.

3. UK’s reputational fix: Supporting the UN Tax Convention could significantly enhance the UK’s international reputation. The UK and its overseas territories are responsible for around a third of global tax avoidance and have been seen as a facilitator of ‘dirty money’. By championing the Convention, the UK can show commitment to a fairer and more transparent global tax regime alongside its commitment to work with the UK Overseas Territories to increase transparency, including through publicly accessible registers of company beneficial ownership.

4. Delivering commitment to SDGs, women and girls: Tax cooperation has a vital role to play in achieving the SDGs, promoting gender equality, and fulfilling human rights obligations. Taxation is the key source of government spending in the UK: about half of the UK’s government spending goes to the critical foundations of the thriving British economy – education, health and social protection. But LMICs don’t have the same luxury due to an unfit global tax system not fit for the realities of the 21st century, accompanied by a strangling debt crisis. The UN Tax Convention can generate significant additional revenues for many countries, especially those in lower-income countries, enabling them to resource accessible quality public services, adapt to and mitigate climate change and, in the long run, rely less on external (and often debt-inducing) finance.

5. More revenue for the UK Treasury: All of this would not just benefit low- and middle-income countries. The UK would also benefit from a UN-based global tax system that by addressing corporate tax abuse and transparency, could allow the UK to increase tax receipts equal to 20% of the NHS budget.

Strengthening of multilateralism has been one of the key priorities for the UK’s Foreign Secretary therefore the UN Tax convention offers this historic opportunity to reframe partnerships and rebuild international financial architecture that fits with 21^st century needs, realities and aspirations for an economic system which works for people and planet.

We therefore urge the UK government commits to participate constructively fully in the process of negotiations to develop a UN framework convention on international tax cooperation.