ISLAMABAD: The United Nations has proposed a draft for a new universal tax treaty, stressing the need for a global tax convention as a historic step towards transforming the financial landscape.

The tax agreement proposed by the United Nations represents a significant shift in international taxation and could alter the structure of global financial systems and impact the allocation of taxpayers’ money for the common good.

The draft United Nations Framework Convention on International Cooperation in Tax Matters was presented last week at the UN headquarters in New York during a meeting of the Ad Hoc Committee to draw up the rules of procedure for the Convention.

The draft convention will be further developed by a negotiating committee established by the UN General Assembly and chaired by UN member states. This intergovernmental negotiating committee is scheduled to meet in 2025, 2026 and 2027 and hold at least three meetings per year. The aim of the committee is to complete its work and submit the final text of the framework convention to the UN General Assembly for review and consideration.

The draft agreement states that broader and more effective international tax cooperation is crucial to enable countries to respond to existing tax-related challenges – from digitalisation to the global activities of large multinational companies – and to mobilise domestic resources and use their tax policies for sustainable development.

The draft United Nations Framework Convention on International Tax Cooperation aims to establish fully inclusive and effective international tax cooperation in terms of content and processes. This includes the creation of a governance system for international tax cooperation that is able to respond on an ongoing basis to existing and future tax and tax-related challenges. It also aims to create an inclusive, fair, transparent, efficient, equitable and effective international tax system for sustainable development in order to improve the legitimacy, certainty, resilience and fairness of international tax rules, while addressing the challenges of strengthening domestic resource mobilisation.

According to the draft Convention, efforts to achieve the objectives of the Framework Convention should be universal in approach and scope, taking fully into account the different needs, priorities and capacities of all countries, including developing countries and in particular those in special situations. They should also recognise that each Member State has the sovereign right to decide on its tax policies and practices, while respecting the sovereignty of other Member States in these matters. International tax cooperation should be guided by States’ obligations under international human rights law and contribute to the achievement of sustainable development by ensuring a fair allocation of taxing rights in the international tax system.

The draft Convention calls for a fair allocation of taxing rights, including fair taxation of multinational enterprises; combating tax evasion and avoidance by high net worth individuals and ensuring their effective taxation in the Member States concerned; international tax cooperation approaches that contribute in a balanced and integrated manner to the achievement of sustainable development in its three dimensions – economic, social and environmental; effective mutual administrative assistance in tax matters, including with regard to transparency and exchange of information for tax purposes; combating illicit tax financial flows, tax avoidance, tax evasion and harmful tax practices, and effective prevention and settlement of tax disputes.

Published in Dawn, 25 August 2024