On 7 June 2024 the Bureau of the Ad Hoc Committee (‘the Bureau’) released a Proposal for the Zero Draft Terms of Reference for the United Nations Framework Convention on International Tax Cooperation (‘the Draft Terms’). UN Member States and other stakeholders are invited to provide comments by 21 June 2024. These comments will ultimately inform the preparation of the draft text that will be the basis for discussions and negotiations during the Second Session that will take place from 29 July to 16 August 2024 at the UN in New York.
The Draft Terms include a summary of the developments resulting in the establishment of the Ad Hoc Intergovernmental Committee (‘the Ad Hoc Committee’) for the purpose of drafting Terms of Reference for a United Nations Framework Convention on International Tax Cooperation (‘the ToR’) by the General Assembly. Apart from a Preamble reflecting previous General Assembly resolutions, the Draft Terms outline Objectives and Principles that should be reflected in a future United Nations Framework Convention.
As for the objectives, the Draft Terms set out fundamental principles to ensure full inclusiveness and effectiveness of international tax cooperation, establish a system of governance for international tax cooperation as well as an inclusive and fair international tax system for sustainable development to enhance i.e. the legitimacy, resilience and fairness of international tax rules while addressing tax-related illicit financial flows and challenges to strengthening domestic resource mobilization.
Regarding the principles, the Draft Terms present a clear articulation of the guiding principles for a future convention. The pursuit of fully inclusive and more effective international tax cooperation should adopt a universal approach and encompass a broad scope: they should take a holistic, sustainable development approach, provide for rules that are simple and easy to administer, increase certainty for taxpayers and governments and be sufficiently flexible, resilient and agile to ensure equitable results as technology and business models. Furthermore, every Member State has the sovereign right to decide on their domestic policies and practices, but at the same time be responsible to ensure that such policies do not undermine the effectiveness of the tax base of other UN Member States. This reflects the fine balance that needs to be found between tax sovereignty, multilateralism, and base protection. Finally, efforts should be made to ensure fairness in the allocation of taxing rights under the international tax system, requiring transparency and accountability from all taxpayers, while also respecting their fundamental rights.
The substantive elements section contains a list of items that should be prioritized. The suggested items include commitments on the fair allocation of taxing rights, the equitable taxation of MNEs, the effective taxation of high-net worth individuals, and the addressing of environmental challenges with tax measures.
Another important, yet critical point of the suggested substantive elements in the Draft Terms is the effective taxation of high-net worth individuals, a topic which already was the subject of an OECD / Forum on Tax Administration Report in 2009. The addressing of environmental changes with tax measures is another important, yet challenging suggestion of the Draft Terms that deserves particular scrutiny.
Besides the previously mentioned sections, the Draft Terms list specific priority areas that need to be addressed in the early protocols. These cover, amongst other things, the taxation of the digitalized and globalized economy, the prevention and resolution of tax disputes, and the taxation of income derived from cross-border services. In the context of the latter, it remains to be seen whether Article XX will be part of the substantive elements that will be included in those early protocols.
Finally, the Draft Terms list additional topics that might be subject of future protocols under the terms of the framework convention, including tax measures on environmental and climate challenges, the exchange of information for tax purposes and mutual administrative assistance on tax matters.
Beyond these Draft Terms and upcoming Second Session, we highlight the importance of prior developments and achievements at the level of the Global Forum on Transparency and Exchange of Information for Tax Purposes of the OECD that play(ed) a key role in achieving the objectives as outlined in the substantive elements. We hope that the experiences and practices developed at the level of the OECD shall be taken into account and leveraged in the formulation of a future Convention.
We urge you to closely follow and monitor the developments and progress concerning the policy objectives outlined in the Draft Terms, and encourage you to reach out to us if you have any questions regarding the impact this could have on your business.
Contacts: Gaspar Ndabi
