The challenge of structuring a universally acceptable international tax system is a convoluted process spanning across multiple nations and political spectrum. A major attempt at this grand plan came in the form of the OECD’s Pillar Two initiative. Yet, it became increasingly apparent that this endeavor necessitated more than just widespread adoption – it needed global consensus, which brings its own array of challenges and debates.
The core intention of Pillar Two was to establish a global minimum corporate tax regime for multinational enterprises. However, this ambitious play didn’t require an agreement from all economies affected by it but instead banked upon the endorsement of a critical mass of countries. This gave the initiative an appearance of legitimacy under the broad involvement of more than 140 countries and jurisdictions, grouped under the OECD’s Inclusive Framework. Strong backing from several nations, including the EU, Japan, and South Korea among others, gave Pillar Two substantial credibility. But the absence of prominent economies such as the U.S., China, and India posed major problems for its success.
It soon became apparent that the dawn of 2024 is expected to bring turmoil within the international tax landscape. Spearheading this revolt against the OECD’s initiative, the African Group of UN member states proposed a draft resolution for the creation of a comprehensive convention on international tax cooperation. The power dynamics within global tax policy discussions appeared to be shifting away from the OECD towards the UN.
Despite resistance from the European bloc, the majority of countries sided with the African Group. Many emerging markets, along with major economies like Brazil, China, India, and Russia, supported the establishment of an inclusive international tax convention. Interestingly, nations such as Chile committed to both implementing the OECD’s Pillar Two and supporting the African Group’s call for a UN-led convention, indicating the multifaceted complexities in the international tax arena.
While 145 countries are part of the Inclusive Framework, the simultaneous trust placed in the UN by 125 jurisdictions could hint at waning confidence in the OECD’s efforts. Countries seem to be vastly undecided on what constitutes a fair tax system, but one thing appears clear: an inequitable policy-making process is largely unwelcome.
Continuous pursuits for a multilateral consensus, coupled with the analytical contributions from international organizations are crucial. For instance, a 2023 study by the Inter-American Development Bank highlighted certain distortions in the tax treatment of assets, informing the debates on international tax policies. Similarly, OECD data shone light on the distribution of global profits, reigniting discussions on the focal points of tax policies.
The key question, at this point, is whether the UN will bring the requisite legitimacy to oversee tax policy design, something that would likely shape the future globalization of tax regulations. Will early adopters, like Chile, hold off on implementing Pillar Two in anticipation of UN intervention? It seems we must wait longer to gain a clearer understanding of what ‘fair tax policy’ could mean on a global scale.
This analysis is referenced from an article originally authored by Ignacio Gepp, partner with Puente Sur.