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Executive summary

On 16 August 2024, the United Nations (UN) Ad Hoc Committee voted to approve Terms of Reference (ToR) for the development of a UN Framework Convention on International Tax Cooperation (the Framework Convention). The ToR were supported by 110 UN member jurisdictions, with 44 abstentions, including the European Union (EU) and its Member States, and eight votes against, including the United States (US). Both the EU and the US provided explanations for their votes, citing concerns about the lack of consensus-based decision-making and the need for alignment with other international forums.

The ToR provide that the Framework Convention should encompass structural elements such as a clear statement of objectives, principles and commitments to achieving the objectives. In addition, the ToR discuss development of protocols for specific tax issues. Details of the approaches and timeframe for the negotiation committee also are included in the ToR.

The ToR will be presented to the UN General Assembly for vote during its 79th session in New York, which begins in September 2024. If adopted, the ToR provide for the Framework Convention to be developed by 2027.

Detailed discussion

Background

On 23 November 2022, the 77th UN General Assembly's Second Committee adopted a draft resolution, introduced by a group of African nations, recognizing the need for a universally inclusive international tax framework. Subsequently, the UN General Assembly adopted it as Resolution 77/244 on 30 December 2022, initiating intergovernmental talks aimed at crafting a framework that prioritizes inclusivity and enhances global tax cooperation.

In February 2023, the UN Secretary-General launched a public consultation to collect feedback from stakeholders. Following this, in July 2023, a Secretary-General report titled "Promotion of Inclusive and Effective International Tax Cooperation" was released, outlining three potential paths to create a more inclusive tax framework: (1) a multilateral convention on tax, (2) a framework convention on international tax cooperation, and (3) a framework for international tax cooperation.

The UN General Assembly's Second Committee approved a resolution on 22 November 2023 to support inclusive international tax cooperation through establishment of an Ad Hoc Committee to formulate the approach for a Framework Convention. Resolution 78/230 was adopted on 22 December 2023 by the UN General Assembly, with 111 jurisdictions in favor, 46 against and 10 abstentions. The resolution called for finalization of the deliverables by August 2024 for submission to the 79th session of the General Assembly.

On 7 June 2024, the Ad Hoc Committee's Bureau released and requested stakeholder feedback on a "zero draft" for the ToR; more than 100 submissions resulted. A revised ToR was released in mid-July and was the basis for discussions at the Second Session of the Ad Hoc Committee from 29 July to 16 August 2024.

Adoption of the Draft ToR

The Second Session resulted in finalization of the ToR, with approval by vote of the Ad Hoc Committee on 16 August 2024. The ToR outline the major structural elements of the Framework Convention to be developed, including a statement of the objectives, principles, commitments, and provisions on capacity building as well as a timeframe and approach for negotiation of the Framework Convention.

The ToR also provide for the development of protocols to the Framework Convention. These would be legally binding instruments under the Framework Convention that each party to the Convention would have the option to join. The protocols would contain substantive tax measures addressing specific issues. The ToR reference two early protocols to be developed simultaneously with the Framework Convention: (1) a protocol to address "taxation of income derived from the provision of cross-border services in an increasingly digitalized and globalized economy"; and (2) a protocol focusing on a subject that will be chosen later from four priority areas, identified as (a) the taxation of the digitalized economy; (b) measures against tax-related illicit financial flows; (c) prevention and resolution of tax disputes; and (d) addressing tax evasion and avoidance by high-net worth individuals and ensuring their effective taxation in relevant UN member jurisdictions. The ToR further indicate that consideration could be given to protocols addressing other topics, including tax cooperation on environmental challenges, exchange of information for tax purposes, mutual administrative assistance on tax matters, and harmful tax practices.

One hundred ten UN member jurisdictions voted in favor of the ToR. Forty-four jurisdictions abstained, including the EU and its Member States. The EU's delegation to the UN issued an Explanation of Vote, expressing the concern that the process lacked inclusiveness, transparency, and common understanding to achieve consensus:

[W]e regret that the final draft Terms of Reference text does not adequately reflect our key points of concern, despite our constructive approach and sincere readiness to compromise. While we entered these discussions with an open and a collaborative spirit, the outcome fails, regrettably to address critical concerns that we have raised consistently and repeatedly, in particular as regards the need for broad consensus support in order to ensure the inclusivity and effectiveness of a Framework Convention. To function effectively and sustainably, we also need to ensure that the Framework Convention takes account of work on international tax cooperation that continues in other fora.

Eight jurisdictions voted against the ToR, including the United States. The Explanation of Vote issued by the US Mission to the UN referred to the absence of the necessary global buy-in states:

As we have raised in many oral and written inputs, we had also hoped to see more flexibility in the Terms of Reference afforded to the proposed intergovernmental negotiating committee. We think that the proposed committee will be better positioned to scope and analyze the commitments and protocols, especially given the very ambitious and ambiguous scope of the topics raised here. We had also hoped to see a stronger reflection to the principle of complementarity, considering the extensive work and expertise of other forums.

The ToR were welcomed by the African Tax Administration Forum (ATAF), which was actively involved in the negotiations. ATAF's Press Release welcomed adoption of the draft ToR, saying:

This is a significant step towards establishing a global tax system that is inclusive, transparent, and meets the needs of all nations, including the 44 member states of the African Tax Administration Forum … The adoption of these Terms of Reference is a crucial step towards a fair and equitable international tax system.

Next steps

The ToR adopted by the Ad Hoc Committee will be submitted to the 79th Session of the UN General Assembly, taking place from 10 to 24 September 2024 in New York.

If the General Assembly adopts the draft ToR received from the Ad Hoc Committee, an intergovernmental negotiating committee is to meet three times per year over the next three years (2025–2027) to draft the Framework Convention and the two early protocols. The negotiating committee is to complete its work during this period and submit the final text of the Framework Convention and protocols for consideration at the 82nd Session of the UN General Assembly. A vote to adopt the text of the Framework Convention requiring a two-thirds majority of the General Assembly would occur in late 2027, with the Framework Convention then available for UN member jurisdictions to sign and ratify.

Implications

The adoption of the ToR for submission to the UN General Assembly marks an important step in the UN's work on a new Framework Convention on international tax cooperation.

The voting and statements issued by particular jurisdictions demonstrate that there is not full consensus of UN member jurisdictions on the ToR and the next steps for development of the Framework Convention. However, consensus is not required, and a substantial majority of the Ad Hoc Committee voted in favor of the draft ToR.

Companies should monitor ongoing developments with respect to the Framework Convention and the protocols that are contemplated. Given the significant potential implications for the international tax landscape going forward, companies may want to engage with policymakers in relevant jurisdictions to share their perspectives.