The United Nations panel on Financial Accountability, Transparency, and Integrity (FACTI) is putting together a report to be released in January 2021. This report proposes an international tax convention that will have a global impact on companies operating multi-nationally. If enacted, the international tax convention will impose sweeping changes.
WHAT IS AN INTERNATIONAL TAX CONVENTION?
Tax conventions are agreements between governments that help determine how much in the way of taxes are owed by residents who live in one country and work in another. These conventions clear up issues surrounding tax evasion and double taxation.
Tax conventions are typically bilateral agreements. An international tax convention would go beyond agreements between two governments and set a standard for all member countries.
Many multinational companies voluntarily follow the tax conventions created by the Organisation for Economic Co-operation and Development (OECD), a non-UN body. The OECD tax conventions are non-binding, unlike the international tax convention proposed by the UN.
THE IMPORTANCE OF THE PROPOSED INTERNATIONAL TAX CONVENTION
Under the current regulations, multinational companies may take advantage of disparate tax laws from country to country. Companies may use tax laws to shelter income in tax havens, leading to issues of tax abuse and avoidance. FACTI’s proposal would address these tax inequalities.
Proponents of the international tax convention argue that current regulations allow global banks to move money for groups such as drug cartels, corrupt government officials, and alleged money launderers. Proponents also argue that these inequalities disproportionately affect lower-income countries. Opponents argue that the proposed tax convention goes against the confidentiality of data.
GOALS OF THE INTERNATIONAL TAX CONVENTION PROPOSAL
The broad goals of the proposed international tax convention are to address tax inequalities between nations, address issues of tax abuse and avoidance, and respond to tax abuse. These measures should promote tax justice on a global scale.
Some of the specific aims of the proposed international tax convention are to:
- Create a unitary taxation system for multinational companies.
- Prevent tax abuse and corruption.
- Protect human rights by preventing tax injustice.
- Introduce the universal ABCs of tax transparency:
- Automatic exchange of information on financial accounts.
- Beneficial ownership transparency through public registers.
- Country-by-country reporting, made public, from multinational companies.