The UN makes an unprecedented challenge to another international forum’s global tax policy.
On December 6, 2023, 138 Member States of the Organization for Economic Co-operation and Development (OECD), representing ninety percent of the global GDP, endorsed a reform of the international tax system.[2] The reform, known as the Two-Pillar Solution, aims to address the tax challenges arising from the digitalization of the global economy.[3] Pillar One sought to ensure a fair distribution of profits and taxing rights among countries, particularly targeting the largest Multinational Enterprises.[4] Pillar Two introduced a global minimum corporate tax, set at fifteen percent, to curb tax competition relating to corporate income taxes.[5] On December 22, experts from the United Nations (UN) sent an “unprecedented” letter to the OECD urging a comprehensive study of the implications of the global tax plan on human rights in developing countries.[6]
One of the primary concerns the UN raised in its letter pertains to the potential discriminatory impact of the Two-Pillar Solution on nations in the Global South.[7] Europe has historically exploited regions of the Global South, such as Africa, through colonization, slavery, resource extraction, and unequal trade relationships.[8] This exploitation has led to inequality within and between countries throughout the region, leaving them economically vulnerable and with limited resources and infrastructure to compete with wealthier nations.[9] One aspect of the Two-Pillar Solution involves Pillar Two’s aim to reallocate taxing rights between countries.[10] This reallocation may favor countries where multinational companies are headquartered or where their customers are located, possibly leading to a decrease in tax revenues for countries in the Global South.[11] By introducing a reform with the potential to disproportionately affect the predominantly non-white Global South, the Two-Pillar Solution risks exacerbating existing inequalities on the grounds of gender, ethnicity, and race.[12] The Two-Pillar Solution’s propensity to perpetuate these inequalities poses a critical challenge that cannot be overlooked.
Beyond discrimination concerns, the UN highlighted the potential impact of revenue collection and taxing rights in low and middle-income countries.[13] The concern is that Pillar Two might weaken the capacity of developing countries to fulfill their human rights obligations.[14] Similarly to its potential to exacerbate inequalities throughout the region, the decreased revenues stemming from Pillar Two’s goal of reallocating taxing rights may disrupt critical revenue generating practices of countries in the Global South.[15] Impeding a country’s access to tax revenue would, in turn, impact its ability to generate income domestically.[16] These reduced revenue streams limit the resources available to governments to invest in critical social programs and infrastructure development.[17] As a result, vulnerable populations may face barriers in accessing healthcare services, quality education, and basic amenities necessary for a dignified standard of living.[18]
UN experts underscored that these concerns may make the Two-Pillar Solution incompatible with international conventions aimed at eliminating discrimination.[19] Specifically, the UN referred to the International Convention on the Elimination of All Forms of Racial Discrimination (ICERD) and the International Convention on the Elimination of All Forms of Discrimination Against Women (CEDAW).[20]
The clash between the UN and OECD on the human rights implications of the Two-Pillar Solution stresses the complexity of reconciling economic reforms with fundamental human rights principles.[21] Striking a balance is essential to ensure that global tax frameworks promote equity, inclusivity, and the protection of vulnerable populations.[22] The outcome of this reform will undoubtedly shape the future of international tax governance, emphasizing the need for a collaborative and inclusive approach to balance economic objectives with the protection of fundamental human rights.[23] As the dialogue between the UN and OECD unfolds, the global community must navigate these challenges to create a tax framework that both furthers economic progress and safeguards human rights.
[1] Graphic in Romesh Vaitilingam, Corporate Taxes: Views of Leading Economists on Profit-shifting, Tax Base and a Global Minimum Rate, Centre for Economic Policy Research (July 6, 2021), https://cepr.org/voxeu/columns/corporate-taxes-views-leading-economists-profit-shifting-tax-base-and-global-minimum.
[2] 138 Countries and Jurisdictions Agree Historic Milestone to Implement Global Tax Deal, Org. for Econ. Coop. & Dev. (Dec. 7, 2023) https://www.oecd.org/tax/138-countries-and-jurisdictions-agree-historic-milestone-to-implement-global-tax-deal.htm#:~:text=The%20Two%E2%80%90Pillar%20Solution%20to,largest%20Multinational%20Enterprises%20(MNEs).
[3] Letter from U.N. to Org. for Econ. Coop. & Dev. (Dec. 22, 2023), https://spcommreports.ohchr.org/TMResultsBase/DownLoadPublicCommunicationFile?gId=28676 [hereinafter U.N. Letter].
[4] Kevin Pinner, UN Asks OECD To Study Human Rights Impact of Tax Plans, Law360 (Jan. 11, 2024, 6:18 PM), https://www.law360.com/tax-authority/articles/1785040/un-asks-oecd-to-study-human-rights-impact-of-tax-plans.
[5] Id.
[6] Dylan Moroses, UN Jabs OECD Over Human Rights Amid Tax Policy Tension, Law360 (Mar. 3, 2024, 3:35 PM), https://www.law360.com/tax-authority/articles/1808475.
[7] U.N. Letter, supra note 3.
[8] Richard Drayton, The Wealth of the West was Built on Africa’s Exploitation, The Guardian (Aug. 19, 2005, 8:31 PM), https://www.theguardian.com/politics/2005/aug/20/past.hearafrica05.
[9] Jason Hickel, et. al., Rich countries drained $152tn from the global South since 1960, Al Jazeera (May 6, 2021), https://www.aljazeera.com/opinions/2021/5/6/rich-countries-drained-152tn-from-the-global-south-since-1960.
[10] Pinner, supra note 4.
[11] U.N. Letter, supra note 3.
[12] Id.
[13] Id.
[14] Pinner, supra note 4.
[15] Luke Holland, OECD tax reforms risk violating human rights law, UN experts warn in special intervention, Tax Justice Network (Jan. 11, 2024), https://taxjustice.net/press/oecd-tax-reforms-risk-violating-human-rights-law-un-experts-warn-in-special-intervention/.
[16] Id.
[17] U.N. Letter, supra note 3.
[18] Id.
[19] Id.
[20] See International Convention on the Elimination of All Forms of Racial Discrimination, U.N. (Dec. 12, 1965), https://www.ohchr.org/en/instruments-mechanisms/instruments/international-convention-elimination-all-forms-racial (defining the ICERD as a UN platform facilitating dialogue and collaboration among governments, international organizations, and civil society to address racial discrimination globally); see also Convention on the Elimination of All Forms of Discrimination against Women New York, 18 December 1979, U.N. (Dec. 18, 1979), https://www.ohchr.org/en/instruments-mechanisms/instruments/convention-elimination-all-forms-discrimination-against-women (defining the CEDAW as a global platform dedicated to advancing gender equality and addressing discrimination against women in all its forms).
[21] Id.
[22] Id.
[23] Id.
Comments