Historic move set in motion for equitable shift in global tax power; India votes for change

In what will transform the shape and nature of the global tax power structure, India has backed a historic move to shift the reins of decision making from OECD to another, more equitably constituted, platform, a ToI report said.

Currently, OECD — a 38-member grouping dominated by rich nations — makes these decisions.

India voted for a change along with 125 countries in favour of a resolution calling for a ‘UN tax convention’. The resolution was passed in the ratio of 125:48 at the UN General Assembly in New York on November 22.

Prominent OECD members like the US, UK, Netherlands, Switzerland, Japan, France, Germany voted against this resolution.

In addition to African nations who had tabled the resolution, India, with other BRIC countries – Brazil, Russia and China – voted in favour.

The resolution proposes the establishment of an ad-hoc inter-governmental committee comprising no more than 20 member states, ensuring gender and regional balance. Unlike the OECD’s Inclusive Forum, which is not an inter-governmental body, this committee aims to bring together OECD and non-OECD members for collaborative efforts.The initial step, to be completed within a year, involves reaching an agreement on the terms of reference. Subsequently, the second step entails the development of a UN Framework Convention on international tax cooperation.The Tax Justice Network, a think tank, has expressed approval for the resolution, emphasizing that without the adoption of the UN tax convention, the world could lose nearly $5 trillion to tax havens over the next decade.

In practical terms, the new arrangement seeks to achieve a fair distribution of taxes to source jurisdictions, benefiting countries like India and the developing world through the establishment of global consensus on fair and equitable international tax rules. The current international tax rules are perceived as favoring capital-exporting countries, making the perspectives and commentaries of the OECD, with their inherent bias, less relevant in this new framework, according to Pramod Kumar, former Vice President at the Income Tax Appellate Tribunal.

The terms of reference for the committee could cover various issues, including aggressive tax avoidance, evasion, illicit financial flows, recovery of stolen assets, and taxation of the digital economy, taking into account the views of source countries. While the OECD-led forums have explored the ‘Two-Pillar solution,’ some countries, including India, have raised concerns about the allocation of profits to source countries under Pillar One. The UN Framework is seen as a way for developing countries to have more influence in these matters, according to tax experts.