The Global South is fighting for a voice in global tax rules

Wouter van de Klippe is a freelance journalist and Public Policy graduate based in Europe. He’s particularly interested in organised labour, economic, social, and environmental justice, and social welfare states.

Since 1954, a “rich countries club” of the Global North have set the rules of the global tax system through the Organisation for Economic Co-operation and Development (OECD). Now, countries of the Global South are successfully fighting for more equal say.

On the 22nd of November, 2023, the Africa Group of the United Nations spearheaded an effort to take global tax rule setting away from the OECD and towards the UN. The UN has global representation, more transparent voting mechanisms, and more impactful accountability measures in case countries violate rules.

What died and let the OECD set tax policy?

Just after the second World War, the newly formed United Nations attempted to start setting global taxation rules determined by all member states. This effort collapsed, rather unspectacularly, in the summer of 1954 with the discontinuation of the fiscal committee of the UN.This left the OECD as the only multilateral organization setting global tax rules. The OECD only included a small number of rich states and its approach towards taxation represented these interests.

The OECD sets tax rules by providing frameworks that countries adopt within taxation agreements with other states. For example, the OECD publishes and updates a “model taxation guideline” that countries typically use when drafting their own taxation agreements. These guidelines provide advice on how to prevent companies from being taxed twice for the same profits, set rules on how to tax profits when companies sell to their own subsidiaries abroad, and more.

Under the OECD’s leadership, this tax system is one where tax evasion is rampant, double-taxation agreements benefit the richest of the world, and it took until  2021 to form an agreement on a global minimum corporate tax rate of 15% to prevent multinationals from fleeing taxes and plundering public funds.

Consider the oil giant Shell. In 2022, Shell announced that it made an astounding $39.9 billion in profits. These profits were distributed all over the world across various tax havens, meaning that it paid a 0% effective tax rate in the Bahamas (on $570 million profits), 3% in Singapore (on $937 million profits), and 7% in the Netherlands (on $2.2 billion profits). Miraculously, Shell was able to squeeze these millions of dollars of profit out of the Bahamas despite it having no ‘real’ economic activity in the country whatsoever.

This is on the verge of a major transformation being led by the Global South.

Tax and Amend

After a drawn-out fight where the US, the UK, and the countries of the EU bitterly resisted the convention, countries representing the vast majority of the world’s population voted on November 22nd, 2023, in favor of the new UN-led convention. In the end, 125 countries voted in favor with 48 votes against.

Ahead of the vote, Dr. Chila Milambo, permanent representative of Zambia at the UN, said that the convention “is not merely a political document, but a beacon of hope for developing countries that have long sought a voice in shaping international tax norms.”

According to the Tax Justice Network, the countries that voted against the resolution are responsible for 75% of global tax evasion and only represent around 15% of the global population. All told, an estimated $480 billion in tax revenue is lost each year as a result of evasion – money that could otherwise be spent on public schooling, transportation, health systems, and much needed programs for the just transition.

While the total amount of money lost to tax evasion is significantly smaller in lower-income countries, the total share of public budgets that they lose is much higher. On average, lower-income countries lose about $47 billion each year – representing almost half of their annual budgets for public health.

The scale of tax abuse is so great under the current system that currently, African countries lose more through tax abuses than the total amount of foreign development aid per year.

The OECD itself recognized that it was failing to prevent tax abuse so in 2016 it created a special framework that now includes over 140 countries with the goal to establish new tax rules. This is called the OECD/G20 inclusive framework and was heralded by some as a much needed step towards global inclusivity in taxation.

Critics have argued that it hasn’t meaningfully challenged the skewed nature of global rule setting. The Tax Justice Network argues that the OECD’s lack of transparency, bias towards OECD member states. The fact that its key members are the same countries responsible for tax abuses mean that it is unsuitable to be the body determining how global tax rules are set.

The fight for a seat at the table

For decades, the dominant narrative of tax evasion was that poor administrative infrastructures facilitated corruption within low-income nations, squarely placing the blame on the countries suffering the most from the evasion. Through years of lobbying, campaigning, and organizing, Global South-led coalitions of civil society organizations and political leaders fought for recognition that tax abuses were inherent to the current system, and that meaningful change was needed. The reality was clear – a tax system that was built by the richest countries of the world would never provide justice to the Global South.

In 2015, the G77 group of developing countries tabled an earlier motion to legislate taxes at the UN in a meeting at Addis Ababa. Then, amidst heavy lobbying by countries of the OECD, the resolution tabled at the summit in Addis Ababa was rejected.

At the time, the slogan supporting the change was “if you’re not at the table, you’re on the menu”. If the talks at Addis Ababa represented a failed effort to establish more equitable tax rules, the passing of the resolution at the UN last year, nearly a decade later, shows the resolve and durability of solidarity movements of the Global South.

The proposed UN tax convention represents yet another instance of powerful Global South solidarity, such as what we have seen in the Global South’s rallying support for South Africa’s genocide case against Israel, and the near-unanimous Global South support for the COVID vaccine patent waiver at the peak of the pandemic.

A just and solidaire foreign policy is out there – in this case at least, it’s just not the Global North leading it.

While debate still needs to take place on what exactly the tax convention will consist of, it represents a success in forcing a more inclusive and democratic future for setting the rules of taxation. The Global South has shown that international solidarity can force meaningful changes in a regime built against their interests. With the UN becoming the leading institution for tax reform, the majority of the world’s population will finally have representation at the taxation rule table.

Full view of the UNGA hall