Opposing the UN tax convention would be a political mistake for President Biden

The decision by the international community last November to establish a United Nations (UN) tax convention could be the start of a seismic shift on global tax justice. Unfortunately, the United States (US) opposed it.

The US was part of the minority - dominated by wealthy states – that opposed the resolution to set up the new authority tabled by Nigeria on behalf of the Africa Group at the UN, which was passed by 125 votes to 48. But the US delegation took a much less confrontational approach than the likes of France and the United Kingdom during the debates in New York. This spared the US from the criticism aimed at other oppositionists by the G77 group of developing countries.

The big question now is how the major western powers, particularly the US and the European Union (EU), work with an institution they sought to block. Any agreements that emerge from the UN convention process will rely on the buy-in of national governments if they are to be enforced in law.

France, which hosts the Organization for Economic Cooperation and Development (OECD) — currently the international rule maker on corporate tax and transparency – has been leading the resistance to the new tax body, along with Germany.

The Biden Administration will have to decide quickly if it will join the opposition. The US delegation’s strategy in November has probably bought it more room to maneuver.

The window for negotiating the terms of reference for the new authority is between February and August. The first session is on 20-22 February in New York, with talks on the policy priorities of the UN convention set to start in April.

The strongest arguments used by the US, EU, the UK, and Japan against a UN tax authority are that it would duplicate the work of the OECD and that the UN lacks the technical expertise or resources to perform the role (the OECD’s tax department has a staff of 200 people).

But while the OECD has made some progress on corporate taxation and transparency it has moved very slowly. Purely in terms of geopolitics, since the US is far less embedded in the OECD process than western European states, it has little to lose and some favor to be gained from being a constructive and supportive part of the UN convention.

The early signs are that the UN body’s mandate will overlap with the OECD. Corporate taxation, transparency, and beneficial ownership are all likely to be part of its mandate.

The Africa group’s main priority is that the new authority address illicit financial flows, as was demanded by African Union's High-Level Panel on Illicit Financial Flows back in 2014, chaired by former South African President Thabo Mbeki, which first called for a UN tax body.

However, Chile and Colombia have proposed that an international wealth tax also be on the agenda. Meanwhile others have mooted the idea of using the UN convention to negotiate new environmental and climate levies that could then finance climate adaption and, potentially, the new loss and damage fund agreed at last December’s UN Climate Change Conference.

Granted, the chances are small that the global wealth tax will gain traction. But common international levies on carbon emissions, for example, are probably the most viable way of ensuring that the loss and damage fund has anything close to the financial firepower it will need to compensate the victims of climate change. It would make sense for the Biden Administration to put itself at the heart of these negotiations.