Negotiations over a proposed UN Framework Convention on International Tax Cooperation have exposed a deep divide between wealthy economies and developing countries over the future of global taxation.
The governments of the European Union aim to make some concessions on certain provisions of the treaty while they negotiate in New York, while recent studies have shown that a bolder treaty would result in the generation of at least US$500 billion extra tax money for corporations every year. If other calculations are done, the amount could go up to about US$1.1 trillion a year. The Fifth negotiating round will take place at the headquarters of the United Nations between 3 and 13 August 2026. This is the first round of negotiations where there is a complete draft of the treaty together with two protocols dealing with the taxation of cross-border services and resolving of tax disputes.
The problem is not whether there should be improved international cooperation in tax matters. Governments agree that such phenomena as profit shifting, tax avoidance, illicit financial flows and taxation of digital and cross-border enterprises have grown out of control of the current system.
For African, Asian and Latin American countries, the negotiations represent a chance to replace a system they say has historically favoured capital-exporting countries and corporate headquarters jurisdictions. For the EU and several other developed economies, the priority is to preserve legal certainty, avoid conflicting treaty obligations and ensure that the new convention complements, rather than disrupts, the existing international tax architecture.
The fight over Article 5
The heart of the discussions is the Article 5 of the treaty which addresses the allocation of taxing rights with respect to multinational enterprises. The existing international tax regime follows the arm’s length standard. Under this standard, subsidiaries belonging to the same multinational enterprise are assumed to be separate enterprises. Then profits are distributed among them using transfer-pricing rules and taxed according to the location of subsidiaries or places where transactions take place. The critics argue that this standard has been a cause for multinational enterprises to allocate their profits to low-taxing nations, although their economic activities may be taking place in other places. The multinational corporation may employ large number of people, may have a large customer base and consumers in one nation while declaring a very significant proportion of its profits in another nation. The standard which is being suggested by the tax justice groups is known as unitary taxation with formulary apportionment. Under this system, the entire multinational group will be treated as a single economic entity.
The principle is often summarised as “pay where you play” rather than “pay where you say”. Countries where value is created, markets are located, revenues are generated or economic activity takes place would receive a greater share of the right to tax the resulting income.
A previous version of Article 5 provided that countries where value creation, markets and revenues are created and the economic activity takes place should be able to tax some part of the income earned through these activities. This version also provided for necessary actions for ensuring proper allocation of the taxing rights, including renegotiations of tax treaties that contradict the article. The above has been among the most controversial parts of the convention. Countries like Germany and others in Europe have raised concerns about automatic commitment to the renegotiation and termination of the treaties.
Germany has said that it “is not willing to commit to renegotiate or terminate” these treaties. The fear of the EU is that the UN rules could make these thousands of bilateral tax treaties and the existing OECD provisions obsolete. However, developing countries claim that maintaining the treaties without making any changes will perpetuate the inequalities that the convention seeks to correct.
The $500 billion estimate
The revenue estimate comes from research by the Tax Justice Network and Public Services International. The study calculates the potential gains from allocating multinational profits according to the location of economic activity rather than relying primarily on the existing arm’s-length system.
The study estimates that the reform could produce:
- At least US$500 billion in additional corporate-tax revenue globally each year.
- Approximately €57 billion in additional revenue for EU countries.
- At least US$155.5 billion annually for the Global South.
- Around US$43 billion for India.
- Approximately US$17 billion for Brazil.
- About US$8.9 billion for South Africa.
- Nearly US$2.5 billion for Nigeria.
- Around US$1.3 billion for Kenya.
- Approximately US$310 million for Jamaica.
These gains would have even greater relevance for poorer nations. According to the research findings, lower-middle-income nations might be able to earn triple the multinational corporate-tax income than they currently do, earning up to US$61 billion more per year. Low-income nations could earn up to five times the income they currently do in taxes, making at least US$3.6 billion annually. Nigeria would see its income rise by 641 percent, Jamaica by 587 percent and Kenya by 406 percent. India would experience an increase of 194 percent, South Africa by 85 percent and Brazil by 62 percent. The researchers consider the global figure to be conservative, too. The database used covered approximately 65 percent of the global profits earned by multinationals, with the rest estimated globally. Moreover, the researchers’ model considered both employee and sales location equally, excluding those multinational corporations whose profits come from the extraction of natural resources, where the right to tax them rests with resource-rich nations.
However, these figures are not guaranteed receipts. They are modelled estimates that depend on the final allocation formula, the treaty’s legal force, corporate responses, tax enforcement capacity and the number of states that implement the rules. The estimates nevertheless demonstrate the scale of the fiscal issue confronting negotiators.
Why the EU is resisting
Ireland has been speaking on behalf of the EU’s 27 member states. EU governments have not rejected the need for a UN tax convention, but they have argued for a narrower and more cautious instrument. The EU wants the treaty to explicitly recognise the existing international tax architecture. Its position calls for complementarity with current agreements, greater legal certainty and assurances that existing treaty obligations will not be changed unless countries separately agree to modify them.
European governments are also advocating consensus-based decision-making on issues that affect national tax powers. Many developing countries favour a stronger role for majority voting because they fear that consensus could allow a small number of wealthy states to block reforms.
The EU has additionally supported a limited institutional structure, with a largely facilitative Conference of the Parties and a modest UN secretariat. Developing countries and civil-society organisations are concerned that a weak institutional framework would make the convention difficult to enforce and leave future decisions vulnerable to political pressure. In practice, the EU approach could remove the most disruptive elements of the proposed reform. If the final treaty only asks countries to “explore and pursue” new allocation methods, instead of requiring them to implement them, the potential revenue gains may remain largely theoretical.
That is why campaigners describe the European position as an attempt to water down the convention. The EU’s answer is that ambitious language without clear legal safeguards could create double taxation, prolonged disputes and uncertainty for governments and businesses.
Developing countries demand stronger rules
African countries have been among the strongest supporters of a transformative UN agreement. Their central argument is that countries should receive taxing rights where economic activity, markets, consumers and value creation are located. The African Group has opposed the weakening of Article 5 and has argued that the treaty must contain enforceable commitments. Zambia reportedly criticised language requiring states only to “explore and pursue” reforms, saying it failed to establish a meaningful obligation. India, China, Kenya, Norway and Jamaica have also objected to the removal of the phrase “economic activity” from parts of the draft.
Another technical dispute concerns whether nexus factors should be cumulative. If the text uses the word “and”, a country might need to demonstrate several conditions before gaining taxing rights. If it uses “or”, a single factor—such as a significant market, workforce or revenue base—could be sufficient.
The African Tax Administration Forum has argued that treaty renegotiation is essential. In its view, countries cannot secure a fairer allocation of taxing rights if old bilateral agreements continue to prevent source countries from taxing income generated within their economies.
Africa’s concerns are reinforced by the scale of lost revenue. Tax Justice Network Africa has estimated that the continent loses around US$483 billion, although that figure covers a broad range of revenue losses and illicit financial flows rather than one single category of corporate tax.
Wealth taxation and illicit flows
In addition, the multilateral instrument will also address a wide array of topics apart from multinational corporate profits such as high net worth individuals, tax evasion, tax avoidance, harmful tax practices, information exchange and mutual administrative assistance. Several developing nations such as India, Brazil, Kenya, Ghana, Morocco, Pakistan, Honduras and South Africa have sought to get tough wording on high net worth individuals. It has been noted that they want “develop and implement” measures rather than cooperation or mere information exchange. The participation of Pakistan in particular is noteworthy as enhanced taxing rights over high net worth individuals and cross border income can benefit countries that face extreme fiscal difficulties in terms of debt repayment and low revenue.
Another disagreement concerns the distinction between tax avoidance and tax evasion. Some European countries, Japan, South Korea and Singapore have sought to remove tax avoidance from the definition of illicit activity because avoidance can involve arrangements that are technically legal.
Nigeria and the African Tax Administration Forum have rejected that distinction as too narrow. They argue that legal arrangements can still exploit gaps between national systems and deprive developing countries of legitimate revenue. Brazil has proposed treating avoidance, evasion and illicit financial flows as connected but legally distinct problems.
The political meaning of the dispute
The argument is ultimately about who writes global tax rules and whose interests those rules serve. “Multinational corporations have been exploiting a tax system designed before the age of globalised business,” Public Services International General Secretary Daniel Bertossa said, arguing that companies should pay tax where profits are actually generated rather than where they are reported on paper.
Alison Schultz of the Tax Justice Network had stated that the proposed tax system will not necessarily increase corporate tax rates but would instead alter where such taxes would be levied by ensuring the inability of multinational companies to move profits outside the territories where they conduct their operations. It is not only the EU which is trying to reduce the scope of this convention as the US walked out of the talks in February 2025, saying that the talks were “inconsistent with US priorities and represent unwelcome overreach”. According to Washington, the new taxation system would undermine the freedom of countries to formulate their own tax policies, which could help their people. Unlike the US, the EU remains within this framework and tries to influence the process from within. That is why the role of the EU in the current situation becomes especially significant because EU countries are major markets for many multinational firms and play a great role in global development finance.
