The Rise of Tax Multilateralism: Shining Light on an Overlooked Chapter for Multilateralism
By Andi Mohammad Ilham
The world does not always reflect a void in multilateralism. Over the past decade, tax multilateralism has often been overlooked in discussions of the international political economy. However, in recent years, it has gained new prominence, especially with the creation of the 2023 UN Tax Framework Convention. While the prospects of trade multilateralism may seem bleak, tax multilateralism offers a renewed hope for global governance.
From Well-Established Bilateralism to Nascent Multilateralism
One of the biggest issues on the multilateral agenda that has largely been overlooked is international tax cooperation. Historically, the international tax regime has been primarily bilateral. Tax treaties between modern nation-states were designed to prevent double taxation arising from cross-border trade. Over the past century, the elimination of double taxation has become a notable principle of international tax law. To date, the international tax regime has produced more than 3,000 bilateral tax treaties in effect, with the number still rising.
Since the 2008 global financial crisis, international tax cooperation has shifted from an entrenched system of tax bilateralism to an emerging framework of tax multilateralism. Spearheaded by the Organisation for Economic Co-operation and Development (OECD), this international tax regime has secured a political mandate from the G20 economic framework. In 2009, the Global Forum on Transparency and Exchange of Information for Tax Purposes, as an early step toward tax multilateralism, laid the foundation for reforms in global economic governance by tackling the interconnected issues of tax evasion, tax havens, and bank secrecy.
One of the strategic initiatives for tax multilateralism is the Base Erosion and Profit Shifting (BEPS) project. The OECD/G20 BEPS Project contains fifteen actions, including four minimum standards, ten best practices, and one multilateral instrument. In simple terms, this project shifts the power to tax from countries to international organizations (OECD) and political forums (G20). The BEPS project primarily aims to tackle aggressive tax planning by multinational enterprises (MNEs) to ensure that multinationals pay their fair share of taxes.
Furthermore, with the rapid growth of digital businesses in the 2010s, the G20/OECD Inclusive Framework reached a political consensus–BEPS 2.0–in 2021. BEPS 2.0 includes measures to tax highly digitalized businesses (Pillar 1) and to introduce a global minimum tax rate of 15% (Pillar 2). Recently, the OECD/G20 Inclusive Framework on BEPS expanded to include 147 member countries and jurisdictions, including non-OECD and non-G20 countries.
However, this BEPS project has already encountered anticipated challenges, and its creation and implementation have demonstrated its inefficacy. In the context of international relations, the OECD-led international tax regime perpetuates a historical legacy of marginalizing Global South participation in global tax governance. From an international tax law perspective, the G20/OECD Inclusive Framework, despite its name, still lacks throughput legitimacy, which includes accountability, transparency, inclusiveness, and openness. In addition, developing nations are impacted most by corporate tax dodging, which costs them at least USD 492 billion annually, but they are often excluded from the global tax policy in the decision-making process.
In response to this, the Africa Group has led the effort to propose an intergovernmental UN tax process since 2022. By the end of 2023, the United Nations General Assembly (UNGA) passed a draft resolution for the UN Framework Convention on International Tax Cooperation. In 2024, under the adoption of UNGA Resolution 78/2023, the ad hoc committee received a mandate to finalize the terms of reference (ToR). In August 2023, the ad hoc committee successfully completed the ToR, to be submitted for a UNGA vote during the world body’s 79th session later this year. If adopted, this ToR will lead to the formation of a Member-State-led negotiating committee, which would convene annually for the next three years, starting in 2025.
The Landscape of Tax Multilateralism: Current Realities and Prospects
OECD: Pillar One
Under Pillar One, taxing rights on a portion of large multinational corporations' profits will shift from residence and source countries to market jurisdictions. The international tax system, established over a century ago, has primarily determined tax jurisdiction based on the concepts of "source" and "residence." Conceptually, in response to the massive expansion of digital business performances, this pillar introduces a concept known as “destination-based taxation”. In practical terms, it seeks to address profit shifting and reduce tax-driven distortions by reallocating taxation to the location of economic activity.
The first pillar of the global tax agreement is closely linked to geoeconomic considerations. Given that digital businesses are largely centered in the United States, conflicts have arisen over the Digital Services Taxes (DST) imposed by European countries. Thus, Pillar One is viewed as a solution to these unilateral DST measures that primarily target multinational companies headquartered in the United States. However, when the OECD’s June 30 deadline for reaching an agreement on Pillar One passed this year without a deal, the prospect of Pillar One appeared bleak. The reason lies in U.S. domestic politics, as staunch opposition from Republicans has prevented meaningful progress on this pillar, prompting other countries to take similar unilateral measures. Moreover, with the Republicans’ win in the 2024 U.S. election, the Pillar One appears to have no future.
OECD: Pillar Two
Pillar Two mandates that multinational enterprises pay a baseline level of tax on revenue generated in each jurisdiction where they operate. The OECD Pillar Two Blueprint focuses on a global minimum tax aimed at addressing remaining BEPS issues. Simply put, it addresses the issue of double non-taxation. In practice, this pillar aims to end the race to the bottom on tax rates by requiring multinationals to pay a minimum effective corporate tax rate of fifteen percent in each jurisdiction of BEPS Countries.
Pillar Two consists of two components: the Global Anti-Base Erosion (GloBE) Model Rules and the Subject to Tax Rule (STTR). Since its introduction in September 2023, only the progress of the STTR has been considered reasonably successful, with a new treaty introduced to nine new jurisdictions. Moreover, excluding the STTR—which is a treaty-based rule—Pillar Two would be enacted through unilateral policies in each participating Inclusive Framework jurisdiction. In other words, unilateral domestic legislation is likely to play a more significant role in this pillar.
UN Tax Framework Convention
The early stages of the UN Tax Framework Convention, focused on finalizing the Terms of Reference by the Ad Hoc Committee, have shown relative progress. Looking ahead, careful monitoring will be required, particularly during negotiations within a committee led by nation-states. The UN Framework Convention on International Tax Cooperation brings new hope for developing countries, particularly lower-income countries, and a golden opportunity to reshape the current international tax regime. This platform could enhance complementarity and coordination in international tax cooperation.
The protocol’s content serves as a focal point of discussion moving forward. Plurilateral treaties, which could seriously consider the interests of developing countries, have increasingly become a reference point. Beyond the concerns of developing and least developed countries, this framework offers a way to bridge the past and future of tax treaties. Simply put, a framework convention could address the existing limitations of the international tax regime, while simultaneously maintaining the legitimacy of the current global tax governance process.
A Promising Future in International Political Economy Debates
As the age of growing unilateralism, deglobalization, and economic nationalism unfolds, international tax cooperation offers a new dimension of multilateralism. From the perspective of international economic law, international tax cooperation presents a potential alternative design for the future of the international economic order, in response to growing dissatisfaction with WTO-style multilateralism.
In this regard, the African Tax Administration Forum is one of the leading stakeholders in advancing fairness and an effective international tax system, demonstrating its capacity to make an historic impact on the global tax agenda at the UN. Moreover, under the 2023 UN resolution for international tax cooperation, regional actors, in addition to international and national actors, have been recognized as critical in closing the sustainable development financing gap in international tax matters. That is to say, the region's role has grown more essential in enhancing coordination in global tax negotiations.
So, it is time for the world to take notice of global tax politics, as we enter an era defined by the decline of trade multilateralism and the rise of tax multilateralism.
Andi Mohammad Ilham is a columnist and Jakarta-based tax consultant. He is also a postgraduate student at the School of Government and International Relations at Griffith University in Australia.
