Context:

KPMG International hosted a roundtable discussion in July 2024, as part of the Global Responsible Tax Programme, to explore industry best practices and new challenges in global governance and what different global sectors can learn from each other.

The recent proposal by the UN to establish a United Nations Framework Convention on International Tax Cooperation has sparked both support and criticism. Proponents see it as a means to empower developing nations with wider and deeper decision-making influence, while others question the necessity and efficacy of moving away from the already established work of the OECD and the risk of duplication of initiatives. Generating international tax cooperation on an inclusive and effective basis is becoming increasingly important, but achieving this is not easy. An agreed institutional framework that can drive this process will be critical.

The conversation took place against the backdrop of increasingly complex and large scale problems not least the developing/ongoing? climate emergency, social injustice, geopolitical events and a growing practise of protectionism. On the other hand new technology is enabling efficient global collaboration and the spread of new initiatives such as collective intelligence to tackle shared global problems.

The conversation sought to ask: What innovative approaches to regulatory compliance have been adopted in industries outside of taxation, and how might these be applicable? What are some key challenges faced by global regulatory bodies in different sectors, and how can we anticipate and address similar challenges? How can transparency, accountability, and fairness between the global south and north be facilitated? And how have the regulated benefited, adapted and met significant changes and challenges?

The conversation was held under the Chatham House Rule (which means nothing can be attributed to attendees) and was attended by thirteen diverse but experienced participants (see below for a list of attendees). The write-up below summarizes the personal views of participants and does not necessarily reflect the view of any particular organization, including KPMG.

Executive summary:

  • There was some concern that the UN Convention negotiations could split into developed country versus developing country camps with repercussions for future engagement.
  • Historic global agreements such as The Montreal Protocol, The Paris Agreement and The Law of The Seas – among others – provided some guidance for successful international agreements.
  • There was recognition that when we talk about issues with global governance, the problems to be addressed, the objectives and the ultimate goals must be clearly defined and understood by all. However, there was an understanding that tax issues can be complex and multifaceted, lacking a universally accepted definition. Fragmented efforts and inefficiencies in global tax policy arise from unclear common objectives.
  • There was an emphasis on the importance of data sharing and standardization for effective global governance. Reliable, standardized data is crucial for accurately defining problems and developing solutions. International agreements on data standards and transparent data-sharing mechanisms are essential.
  • The conversation highlighted challenges faced by less developed economies in global negotiations. There is a need for funding and capacity-building initiatives to help ensure equitable participation. Financial and technical assistance from international organizations and developed countries will be critical.
  • Recognizing political, cultural, and economic differences in global tax negotiations is essential. Political leadership together with diplomacy are vital for fostering cooperation and bridging cultural, social and economic differences.
  • The conversation highlighted the importance of coalition-based leadership and pioneering countries demonstrating successful models. Promoting cooperative efforts among willing nations and expanding coalitions over time may provide a way forward – perhaps pairing less developed countries with developed ones to balance power dynamics in negotiations.
  • Some participants advocated for a sectoral approach to global taxation for more practical and actionable agreements. Focusing on specific sectors, it was argued, allows for tailored solutions and incremental progress. Involving industry stakeholders in discussions could ensure practical regulations that could serve as building blocks for broader global frameworks.
  • The conversation recognized the importance of peer review and enforcement mechanisms for the success of global tax regimes e.g. clear use of standards and penalties as tools to ensure compliance.

Defining the problem, resisting the urge to draft:

Inherent complexity, articulation and reaching consensus on an approach before putting pen to paper

Participants underscored the necessity of clearly defining the issues surrounding global taxation, emphasizing that a coherent problem and objective definition is crucial to advancing meaningful dialogue and action. Participants discussed the success of the Montreal Protocol which was established to address the growing hole in the ozone layer (a clear problem) and the phasing out of chlorofluorocarbons (CFCs) (a clear solution) in facilitating international agreements.1

In contrast, many tax issues are inherently complex and multifaceted. This complexity arises from the varied interests and tax systems of different countries, the challenge of addressing tax avoidance and evasion, and the difficulties in balancing domestic revenue needs with international cooperation. Participants highlighted that the first step in global tax reform is to reach a consensus on the specific problems that need to be addressed, such as agreeing on where value is created, changing the balance between source and residence taxation, or stopping tax evasion. The lack of clarity in defining these issues often leads to fragmented efforts in global tax policy and a difficulty in agreeing what success looks like, making it crucial to establish a common understanding and framework.

One participant noted the difficulties with the proposed Pandemic Treaty. 2 It was felt there was a lack of trust between the Global North and South, the timetable was unrealistic, and the approach was to rush to producing a draft which then went through multiple rounds of comments and objections. It would have been better to take the time to agree principles and produce alignment in face-to-face negotiation before starting to document a potential treaty.

Data sharing and standardization

The role of intelligence focused institutions and mechanisms for data sharing

A significant portion of the discussion focused on the importance of data sharing and standardization in achieving effective global governance. Participants noted the success of intelligence-focused global institutions like The Intergovernmental Panel on Climate Change (IPCC)3, which relies on shared knowledge and data to inform policy and action.

It was suggested that a similar approach is needed in the realm of global taxation. This would involve creating an institutional framework that supports the collection, sharing, and standardization of tax data across countries. Such a framework would enable a clearer understanding of where tax gaps exist, how tax burdens are distributed, and the extent of tax avoidance and evasion. Participants suggested that having reliable, standardized data is essential for defining problems accurately and developing solutions. They called for international agreements on data standards and mechanisms for transparent data sharing among tax authorities globally. Furthermore, the lack of standardized data makes it difficult to assess the effectiveness of existing tax policies and to identify best practices, underscoring the need for harmonized data protocols.

Levelling the playing field for participation

Funding and capacity building, incentivizing participation and experimentation

The conversation highlighted the challenges faced by less-developed countries in participating in global tax negotiations. Participants stressed the need for funding and capacity-building initiatives to ensure these countries can engage effectively in international discussions. Without such support, these nations often lack the resources to navigate complex tax issues and advocate for their interests.4

It was also noted the while they were clearly richer and poorer nations, there was an emerging middle range of countries between these two extremes which may need and want different approaches to global regulation.

Participants considered the use of capacity-building tools and funds seen in environmental agreements. Notable examples include the Multilateral Fund for the Implementation of the Montreal Protocol, The Paris Agreement’s Green Climate Fund5 and Capacity-building Portal6, which includes provisions for financial, technical, and capacity-building support to developing countries. They suggested that international organizations and developed countries could play a significant role in providing financial and technical assistance in the tax capacity and efficacy of the global south. Ensuring equitable participation is crucial for the legitimacy and fairness of any global tax regime, as it helps to address the concerns and needs of all countries involved, not just the most powerful or wealthy.

One idea mooted was to use global public funds to pay for global problems and issues, such as access rights to the ocean or orbital rights for satellites. Additionally, the inclusion of diverse perspectives can lead to more comprehensive and effective tax policies that consider the unique challenges and needs of different economies. Allowing different countries to experiment was highlighted as key— in the success of the Montreal Protocol for example— allowing space to define the problem together and share learnings, thus encouraging a bottom-up and top-down approach to work together with a gradual negotiation process.7

We cannot ignore the politics

Garnering political will, fostering cooperative spirit and the role of diplomacy

Recognizing the political dimensions of global tax negotiations was deemed essential by participants. They discussed how political, cultural, and economic differences shape countries' positions on tax issues.

For instance, there can be resistance from countries regarding transparency and data sharing, driven by concerns about sovereignty, cultural tensions and the potential misuse of information. Participants emphasized that political will and diplomacy are crucial to bridging these differences and fostering cooperation. They highlighted the role of political representatives and technical experts in navigating these complex dynamics, suggesting that diplomatic efforts should focus on building trust and finding common ground.

Participants also noted that political considerations often influence the feasibility and design of tax policies, and thus, any global tax initiative must account for these factors to be successful. The role of international diplomacy in aligning diverse political interests and fostering a cooperative spirit among nations was seen as pivotal for advancing global tax reforms.

Leadership based on coalition

Pioneering policies, conflictual engagement and scaling policies to a global level

The need for coalition-based leadership was a recurring theme in the discussion. Participants highlighted the importance of pioneering countries demonstrating successful models that others can follow. They cited Germany's implementation of base-shifting rules in the late 2000s, which subsequently spurred broader OECD guidelines, as an example of how leadership by a few countries can drive international standards.

Stopping conflictual engagement and promoting cooperative efforts among willing nations were identified as key strategies. Participants suggested that a ‘coalition of the willing’ could gradually expand by incorporating more countries over time, demonstrating the benefits of cooperation. The concept of pairing less developed countries with developed ones to build diplomatic coalitions was also discussed as an effective approach. This strategy can help to balance power dynamics and ensure that the interests of less developed countries are adequately represented in global tax negotiations. Moreover, such coalitions can serve as incubators for innovative tax policies that can be scaled globally.

Some concern was expressed that the current UN Convention negotiations could split into opposing developed and developing country camps with negative consequences for future engagement and agreement. It was noted that above all business wanted a global tax approach which is as widely accepted as possible as this provides greater certainly and efficiency. Business also wanted a recognition that the design of tax systems is important for incentivising growth and tax is not purely about raising more revenue.

Sectoral approach

Tailored solutions, building broader global frameworks and piloting innovative solutions

A sectoral approach was suggested by participants, drawing on examples like the Law of the Seas8 negotiations which emerged out of some of the most intricate multilateral negotiations in history. Those challenging discussions led to a highly advanced agreement concerning the financial aspects of deep ocean mining and the funding of a new international mining organization.

Participants noted that focusing on specific sectors can yield more practical and actionable agreements. This approach allows for tailored solutions that address the unique challenges and dynamics of different industries, such as digital services, finance, or manufacturing.

The success of these sectoral agreements can be measured and then potentially serve as building blocks for broader global frameworks, facilitating incremental progress that can eventually lead to comprehensive global tax agreements. It is important to involve specialized industry stakeholders in such discussions to help ensure that any regulations are practical and address the real-world challenges faced by businesses.

Enforcement and incentives

Providing incentives, policing, trusted, neutral data, punishing non-compliance and standards shaming

It was noted that governments needed an incentive to join a global process. It was also suggested by some that some kind of peer review and robust enforcement mechanisms (such as penalties and sanctions) are important to the credibility and effectiveness of global agreements, ensuring that all countries play by the same rules and that there are consequences for non-compliance.

The Montreal Protocol, widely regarded as effective, includes a compliance mechanism to monitor and enforce adherence. This mechanism includes reporting requirements, verification processes, and consequences for non-compliance, such as trade restrictions.9 Additionally, participants suggested the potential for an IPCC-equivalent body for taxation, which could provide trusted, neutral data.

Conclusions and next steps

The need to mitigate the cost of climate change, pay for the green transition, address inequality and prepare for future pandemics and more mean that the demand for effective global tax cooperation is only going to grow. Tax policy makers at many levels are going to have to learn from other sectors and moments about how best to design frameworks for appropriate global taxation. This conversation is a useful way into a debate that should be continued.

Contributors to the conversation included:

  1. John Connors, Senior Tax Counsel, Vodafone
  2. Sir Christopher Greenwood, Master of Magdalene, University of Cambridge
  3. Dr İrem Güçeri, Associate Professor of Economics and Public Policy, Blavatnik School of Government
  4. Becky Holloway, Partner, Jericho
  5. Neal Lawson, Partner, Jericho
  6. Chris Morgan, Head of Global Responsible Tax Programme at KPMG International
  7. Geoff Mulgan, Professor of Collective Intelligence, UCL
  8. Doug Parr, Chief Scientist and Policy Director, Greenpeace UK
  9. Carne Ross, Strategist, Writer, Founder, Independent Diplomat
  10. Emma Ross, Senior Research Fellow, Global Health Programme, Chatham House
  11. Tim Sarson, Partner, UK Head of Tax Policy, KPMG in the UK
  12. Grant Wardell-Johnson, Global Tax Policy Leader and Chair of the Global Tax Policy Leadership Group, KPMG International