Onome Amuge
For more than a century, the global tax system has rested on a deceptively simple principle, which has seen corporations pay tax where they declare profits. Known informally as the “pay-where-you-say” approach, this framework has long underpinned international tax treaties and cross-border commerce. But last month in Nairobi, the capital city of Kenya, representatives from over 130 countries took a decisive step toward rewriting that rulebook, as negotiations advanced on what could become the world’s first United Nations tax convention.
The Nairobi discussions come on the heels of a 2024 commitment by UN member states to establish a more equitable allocation of taxing rights. At the centre of the debate is Article 4 of the proposed convention, which would flip the global tax paradigm to a “pay-where-you-play” model, which involves taxing multinational corporations (MNCs) where they actually employ people and conduct business, rather than where they book profits. For countries in the global south, this shift promises a long-awaited opportunity to reclaim revenue lost to corporate tax avoidance and profit-shifting.
Alex Cobham, chief executive of the Tax Justice Network, described the current system as fundamentally rigged in favour of multinationals and tax havens. “Modern corporations exploit the pay-where-you-say approach by moving profits into tax havens before declaring them. As a result, governments lose $348 billion in tax every year. Article 4 would make tax havens obsolete overnight and improve the lives of people everywhere,” he said.
The Nairobi talks revealed a growing consensus among lower- and middle-income countries, which together argued for Article 4’s principle that meaningful economic activity should determine taxing rights. However, attempts to dilute the proposal by a handful of high-income countries and traditional tax havens met firm resistance. Delegates were clear that any watering down would undermine decades of progress on global tax fairness.
Delegates stressed that enforceability depends on robust transparency measures, such as automatic exchange of information, public country-by-country reporting, and beneficial ownership registers. Liz Nelson, director of advocacy and research at the Tax Justice Network, warned that fragmented reforms will not deliver real accountability.
Without such measures, countries risk being unable to verify whether multinationals pay their fair share, leaving loopholes open for the very abuses the convention seeks to close. In practice, this could include linking reporting to global registries, reciprocal data-sharing agreements, and capacity-building initiatives aimed at strengthening national tax authorities.
Beyond corporate taxation, the Nairobi discussions tackled illicit financial flows and the taxation of high-net-worth individuals. Countries from the global south pushed to ensure that the convention’s definition of illicit flows includes aggressive tax avoidance strategies such as transfer pricing manipulation, treaty shopping, and the use of intellectual property. India underscored that the UN already has a formal statistical framework for these flows, which encompasses tax-related avoidance.
Delegates also highlighted the limitations of domestic tax policy in addressing wealth held offshore. Effective taxation of the ultra-wealthy, it was argued, requires international cooperation and unconditional access to financial information. The sessions made clear that progressive taxation is not merely a domestic concern but a global imperative to reduce inequality and support sustainable development.
Negotiations connected fair taxation to development priorities, including gender equality, climate adaptation, social protection, and debt relief. Article 9, which addresses sustainable development, emphasised the link between predictable public revenue and the capacity of states to meet citizens’ rights and climate commitments. Delegates repeatedly noted that without reforming the allocation of taxing rights, countries could struggle to finance essential public services without resorting to borrowing or austerity.
Discussions on harmful tax practices, outlined in Article 8, highlighted long-standing concerns over preferential regimes and secrecy jurisdictions. Nigeria’s intervention stood out, quoting Bob Marley to underline the inadequacy of existing OECD-led mechanisms. “If the existing forum had been adequate, accommodating, inclusive, and acceptable to all, we would not be here today,” it stated. For many, this underscores the importance of multilateral, inclusive standards rather than relying on existing frameworks that often prioritize wealthy countries.
On dispute resolution, the negotiations balanced sovereignty with practicality. While advance pricing agreements and joint audits were welcomed as preventive tools, mandatory arbitration sparked contention. Countries such as Nigeria, India, and Zambia opposed both mandatory and optional arbitration due to cost, bias, and sovereignty concerns. Meanwhile, the Mutual Agreement Procedure gained broad support as a flexible, long-term solution.
A recurring theme was that capacity building cannot be an afterthought. Nations agreed that long-term support for tax authorities, including digital transformation, treaty negotiation skills, and access to beneficial ownership information, is critical for the convention’s success. The Nairobi talks therefore set a precedent that international tax reform must come with sustainable, demand-driven support to ensure fairness is enforceable in practice.
