ILLUSTRATIONS: SIMBA MAENGERA

Africa’s pivotal role in forming the UN Tax Movement signals a new era for development, giving the Global South a hand-up rather than a hand-out, says Graeme Saggers

Tax is about more than financial calculations: it is about sovereignty, justice and the ability to deliver basic services. For many African nations, taxation is the foundation of state-building. Yet the current global tax system, influenced heavily by external pressures and outdated treaties, limits these countries’ ability to effectively tax multinationals, digital services or capital flows.

If emerging economies are to build sustainable tax systems and reduce their reliance on aid or debt, a new, fairer system is imperative to correct the imbalance. Until recently, the global tax order was dominated by wealthier nations, and favoured countries where multinationals have their headquarters (usually in the Global North) rather than where they generate profits (typically in the Global South). As the saying goes, if you don’t have a seat at the table then you are probably on the menu; this encapsulates the frustration felt by many African and other developing nations when it comes to global tax issues.

However in 2023, the United Nations (UN) General Assembly voted decisively to establish a new international tax cooperation framework under UN auspices – an action that was seen by many as a real turning point in global tax governance. This offered emerging economies the chance to completely shift the narrative: rather than being policy takers, African countries could assert themselves as policy shapers, leading a coalition that demands fairness, transparency and representation in global rule-making.

To acknowledge the implications of the vote in 2023, it is important to understand how international tax rules are currently designed.

THE BACKGROUND
It is commonly understood that tax is applied when trade occurs whether it be a tax on income, such as income tax and capital gains tax, or a tax on expenditure such as Value-Added Tax (VAT) or import tariffs. When trade occurs between parties in different countries, questions arise as to which jurisdiction has taxing rights, with the argument typically being between whether the country where the taxpayer is resident has taxing rights or the country where the source of the trade occurs has taxing rights. These issues are resolved through treaties, with the most common type of treaty being a bi-lateral Double Taxation Treaty/Agreement that assigns taxing rights between the two countries.

There is no international tax authority that prescribes rules of how treaties should be constructed. However, there are two intergovernmental organisations, the UN and the Organisation for Economic Co-operation and Development (OECD) that provide model treaties and commentary on how treaties should be interpreted. The guidance from these organisations is instructive and often relied upon in litigation on international tax issues.

Every African country supported the resolution to form the UN Tax Movement – it was an excellent example of pan-African unity

THE OECD VS THE UN
Established in 1961, the OECD is an intergovernmental organisation which aims to promote policies that improve the economic and social well-being of people around the world. Made up of 38 member countries – mostly from North America, Europe and the Asia-Pacific region – it endeavours to take into account views from all countries around the world, but only its member countries have a say in certain governance matters.

The OECD plays a central role in international tax policy. Through the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS), a term referring to tax avoidance strategies used by multinational companies to shift profits to low-tax jurisdictions, it has led global efforts to reform the tax rules for multinational enterprises, particularly to combat tax avoidance and ensure taxes are paid where economic activity occurs. But it is by no means a perfect organisation, not least because none of its members is an African country.

This omission sparked calls – led by African nations, unsurprisingly – for tax reform to move from the OECD to a more inclusive and democratic forum, resulting in the decision to establish a UN Tax Convention in 2023.

Led primarily by Nigeria and South Africa, every African country supported the resolution to form this UN Tax Movement – an excellent example of pan-African unity. Also supporting the movement were most of Latin America, Asia and the Caribbean. The opposition, however, came almost entirely from the OECD bloc – including, but not limited to, the United States, United Kingdom, France, Germany, Canada and Australia. These countries argued that the OECD is already handling tax reform effectively and that a parallel UN process could create duplication or inconsistency. Interestingly, not all OECD members opposed the move. Mexico, Colombia, Chile, Costa Rica and Türkiye broke ranks and voted in favour of the UN resolution.

WHY THIS MATTERS FOR AFRICA AND THE DEVELOPING WORLD
The new UN framework offers equal voting rights for all countries and shifts the focus onto the countries that were losing most under the old global tax order. By pushing for a UN-led process, African countries are now able to claim agency over matters that deeply affect their nations.

Moreover, a coordinated African approach increases negotiating power and allows the continent to present a unified voice in global forums. Institutions such as the African Union, the African Tax Administration Forum and regional bodies have already begun aligning policy positions and offering technical support to tax administrations across the continent.

The UN framework shifts the focus onto the countries that were losing most under the old global tax order

A PATH FORWARD
While the decision to establish a UN-led tax process is historic, much work remains to be done. The road ahead will be politically and technically challenging. The opposition from powerful OECD countries will remain strong, and technical negotiations will be complex. Vested interests will resist reform, and power asymmetries will continue to shape negotiations, especially as many of the wealthy countries get to grips with what it feels like to be in a minority. But with persistence, solidarity and a clear vision, African countries can turn this opportunity into a transformative achievement that provides a hand-up rather than a hand-out to the developing world.

Through this reform, Africa has shown bold leadership. By continuing to work together and building alliances with like-minded countries, developing nations can redefine what global tax cooperation looks like. This is so much more than a technical reform: it is an historical opportunity to ensure that no country is left behind in shaping the rules that govern the global economy.

Graeme Saggers is Head of Tax at multinational audit and advisory firm Nolands, and a lecturer at the University of Cape Town in the Department of Finance and Tax. He is also a member of the executive committee of the South African branch of the International Fiscal Association.
IG: @gdsaggers