In 2024, the landscape for global commerce will be a regulatory warzone, with multiple international organizations battling for their own economic agendas.
The conflict’s two major players are stationed in Paris — at the Organization for Economic Cooperation and Development (OECD) — and New York — at the United Nations. Their respective plans are poised to make 2024 a transformative year for global tax policy.
Businesses and policymakers must navigate three major policy shifts immediately: The global minimum tax will be levied for the first time, countries may sign a treaty to change where large companies pay taxes and the United Nations will begin to build its own approach to multinational tax policy.
While the OECD has been spearheading negotiations to change how multinationals are taxed for more than a decade, the United Nations has recently entered the tax arena, albeit with an unclear path forward. Last year, 125 countries at the U.N. voted in favor of a Nigerian resolution for a Framework Convention on International Tax Cooperation. The 48 countries who voted against it were largely from developed OECD and European Union countries.
The U.N.’s current attempts to play ball are the reverberations of complex global policy proposals that have been brewing for several years. The global minimum tax, initially designed by the OECD in 2021, brings with it new definitions of taxable income and a tax rate of 15 percent. The policy has now been adopted by Japan, South Korea and dozens of countries across Europe.
The U.S. has had its own version of a minimum tax since 2017, but that law and other parts of U.S. tax policy conflict with the new global rules. While some U.S. lawmakers would prefer to ignore the global minimum tax, it will impact U.S. businesses even if Congress fails to act.
The OECD has also orchestrated changes to how large companies are taxed, with major potential ramifications. The current proposal, which would apply a special set of rules to approximately 100 of the world’s largest companies, requires a tax treaty to be enforced. It’s an open question whether the U.S. would sign on, as negotiators have expressed several red lines, including the need for other rules. With the deal positioned to fall apart without U.S. support, it doesn’t help the OECD that Brazil, Colombia and India also disagree with some portions of the draft treaty.
Many are rightly worried the U.N. efforts will duplicate the work that has already been done at the OECD, though the two organizations have markedly different approaches. By design, the OECD must seek consensus among countries, an arduous and exacting process that requires patience and significant compromise before an agreement can be reached.
But at the U.N., each country has a vote and the majority takes the day. However, the U.N.’s authority is non-binding, so even if 100 countries vote to change global tax rules, those voting against the rules could disregard them.
While the OECD’s current priorities include completing all negotiations and having a treaty signing ceremony this year, the U.N.’s tax policy agenda will also progress this year.
Naturally, this has left many independent groups shifting their approaches to adequately prepare for a new globalized tax regime. Groups like Deloitte are reporting that 43 percent of senior tax and financial leaders say complying with these new tax laws will be their top challenge for this year and research organizations like ours, the Tax Foundation, are expanding to Brussels in 2024.
Even in a globalized world, countries need flexibility to address domestic needs. That requires local sovereignty over tax rules. Striking the right balance between national sovereignty and multilateral collaboration is difficult, and it seems the deck is stacked toward tax rules becoming more globalized in 2024.
Daniel Bunn is president and CEO of the Tax Foundation, a nonpartisan tax research organization in Washington, D.C.
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