UN takes another aim at offshore centres, corporations

The United Nations (UN) is edging closer to a major overhaul of the global tax system — one that could dramatically change how international financial centres like the BVI operate.

Countries meeting in Nairobi, Kenya, recently continued talks on what would become the world’s first UN tax convention. The goal: stop multinational corporations from shifting profits into low-tax jurisdictions and avoiding billions in taxes that should support public services.

For 100 years, tax rules have allowed companies to pay tax where they declare profits — not where their real economic activity takes place. Critics call this the “pay-where-you-say” system and say it enables profit shifting on a massive scale.

Alex Cobham, head of the Tax Justice Network, said the outcome is clear: “Multinationals underpay US$348 billion in tax every year. We need to flip the system so they pay where they play — where workers are employed and products are sold.”

Global south leading the charge

During the Nairobi session, a majority of countries — especially from Africa, Asia and Latin America — threw their support behind Article 4 of the draft treaty. That clause would give every country the right to tax the portion of a company’s profits that comes from its local economic activity.

If implemented, companies would have to pay more tax in the places where they make real money — and far less in traditional corporate tax havens.

Several high-income nations resisted the change, attempting to water down the text. But they were strongly challenged, with developing countries noting that the current system leaves them without the revenue needed for climate resilience, healthcare, education and debt relief.

What it could mean for the BVI

The BVI — long a major hub for global company registrations — could see growing pressure for transparency about who owns assets and where profits are earned. Any shift toward “pay-where-you-play” taxation would challenge models that rely on companies booking profits in jurisdictions where they have little real activity.

Negotiators will meet again next year to finalise a consolidated treaty text. If approved, the new rules could mark the biggest tax transformation in a century, and the beginning of the end of widespread tax avoidance.