Towards sustainable taxation: the ONU’s guidelines

In the document “Financing for sustainable report 2023” the UN has analyzed, apparently with negative results, the situation in which the world economy finds itself. The goal on the basis of which the international organization proposes correctives to the current contraction in the performance of economies and international trade is that of sustainable development.

Among the macro-areas under analysis in the document under review is the fiscal sector.

According to the UN, the financial and economic crises, public debt, as well as the little space given to fiscal policies would have worsened the financial conditions of the generality of countries; therefore, public resources (i.e., taxes paid by taxpayers) would remain the only available tool to be able to support an available development.

The International Institution recalls that an efficient tax system is the basis of the so-called “social contract”, in which taxpayers pay taxes and, correspondingly, governments provide valuable public services and goods. Therefore, an efficient tax policy would result in greater investment in public services, thereby stimulating taxpayer compliance. In order to achieve this result, the UN provides a number of pointers.

The Challenges for the Financial Administration

Financial administrations have a primary role in the UN agenda: they are first and foremost called upon to build a relationship of trust with taxpayers, including through publicity campaigns. They are also deputed to simplify tax compliance, so as to stimulate timely tax returns and tax payments: this would be a true “compliance by design” operation (in this it would already be facilitated by the introduction of electronic payment instruments).

Tax expenditures

Tax expenditures (tax credits, deductions, deductions etc.) would play a key role in the development of a sustainable taxation and economy: in fact they could have a strong impact on equity, efficiency and inequality, according to the UN. Not surprisingly, in developing countries, the use of corporate income tax exemptions is common, while the use of both reduced rates and tax breaks are rarer, and the use of tax credits would be rare.

It would also be necessary to use more transparency: in fact, only by analyzing the impact of tax breaks on revenue can the actual usefulness of an incentive be discussed.

International cooperation

On the subject, the international organization records an increasing trend through the exchange of information, the level of which would have returned to those of the “pre-Covid” stage, enabling the recovery of resources. According to data held by the UN, by the end of 2022 more than 100 jurisdictions would be making use of automatic exchange of information on the financial accounts of foreign taxpayers. However, it would appear that some countries are at an embryonic stage in implementing information exchange, while developing countries would not yet make use of the tool.

It has also been estimated that exchanges of information between financial administrations on country-by-country reporting (which in Italy was introduced by Art. 1 paragraphs 145 - 146 of L. no. 208/2015), have been more than 3300 and that although some of the “least developing countries” have signed the convention on country-by-country reporting, no country-by-country reporting would be received from them.

The so-called “digitalization of the economy” and the “Pillars 1 and 2”

The future of international taxation lies in the taxation of the digitized economy.  In this regard, the paper points out that the UN Tax Committee is developing a “fast track instrument” (FTI) that allows for faster inclusion in the Model Double Taxation Convention of provisions concerning the taxation of digital automated services (notably Article 12 B).

Last but not least, the paper recalls that the transposition of the multilateral convention of the OECD/G20 Inclusive Framework dedicated to the so-called “Pillar one” is awaited, which would allow the reallocation of taxing power over multinationals' profits to the jurisdictions where the same are produced, allowing the taxation of those derived from digital services.

Conversely, the so-called “Pillar two” introduces the global minimum tax and is expected to have a greater impact in terms of revenue, disincentivizing phenomena of erosion of the tax base, as in the case of interest and royalties, through the preservation in countries of taxation powers at source.