The United Nations is moving forward with plans to introduce a global tax plan that could have wider implications for international expats.  Nigeria has called upon the global body to introduce a U.N convention that would pave the way for a new set of global minimum standards for taxation.

Global Tax Plan – Nigeria’s View

The resolution is not without teeth as Nigeria petitioned for a convention on behalf of the African member states. Additionally, Nigeria suggested that the vaunted OECD (Organisation for Economic Co-Operation and Development) was an inappropriate venue for advancing tax policy given it’s preference towards richer nations.

Subsequently, there are significant moves underway to establish minimum levels of taxation and conduct on a fairer basis. The primary argument of the third world is that the current global tax regime is weighted heavily towards wealthy nations who often use offshore tax havens to facilitate trade to their benefit.

How Will This Impact Transfer Pricing?

This argument is actually not without merit as the third world has often been subject to significant transfer pricing arrangements that have damaged their local tax revenues. However, it fails to take into account the competitive nature of world trade and the fact that the major export that many of these nations have is their human capital.

Regardless, the imposition of minimum global tax rates, without exceptions, would wreak havoc across the developed world and upset the current financial system. Major corporations such as Nike and Apple would be strongly impacted by global transfer pricings and BEPS rules which could led to trade shifting away from certain African states.

Therefore, I see it as an unlikely avenue for the U.N to target a tax convention to somehow “socialise” global tax policy. Most of the major member states will have no interest in imposing binding conditions upon their domestic companies thereby giving up sovereignty.

However, major changes could, potentially, be enacted in a different direction. In particular, FATCA, CRS, and a range of other reporting mechanisms have been heavily targeted at individuals who structure their financial affairs. Subsequently, it is quite plausible that any, final, agreed terms of a convention could focus heavily upon individual compliance with minimum tax rates.

Global Tax Plan – Implications for Expats

This could have massive implications for international expats who may choose to reside in low-tax or no-tax jurisdictions on a semi-permanent basis. Using international banks as reporting and collection entities, a minimum global withholding tax could be implemented.

In fact, many territorial tax countries (e.g Thailand) are now looking to move way from their current systems and are looking to introduce the global capture of income. Obviously, if a global agreement was reached you could certainly see many of the desired expat locales disappearing from the map.

However, it’s early days and the U.N has proven to have been a very ineffectual organization over the past few years. Additionally, the major western nations are likely to attempt to water down any final text of a tax convention in an attempt to make it look like Swiss cheese.

Finally, it’s unlikely that any global regime will target the vaunted Asset Protection or Family Trust which has remained the vehicle of choice of the rich and wealth. Any such assault on these entities would bring about significant pushback from the very people that are seeking to introduce these laws.

Final Words

Ultimately, there will continue to be a march towards greater transparency and compliance around the globe. This is why it pays to continue to structure your financial and business affairs in as hands off manner as possible. Correctly structuring your affairs time and effort and comes with significant cost but largely insulates you from the kind of regulatory changes we have seen and continue to see on the horizon.

Recommendation: Don’t panic and continue to monitor developments before making any changes to your affairs.

Steven James