The battle to redraw the global tax map
UN negotiations challenge corporate ‘profit-shifting’
Governments take aim at corporate tax strategies
Microsoft’s US workforce might seem a productive bunch — but try comparing them with their colleagues in Ireland.
The 6,654 staff at Microsoft’s Irish business accounted for a pre-tax profit of $47bn in the year to June 2025. That’s more than $7mn per employee, 13 times the figure for the company’s US operations.
With all due respect to the hard work and professionalism of Ireland’s tech workers, there’s rather more than that behind these numbers, which came to light this summer courtesy of new EU disclosure rules.
They highlight a huge and longstanding trend of multinational companies strategically concentrating profits in low-tax jurisdictions such as Ireland, Luxembourg (where Microsoft recorded even higher pre-tax profits of $8.3mn per employee) and various small offshore havens.
Microsoft says that “taken together, our tax payments, capital investments, and partner ecosystem reflect a long-term commitment to the countries where we operate”.
But it and other multinationals have been facing scrutiny over corporate “profit-shifting”, which has boosted their earnings while reducing government revenues and encouraging an international race to the bottom on corporate tax rates.
Now that practice is under threat from a drive for a UN convention on tax co-operation, which would create a new global governance regime for corporate taxation. This month, delegates from more than 100 countries met in New York for the latest round of talks aimed at setting up the body.
“It’s historic,” says Peter Hongler, professor of tax law at the University of St Gallen. “It’s the first time we really see a chance that the whole world will sit at an institutionalised table to discuss tax matters.”
The back story
The prevailing principles for the taxation of multinational companies were laid out a century ago by the League of Nations, the shortlived predecessor of the UN. A global company’s various national entities are, in effect, treated as though they are separate businesses, trading goods and services with each other.
The inevitable temptation for big companies is to structure their internal trade so that profits accrue disproportionately to units in countries with low taxes — something many have been doing on a huge scale. One popular way of doing this is to house intellectual property rights in your entity in a low-tax country, which then charges hefty licensing fees to entities in high-tax countries.
A draft text of the proposed UN convention, published last month, would challenge this status quo. It states that a fair allocation of taxing rights should reflect the “real economic contribution of each relevant jurisdiction, including jurisdictions where value is created, markets are located, revenues are generated and users or data are located”.
The convention proposal has been spearheaded by a group of African governments after they and other developing countries lost patience with tax reform efforts organised by the OECD, a club of 38 mostly wealthy nations.
The OECD managed to hammer out a provisional agreement in 2021 on two so-called “pillars”. The first would allow more tax to be collected by countries where the biggest multinationals make their sales, rather than those where they’re based. The second would impose a minimum effective tax rate of 15 per cent for a larger group of multinationals.
Developing nations felt that the rules didn’t go far enough, and that they didn’t have fair influence on how they were drafted. The OECD member states’ attitude to developing nations was perceived as akin to “eat your carrots, because they’re good for you”, says Irma Mosquera Valderrama, professor of tax governance at the University of Leiden.
What’s at stake
The new UN initiative faces resistance from Donald Trump’s US administration. It pulled out of the talks last year, saying the proposed convention would “unacceptably hamper” governments’ freedom to design their own tax policy, and invited other nations “to join us in opposition”. But no other country has done so.
While European nations have often seemed unenthusiastic about the UN tax talks, their continued participation reflects an effort to preserve diplomatic ties with developing nations in an increasingly volatile geopolitical environment, says Pascal Saint-Amans, former tax policy director at the OECD.
Another factor is Trump’s repudiation of the OECD tax agreement, undermining hopes that it could be fully implemented (Saint-Amans describes the Pillar One element as “dead”) and boosting the case for an alternative approach at the UN.
Still another consideration is the growing tension between the EU and the US over the taxation of profits earned in Europe by US tech companies. European “digital services taxes” targeting these businesses have drawn threats of retaliatory tariffs from Washington.
Concerns about a US backlash may be a factor behind other wealthy nations’ reluctance to support some of the more ambitious reform proposals at this month’s talks in New York, suggests Everlyn Muendo, senior policy officer at advocacy group Tax Justice Network Africa.
The outlook
Yet they’d stand to benefit from those changes, according to a study published this month by union federation Public Services International and the Tax Justice Network. It found that if companies’ tax payments reflected where their economic activity happened, global corporation tax revenues could increase by more than $500bn a year. Such a change would boost the take for low-income countries several times over, it found — but the biggest gains in absolute terms would go to wealthy nations, including the US.
The losers would, of course, include tax havens and some multinational companies that have been enthusiastically taking advantage of the status quo. Big business could nonetheless get behind the UN process if it’s seen as offering greater certainty and stability, says Luisa Scarcella, who leads tax and trade policy for the International Chamber of Commerce.
“When you have international tax co-operation that works, that is vital for fostering trade, investment, having clear predictable rules that companies can rely on,” she says — though she adds that the reforms would need to be carefully designed to avoid unfair double taxation of profits, which she argues could end up harming developing nations by reducing international trade and investment.
With Trump’s opposition unlikely to abate, this process provides a test of other nations’ willingness to defy him, and of the UN’s value as a forum for global collaboration at a time when its relevance has been called into question. “In a new setting, you will be able to find coalitions of the willing” to drive serious changes in global tax governance, Hongler says. If so, then the lucrative practice of corporate profit shifting could get more challenging.