The case for a pay-where-you-play tax system

The global tax system has long prioritized corporate interests over people and the planet, enabling multinational companies to funnel profits into tax havens. A proposed UN Tax Convention seeks to overturn century-old rules that permit this practice. Delegates from across the globe will convene in New York to negotiate this landmark agreement, which aims to enhance global tax cooperation.

The "pay where you say" system, currently in place, taxes corporations based on where they report their profits, not where they generate them. This outdated approach incentivizes companies to shift taxable income to tax havens, thereby avoiding taxation. Public Services International (PSI) and the Tax Justice Network have emphasized the critical need to overhaul this system. Their research reveals that implementing a "pay where you play" approach could generate an additional $500 billion in corporate taxes annually.

The current system is a relic of outdated rules, designed to reward companies for moving profits into tax havens before reporting them. Despite a previous G20 effort to align profit reporting with actual operations, profit-shifting has only become more prevalent. The PSI-Tax Justice Network report contends that taxing profits where they are earned would boost multinational corporations' tax contributions by 24 percent, without necessitating any country to raise its corporate tax rate.

Negotiations in New York present the most significant opportunity in decades to replace the antiquated "pay where you say" model with a "pay where you play" framework. This reform would not only make tax havens obsolete but also restore governments' ability to tax economic activity within their own borders. While the largest revenue gains would accrue to wealthier nations, the impact would be particularly felt in poorer countries, providing them with several times the current revenue from multinational corporations.