Global tax rules shape how countries raise money to fund health care, education, infrastructure, and social welfare. Yet for many developing countries, including India, these rules are not delivering fair outcomes. Despite decades of international tax reforms led by the OECD, profit shifting, tax avoidance, and offshore wealth continue to grow. The result is a steady loss of public revenue in countries that can least afford it.
This gap between global promises and real outcomes has revived an important debate: whether global tax governance should move from an OECD-led system to a more inclusive, United Nations–led framework.
How Profits Are Shifted Away From Where Value Is Created
Multinational companies operate across borders, but tax systems remain largely national. This mismatch allows firms to shift profits to low-tax jurisdictions even when real business activity takes place elsewhere. This practice, known as Base Erosion and Profit Shifting (BEPS), directly reduces the tax base of developing countries.
According to OECD, 36% of multinational profits are shifted to tax havens every year. For developing countries, the revenue loss is estimated at about 1.3% of GDP annually, which is higher than the loss faced by developed countries. Because poorer countries depend more on corporate tax revenue and have fewer alternative sources, these losses have a much stronger impact on their ability to provide basic public services.
The Global “Race to the Bottom” in Corporate Taxes
Over time, countries have responded to mobile capital by lowering corporate tax rates to remain competitive. This has led to a global “race to the bottom”, where tax rates fall but investment and revenue do not necessarily rise.
[Figure 1: Trends in Corporate Tax Rates by Region, 1980–2024]
Source: Enache, C. (2025)
The data presented above shows a steady decline in corporate tax rates across regions from 1980 to 2024. India follows this trend closely. Corporate and capital tax rates in India fell sharply after 2019, reflecting competitive pressures rather than domestic revenue needs.
[Figure 2: Corporate and Capital Tax Rate Trends in India, 1965–2021]
While lower tax rates are often justified as growth-friendly, the evidence shows that they mainly benefit large multinational firms. Governments are then forced to rely more on indirect taxes such as GST, which places a heavier burden on ordinary citizens and widens inequality.
Offshore Wealth: The Biggest Blind Spot in Global Tax Rules
Even after global transparency measures such as the Common Reporting Standard (CRS), offshore wealth has continued to grow. According to the Global Tax Evasion Report 2024, global households held around $12 trillion in offshore financial assets in 2020, equivalent to more than 14% of global GDP.
[Figure 3: Global Household Offshore Financial Wealth, 2001–2022]
Despite the automatic exchange of information, nearly 30% of offshore wealth remains unreported. One major weakness of the current system is that it does not adequately cover offshore real estate.
This gap is clearly visible in the case of Dubai.
[Figure 4: Who Owns Real Estate in Dubai (2020)]
Source: The Atlas of the Offshore World. n.d.-b
Indians owned $29.8 billion worth of real estate in Dubai in 2020, making them the largest foreign holders. Much of this property is owned through shell companies or trusts, which makes it difficult for tax authorities to identify the real owners. These assets often escape domestic taxation altogether.
India’s Reality: High Participation, Limited Results
India has actively participated in OECD-led reforms. It joined the BEPS Inclusive Framework in 2016, implemented country-by-country reporting, adopted the Common Reporting Standard, and supported global minimum tax discussions. Yet the results on the ground remain weak.
[Figure 5: Corporate Tax Revenue Lost in India Due to Profit Shifting]
Source: The Atlas of the Offshore World. n.d.-b
The data shows that India lost more than $12 billion in corporate tax revenue in 2021 due to profit shifting, mainly to non-EU tax havens. Overall annual losses from tax evasion and avoidance exceed $31 billion.
At the same time, offshore financial wealth held by Indian households has continued to rise, especially after 2015.
[Figure 6: Offshore Financial Wealth Held by Indian Households]
Source: The Atlas of the Offshore World. n.d.-b
These trends show that participation in global frameworks alone is not enough when enforcement is weak and rule-making power remains unequal.
A Corporate Example: How Profit Shifting Works in Practice
The case of H illustrates how profit shifting operates within legal boundaries. H pays royalties to its parent company located in Europe for the use of brands and technology. Over time, these royalty payments have increased steadily.
[Figure 7: H Turnover vs Royalty Payments Over Time]
Source: Books of Accounts of H
Royalty payments rose faster than turnover, and royalty as a percentage of revenue increased consistently after 2013. Even during periods of modest business growth, payments continued to rise. Such arrangements reduce taxable profits in India while shifting income to low-tax jurisdictions.
This case highlights the limits of both OECD rules and domestic transfer pricing laws when it comes to valuing intangible assets like brands and intellectual property.
Why OECD-Led Tax Governance Falls Short
Although the OECD has played a central role in global tax reform, the system suffers from structural weaknesses. Decision-making power remains concentrated among richer countries, while developing countries often play only a consultative role. Compliance rules are complex and costly, and enforcement relies heavily on voluntary cooperation.
Recent global minimum tax reforms further reveal this imbalance. Estimates show that G7 countries, representing about 10% of the world’s population, are likely to receive around 60% of the additional tax revenue generated by these reforms(McCarthy, 2022). This raises serious questions about fairness and legitimacy.
Why a UN-Led Tax Framework Offers Hope
A United Nations–led global tax framework offers a more inclusive alternative. Unlike the OECD system, the UN operates on a one-country-one-vote principle, giving developing countries an equal voice in rule-making.
A UN Tax Convention could allow multinational companies to be taxed on their global consolidated profits, with taxing rights allocated more fairly based on real economic activity. It could also strengthen transparency, especially in areas like offshore real estate and beneficial ownership.
For India, this shift matters. The country loses revenue equivalent to multiple times its annual public health budget due to tax avoidance and profit shifting. A more inclusive global system could help recover this lost fiscal space.
The Way Forward
Moving global tax governance to the UN will not be easy. Rich countries may resist changes that redistribute taxing rights. Capacity gaps across countries remain large. Enforcement will be challenging.
Yet the current system has clearly failed to protect the interests of developing economies. Global tax rules are no longer just technical instruments; they shape inequality, development, and state capacity.
If global tax cooperation is to be fair and effective, it must be inclusive. A UN-led approach offers the most credible path toward a system that works not just for rich countries, but for countries like India as well.
************
Disclaimer: The views expressed herein are solely those of the author in a personal capacity and do not represent the official views or position
