Fifth UN Tax Convention Session: Draft Texts Emerge as $500 Billion Revenue Potential Drives North-South Divide

The Core Divide: Gross vs. Net Taxation at Source

The most contentious debate centered on Article 5, which addresses the fair allocation of taxing rights. A major north-south split emerged .

• Developed countries push back: The UK, France, Germany, and Italy expressed concerns about gross-basis taxation. Italy favored net taxation, while Japan warned that a uniform gross rate could ignore differences in profitability across sectors .
• Developing countries demand rebalancing: The African Group argued forcefully that Article 5 must rebalance taxing rights toward source (market) jurisdictions where economic activity actually occurs . Source countries — often in the Global South — have long argued that the current system systematically shortchanges them.
• India's nuanced position: India supported a net-taxation option while pushing for stronger source-country taxing rights overall, aligning with other developing nations . Indian tax specialists view the convention as a significant opportunity to enhance India's taxing authority over multinational corporations and curb profit shifting .

Mandatory Arbitration: A Flashpoint on the Final Day

On Day 9, delegates debated the tax dispute protocol, including how disputes should be handled where no tax treaty applies and which mechanisms should be mandatory . The question of mandatory arbitration is a perennial sticking point: developed countries tend to favor binding arbitration for certainty, while developing nations often see it as a constraint on their sovereign taxing authority.

AI and Digital Services: The New Frontier

Negotiators also debated whether artificial intelligence should be covered under Protocol 1 on cross-border services . They discussed the nexus threshold for service fees in the digital economy, with some nations expressing concern that overlapping claims to source-taxation rights could arise under the proposed nexus rules .

The $500 Billion Prize: Unitary Taxation

A joint study by the Tax Justice Network and Public Services International, released to coincide with the negotiations, found that taxing multinationals based on where real economic activity occurs — known as unitary taxation — could raise between $300 billion and over $500 billion in additional corporate tax revenue annually, without raising tax rates . The $500 billion figure was widely reported as the headline potential gain .

The report's core argument: replace the century-old "pay where you say" system, which lets multinationals declare profits where they choose (often in low-tax jurisdictions), with a "pay where you play" model that taxes them where they genuinely operate . For context, $500 billion is nearly 40% of the $1.3 trillion in annual climate finance that governments agreed to mobilize by 2035 .

What Remains Unresolved

Several critical issues remain heading into the next session:

• Gross vs. net taxation framework under Article 5
• Maximum gross tax rates for cross-border services
• Scope of Protocol 1, including whether AI-based services are covered
• Mandatory arbitration mechanisms under the dispute protocol
• Interaction of the new convention and protocols with existing bilateral tax treaties

These issues will define whether the convention ultimately delivers on its promise of a fairer, more effective global tax system.

What's Next: Nairobi in November 2026

The sixth negotiating session is scheduled to be held in Nairobi, Kenya, from November 30 to December 11, 2026 . The INC is expected to convene three times annually until 2027, when the final text of the convention and both protocols are due for submission to the UN General Assembly . The next session will be a critical test of whether the momentum from New York can translate into concrete compromises on the most divisive issues.

The process, initiated by the African Group in 2023, represents the most ambitious attempt in a century to rewrite the rules of international taxation . The outcome will determine whether the world's governments can capture hundreds of billions of dollars in revenue currently lost to profit shifting — and whether that revenue flows to the countries where real economic activity takes place.