Weak UN tax treaty implementation rules threaten Malaysia’s revenue sovereignty

Charles Santiago

NEW YORK – Weak implementation provisions in the draft UN Framework Convention on International Tax Cooperation risk preserving the global status quo and undermining Malaysia’s efforts to plug revenue leakages from multinational corporations, former Malaysian MP and civil society leader Charles Santiago warned during intergovernmental negotiations at the UN headquarters in New York.

On Friday, speaking on behalf of the Asian Peoples’ Movement on Debt and Development (APMDD) and Monitoring Sustainability of Globalisation (MSN), Santiago delivered an intervention targeting Article 21, the critical implementation clause of the draft treaty currently being negotiated by UN member states during its fifth session (3-13 August).

Santiago warned that without strong, legally binding obligations for countries to align existing double tax agreements and domestic laws, the proposed UN tax convention will fail to protect developing nations like Malaysia from corporate tax dodging, harmful tax incentives and unfair profit shifting.

Malaysia currently maintains a broad network of bilateral double taxation agreements and tax incentive schemes aimed at attracting foreign direct investment.

However, legacy treaty obligations and global tax loopholes often leave Malaysia unable to fairly tax the real economic activity taking place within its borders, such as the rapid expansion of multinational Big Tech data centres and digital service providers.

“Malaysia cannot afford an international tax treaty that functions merely as an aspirational statement while existing, unequal tax treaties remain in force indefinitely,” Santiago said.

“If Article 21 allows countries to stall implementation or preserve legacy tax arrangements, developing economies like Malaysia will continue to lose vital tax revenues needed for public infrastructure, healthcare, education and climate adaptation.”

During his intervention at the UN negotiations, Santiago laid out three fundamental flaws in the current draft of Article 21, which requires signatories merely to take “progressive and meaningful steps” to align existing tax agreements and negotiate in good faith.

“Article 21 is an implementation provision of this convention, which determines whether the convention transforms the existing international tax architecture or merely patches gaps,” Santiago stated in his address to committee co-leads and state delegates:

“First, the obligation that parties have to implement the convention, including by abolishing or renegotiating treaties that conflict with the convention, must be strengthened. Without this, Article 21 risks preserving status-quo.

“Second, there is no deadline for treaty alignment. The obligation is simply to take steps towards alignment and to conduct an assessment, leaving implementation open-ended and allowing delay to become a substitute for reform.

“Third, Article 21 lacks an effective compliance mechanism where states refuse to negotiate or prolong the process indefinitely. We therefore need a mechanism that ensures implementation, accountability and compliance.”

Highlighting the risk of diplomatic inertia, Santiago challenged the assembly to confront the realistic scenario of state inaction: “To stress this point: Do we prolong negotiations for another 15 years when parties stonewall the process in the first three years? Co-lead and friends, when do we say enough is enough? I leave this scenario as a question to this assembly.”

Santiago urged negotiating governments to ensure that Article 21 mandates direct domestic legal alignment, closing the gap between international commitments and domestic enforcement: 

“Article 21 must require parties to align their domestic legislation with the convention, so that the convention’s obligations are fully reflected in the legal frameworks governing multinational enterprises.

“The terms of reference call for a fully inclusive, equitable and effective international tax system. That objective cannot be realised if Article 21 merely encourages future negotiations while allowing inconsistent treaty obligations to remain indefinitely.

“Co-lead and friends, this convention is a historic opportunity to rebalance global tax governance in favour of fairness and justice. Article 21 must be strengthened so that it delivers implementation, not aspiration.”

Charles Santiago is a prominent Malaysian politician, economist and human rights advocate who served three terms as the MP for Klang and has twice chaired the National Water Services Commission.

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