Global Tax Reforms Target AI Profits to Fund Human Rights

Governments worldwide are pursuing a landmark United Nations treaty designed to reform the international tax system by enabling more effective taxation of multinational technology companies benefiting from artificial intelligence (AI). This collective effort aims to increase government revenues critical for funding human rights-related public services at a time when AI-driven economic disruption threatens jobs and tax bases globally.

What Happened

Beginning in the early 2020s, dozens of countries have been negotiating an unprecedented UN treaty expected to be adopted in 2027, focusing on cross-border taxation reforms that address the challenges of taxing digital and AI-related profits. The treaty seeks to amend century-old bilateral tax treaty rules that currently require companies to have a physical presence in a country to be taxed on their profits there, a condition that allows tech giants operating remotely in markets like Bangladesh or Kenya to avoid local tax liabilities.

In parallel, individual countries such as Kenya have implemented unilateral digital taxes targeted at foreign tech companies, like a 3 percent levy on gross digital revenues introduced in 2024. However, these measures have generated limited revenue and face pressure, notably from the United States, discouraging standalone national efforts.

Key Facts

• The UN treaty negotiations involve dozens of governments excluding the United States, which has walked out.
• The treaty aims to redefine taxable presence to include where digital market engagement and payments occur, expanding tax rights beyond physical establishments.
• Kenya imposed a 1.5 percent digital service tax in 2021 and increased it to 3 percent in 2024 on foreign digital service providers, generating about $12 million in fiscal revenue, which remains modest compared to the sector’s potential.
• Tech companies like Meta reportedly earn up to half of their $11 trillion revenues overseas but pay only 30 percent of their estimated taxes in foreign countries.
• The digital economy now comprises 15 percent of global GDP and is growing rapidly, intensifying the urgency of tax reform.
• International Monetary Fund data shows 71 countries have tax-to-GDP ratios below the 15 percent threshold needed to adequately fund essential services.

What This Means

The proposed UN treaty represents a critical shift in how multinational tech and AI companies are taxed, with significant implications for global economic justice and human rights financing. By allowing governments to tax companies based on where users and markets are located, rather than solely where a physical office exists, the treaty could unlock substantial new revenues for public health, education, and social security programs—services that underpin human rights worldwide.

This development is particularly vital for Global South countries, where poverty rates are rising, and public spending on critical services has stagnated or declined amid increasing digital economic activity. Without such reforms, these governments face the dual pressure of lost tax revenues from AI-driven automation and tech profit shifting, forcing heavier reliance on regressive taxes that disproportionately affect ordinary citizens.

Moreover, global tax reform could help reduce the incentives and opportunities for profit shifting to tax havens, promoting fairer contribution by powerful multinational companies to the countries where economic value is generated.

Background

The international tax framework underlying the treaty negotiations is rooted in rules established in the 1920s and updated by the Organization for Economic Cooperation and Development (OECD). These rules require a “permanent establishment” for taxation, a concept ill-suited for the intangible and location-independent nature of digital goods and services.

Recent unilateral attempts by countries to tax digital services have yielded limited revenue and caused diplomatic tensions, highlighting the need for a multilateral solution. Furthermore, prominent AI companies like OpenAI and Anthropic have publicly supported higher taxation on AI-derived profits, aligning with broader calls to address the socio-economic challenges of AI.

The Bigger Picture

This treaty negotiation sits within a broader global conversation about how AI and digital transformation affect labor markets, economic inequality, and public resource needs. The failure of current tax systems to capture value from AI-driven profits at scale risks exacerbating existing disparities. International cooperation on taxation could set a precedent for more equitable economic policies responding to technological change and protect citizen rights amid rapid digitalization.

What Remains Unclear

The ultimate structure and scope of the UN treaty remain under negotiation, with the notable absence of the United States potentially complicating broad implementation. It is also uncertain how treaty provisions will align with existing OECD-led efforts and how enforcement and dispute resolution mechanisms will operate.

What Comes Next

Negotiators aim to finalize the treaty for adoption in 2027. Meanwhile, affected governments may continue to implement or adjust national digital service taxes and related policies as interim measures. The treaty’s eventual success depends on widespread ratification and alignment with domestic tax reforms.

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