Countries around the world could boost their annual corporate tax revenues by roughly US$500 billion without raising tax rates simply by changing *where* multinational corporations are required to pay tax. That is the central finding of new research conducted by global union federation Public Services International (PSI) together with the Tax Justice Network, which examines the potential impact of the emerging UN tax convention and its proposed “pay-where-you-play” approach.
Instead of focusing on nominal tax rate hikes, the UN-led reform effort aims to overhaul the rules that determine which country can tax which share of a multinational’s profits. Under the proposed framework, profits would be allocated more closely to the countries where real economic activity takes place – where companies hire staff, make sales, and use public infrastructure – rather than where they book profits on paper for tax purposes.
Today’s international tax system, built largely in the mid-20th century, allows multinationals to shift large portions of their profits to low-tax or no-tax jurisdictions, even when those profits are generated elsewhere. This profit shifting erodes tax bases in both developed and developing countries, forcing governments to rely more on indirect taxes, cut public services, or take on more debt. The PSI and Tax Justice Network analysis suggests that simply aligning profit allocation with genuine business activity could recover hundreds of billions of dollars now disappearing through aggressive tax planning.
The “pay-where-you-play” principle embedded in the UN tax convention negotiations proposes a clear shift from this outdated model. Instead of treating different subsidiaries of a multinational as if they were independent entities trading with each other at arm’s length, the new approach increasingly views the group as a single global firm. Its worldwide profits would then be apportioned between countries according to real economic indicators such as sales, employment, and physical assets.
For governments, the attraction is obvious: more revenue with no increase in headline tax rates and without placing additional burdens on small and domestic businesses that already pay close to the full statutory rate. The extra US$500 billion a year estimated by the study could transform public finances, particularly in lower-income and emerging economies that currently lose a disproportionate share of revenue to profit shifting and tax competition.
The implications for public services are far-reaching. Additional corporate tax income can support universal healthcare, public education, modern infrastructure, and climate resilience measures. In many countries, fiscal space is so constrained that even modest revenue increases can determine whether governments can maintain basic services. The report argues that fairer taxing of multinationals is one of the few realistic options for substantial, sustainable gains in government revenue on a global scale.
The estimated US$500 billion is also politically significant. It demonstrates that reform is not primarily a question of taxing “more”, but of taxing “better” – by ensuring that profits are taxed in the places where value is truly created. This framing may make the proposals more palatable to governments that are wary of being portrayed as anti-business or tax-hungry, while still addressing widespread public frustration over corporate tax avoidance.
Another key aspect of the UN-led process is inclusivity. Previous international tax reforms have largely been driven by a narrower group of high-income countries, often leaving low- and middle-income nations sidelined in technical negotiations. By anchoring reforms in a UN convention, all countries formally have a seat at the table and a voice in setting the rules that govern how multinationals operating within their borders are taxed. PSI and the Tax Justice Network highlight this as an opportunity to correct long-standing imbalances in the global tax architecture.
The “pay-where-you-play” model also has the potential to reduce harmful tax competition between states. When profit can easily be shifted to the lowest-tax jurisdiction, governments are incentivised to slash rates and offer special deals in order to attract paper profits, not necessarily real investment. If profits are instead tied more tightly to real activity, the benefits of extreme tax cuts become less attractive, and countries can compete on infrastructure, education, stability, and innovation rather than on how little tax they charge.
For multinational corporations, such reforms would mean a more predictable and transparent environment in the long run, even if it implies higher tax bills in the short term for some sectors. A clearer, activity-based allocation of profits could reduce the complexity and uncertainty associated with current transfer pricing rules, endless disputes with tax authorities, and reputational damage from being perceived as not contributing fairly to the societies in which they operate.
The research further suggests that the distribution of the additional US$500 billion would not be uniform. Many lower-income countries, which currently collect relatively little tax from highly profitable global firms despite being important markets and production hubs, could see some of the largest proportional gains. Meanwhile, high-income states that currently host profit-shifting hubs might see reduced inflows, although even they stand to benefit from a more stable and less distortionary international system.
Critically, the proposal does not hinge on experimental or untested mechanisms. Variants of unitary taxation and formula-based profit allocation have already been successfully implemented within certain economic blocs and federal systems. The UN convention would extend these principles to the global stage, adapting them to the realities of cross-border digital commerce, global supply chains, and the rising importance of intangible assets like intellectual property.
To realise the projected US$500 billion gain, however, countries will need to translate the UN convention’s commitments into concrete domestic legislation and administrative capacity. This includes updating tax codes, enhancing information exchange between jurisdictions, investing in tax administration, and closing loopholes that allow artificial profit shifting. The PSI and Tax Justice Network study underscores that the potential benefits are contingent on coordinated implementation rather than on symbolic declarations alone.
The debate now facing policymakers is not whether multinational corporations should pay tax – that is widely accepted – but how to ensure that what they pay aligns with their real footprint in each economy. The “pay-where-you-play” approach offers a path to reconcile public expectations of fairness with the need for a coherent, workable international tax system. If governments follow through on the UN tax convention’s promise, the rebalancing of taxing rights could mark one of the most consequential shifts in global economic governance in decades, unlocking around half a trillion dollars a year in revenue that is currently out of reach.