A Decade of the Indian Advance Pricing Agreement Programme: Achievements and Challenges
By Priyanka Mashelkar and Apoorv Tiwari
India’s Advance Pricing Agreement (APA) programme was introduced in 2012 with the objective of reducing transfer pricing disputes and providing certainty to taxpayers on their international transactions. In the last decade or so, the programme has proven to be a successful dispute mitigation and resolution mechanism. The authors use data and statistics from a recently released report by the Central Board of Direct Taxes (CBDT) in India to highlight the success of the programme, while also acknowledging the challenges ahead, especially as taxpayers’ expectations from the programme continue to rise.
Status of Permanent Establishments under GloBE Rules
By Kuldeep Sharma
The objective of this Research Paper is to comprehensively identify and analyse all Permanent Establishment (PE) related provisions under the global minimum tax of the Organisation for Economic Co-operation and Development (OECD), which is implemented through the Global Anti Base Erosion (GloBE) Model Rules. The analysis has led to the conclusion that PEs hold a significant position and facilitate application of GloBE Rules.
The GloBE Rules have introduced certain new facets involving application of PE provisions when there is no tax treaty; no Corporate Income Tax (CIT) in the source state, and have brought in the concept of stateless PEs. These newly-introduced facets have widened the scope of PEs to enable application of the GloBE Rules in specific situations which would otherwise have remained outside the ambit of taxation.
The paper concludes with an observation that the OECD’s Inclusive Framework is drafting the provisions of Amount A in a manner that results in consistency with GloBE Rules. Likewise, acceptance of “deemed PE” for GloBE rules should be extended to Amount A as well. By doing so, a tax nexus would be provided in source jurisdictions, which will allow profits attributable to Multinational Enterprises (MNEs) in a digitalized economy (without physical presence) getting taxed under domestic rules of these source (market) jurisdictions. This would have been a much simpler solution and would have eliminated the complexity of Amount A rules to a large extent, as we see today.
Opening Remarks by Dr. Carlos Correa, Executive Director of the South Centre, at the “Conference on South-South Cooperation in International Tax Matters: Don’t cede your taxing rights by signing a blank cheque”, co-organized with the Global Alliance for Tax Justice (27 November 2023)
The Conference is taking place at a time of severe challenges to the global economy and, particularly, for the achievement of the Sustainable Development Goals. Rising borrowing costs, tight global financial conditions and high debt burdens are constraining the fiscal space of many developing countries. These conditions make domestic resource mobilization through tax collection more important than ever. The taxation of foreign multinational corporations in the digital economy, in particular the Big Tech firms, has now become imperative both for providing much-needed revenues and for levelling the playing field of domestic companies in our countries.
Statement by the South Centre on the Historic UN Resolution Calling for a UN Framework Convention on International Tax Cooperation
23 November 2023
The South Centre strongly welcomes the adoption on 22 November 2023 of the historic resolution in the Second Committee of the UN General Assembly on the “Promotion of inclusive and effective international tax cooperation at the United Nations”. The resolution calls for establishing a “Member State-led, open-ended ad hoc intergovernmental committee for the purpose of drafting terms of reference for a United Nations framework convention on international tax cooperation” and is arguably the most significant development in international taxation in the modern era. The South Centre has been actively engaged in supporting these negotiations, in partnership with various institutions from the Global South and allies from the Global North, and commends the African Group in the UN in New York for their leadership of the developing world in steering through this momentous resolution.
As globalisation has pushed through complex inter-State trade in goods and services, in parallel there is a growing complexity in determining the taxation of Multinational Enterprises (MNEs) in an increasingly digitalized economy. This report reviews existing bilateral tax treaties between South Centre’s Member States and States where most digitalised MNEs are headquartered, using a threshold of EUR 750 million in annual turnover to limit the number of in-scope MNEs in the study. This analysis produced primary data on South Centre Member States’ source taxing rights scores and the implications of this on tax treaty negotiations to enable effective taxation in the digital economy through the inclusion of the United Nations (UN) solution for digital taxation, Article 12B of the UN Model Tax Convention. Further, the study sought to identify ‘weak’ tax treaties with low source taxing rights which merited a comprehensive renegotiation beyond the inclusion of Article 12B. Furthermore, the reports examined the treatment of “Computer Software” in the tax treaties under study, and concluded with recommendations going forward.
By Sol Picciotto, Muhammad Ashfaq Ahmed, Alex Cobham, Rasmi Ranjan Das, Emmanuel Eze, Bob Michel
This paper puts forward an alternative to the proposed multilateral convention under Pillar One of the BEPS project, by building on and going beyond the progress made so far. A new direction was signalled in 2019 by the G-24 paper proposing a taxable nexus based on significant economic presence, combined with fractional apportionment. The resulting measures agreed under the two Pillars entail acceptance in principle of this approach, and also provide detailed technical standards for its implementation. These include: (i) a taxable nexus based on a quantitative threshold of sales revenues; (ii) a methodology for defining the global consolidated profits of MNEs for tax purposes, and (iii) detailed technical standards for defining and quantifying the factors that reflect the real activities of MNEs in a jurisdiction (sales, assets and employees).
The time is now right to take up the roadmap outlined by the G-24. The work done shows that technical obstacles can be overcome, the challenge is essentially political. This paper aims to provide a blueprint for immediate measures that States can take, while engaging in deliberation at national, regional and international levels for a global drive towards practical and equitable reforms. Unitary taxation with formulary apportionment is the only fair and effective way to ensure taxation of MNEs where economic activities occur, as mandated by the G20. It can ensure that MNE profits are taxed once and only once, provide stability and certainty for business, and establish a basis for international tax rules fit for the 21st century.
* Also available in French, Spanish, Portuguese and Arabic.
STATEMENT BY DR. CARLOS CORREA, EXECUTIVE DIRECTOR OF THE SOUTH CENTRE, TO THE MINISTERS AND GOVERNORS MEETING OF THE INTERGOVERNMENTAL GROUP OF TWENTY-FOUR (G-24)
10 October 2023, Marrakesh, Morocco
To address the global polycrisis, developing countries need to come together to demand reforms in the international rules & architecture for debt, development finance, trade & tax to achieve equitable outcomes, fight climate change and meet SDGs.
The South Centre is seeking to fill a Researcher position in the South Centre Tax Initiative, the organization’s flagship project for promoting cooperation among developing countries on international tax matters. The Researcher will be required to carry out analysis to support the ongoing negotiations on international taxation in the United Nations and the OECD. The analysis will focus on the implications for developing countries of the various international tax standards under negotiation with a view to providing the South Centre’s Member States and developing countries from the G-77+China with policy advisory and capacity building. The Researcher will also be required to produce revenue estimates of the policy proposals of developing countries and where necessary, a comparison with the proposals of developed countries. The Researcher is expected to have deep knowledge of international taxation, particularly in transfer pricing and a strong background in economics and quantitative economic analysis.
The 1944 “Bretton Woods Agreement” gave birth to the new international financial system marked by the centrality of the US dollar which is a crucial pillar of the global power of the United States. Over the past eight decades, the asymmetry of the shrinking US economic weight in the world economy and growing dominant role of the dollar has become more and more glaring. The disadvantages of overreliance on the dollar have been keenly felt, especially by developing countries. The recent moves to weaponize the dollar and the payment clearance system have triggered another wave of reassessment by national states and enterprises of the role of the dollar and led to the hitherto most broad-based de-dollarization process covering from Southeast Asia to Latin America and the Middle East. De-dollarization has been incrementally taking place in different forms and led by BRICS and some commodity exporting countries. However, there are many challenges to meaningful de-dollarization. Overall, de-dollarization efforts, despite important progress, have been limited and partial. There has been progress in reducing overreliance on the dollar through foreign exchange reserve diversification and trade invoicing as evidenced by the decline in the dollar’s share of allocated foreign exchange reserves and the increase of trade invoiced and transacted in currencies other than the dollar. However, on aspects requiring the deep financial market and wide network such as foreign exchange transactions, issuance of debt and payment clearance, the dollar’s share has not suffered a decline. To reform the international financial system, the BRICS in particular should continue to take the lead in furthering the de-dollarization efforts.