Cross-Border Services
South Centre Inputs on Workstream II on Taxation of Services (Co-Lead’s Draft Protocol on the Taxation of Income from Cross-Border Services)
26 August 2026
The South Centre welcomes the Draft Protocol on the Taxation of Income from Cross-Border Services and submits the following comments:
- Scope: Cover all cross-border services broadly, not limiting it to technical and digital services alone, to avoid fragmentation.
- Optionality: No reservations on key substantive provisions (Articles 5, 6, 7, 9); reservations permitted only for non-key administrative/procedural matters (e.g., rates, timelines).
- Article 1. Subject to tax rule can apply to cross-border services income within Protocol scope, with the statutory rate fixed in the Protocol; extend paragraph 4’s residence state preservation to Articles 5–11.
- Taxes covered: Exclude excise taxes.
- Define “beneficial owner,” “payer,” “payment,” and “special relationship“; as applied in Articles 5 and 6.
- The automated digital services list in Article 6(4) should be expressly non-exhaustive.
- The protocol should provide guidance on nexus and revenue-sourcing rules under Articles 5 and 6, particularly for remote/data-driven monetization with no direct in-country payment.
- The protocol should broaden “physical presence” beyond employees/agents and provide guidance on profit-allocation methods, including simplified profit allocation approaches under Article 9.
- Existing treaties: Where inconsistent with an existing treaty, the Protocol should ideally automatically override the relevant provisions. However, in case treaty-by-treaty renegotiation is preferred, then the Protocol should trigger mandatory renegotiation within a defined timeframe aligned with Article 21 of the Framework Convention.
- Implementation: In case the option of treaty-by-treaty renegotiation is chosen, then implementation can be done by a UN Fast-Track Instrument to streamline bilateral treaty alignment.
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Taxation of digital services – A Domestic Law Solution for Overcoming Tax Treaty Barriers
By Radhakishan Rawal
Tax treaty treatment of source taxation of cross-border services continues to be an unresolved issue even fifteen years after it was recognized as a major issue within the Base Erosion and Profit Shifting (BEPS) Project. While the Organisation for Economic Co-operation and Development (OECD) Inclusive Framework’s Amount A of Pillar One does not seem to be getting finalised, at the United Nations (UN) an Intergovernmental Negotiating Committee (INC) is working on a UN Framework Convention on International Tax Cooperation which will offer a solution to the issue. The success of the UN’s initiative will depend on how many developed countries sign the Framework Convention and relevant Protocols.
This article evaluates a Domestic Law Solution to the issue which was presented at the February 2026 session of INC at New York. As per this solution, the domestic law of the source country can define the term “profits of an enterprise” to exclude consideration for digital services and thus bypass treaty restrictions on source taxation. As a result of this, the source country will be able to levy tax on such income in terms of Article 21(3) of the tax treaties signed by it provided the wording of Article 21(3) is identical to that in the UN Model Tax Convention.
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Towards a UN Protocol for Taxing Cross-Border Services in a Digitalized Economy
By Abdul Muheet Chowdhary, Anne Wanyagathi Maina and Kolawole Omole
This Policy Brief offers a way forward on the United Nations Framework Convention on International Tax Cooperation’s (UNFCITC) protocol for taxing cross-border services in a digitalized economy. Such a protocol can provide a way to standardize and harmonize the existing plethora of widely varying Digital Services Taxes (DSTs), which can reduce political tension between the Global North and South, ease compliance costs and uncertainties for business, while providing a basis for the elimination of double taxation. The revenue generated can help bridge the Sustainable Development Goals (SDGs) financing gap and for the realization of human rights in the Global South. The Group of Twenty (G20) can act as a forum where key countries in the North and South can hammer out the architecture of the protocol for taxing cross-border services.
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