Digital Economy

Statement, 13 October 2021

Statement by the South Centre on the Two Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy

The South Centre takes note of the Statement by 136 member jurisdictions of the OECD/G20 Inclusive Framework (IF) made on 8 October 2021, on a two-pillar solution to address the tax challenges arising from the digitalisation of the economy. The broad architecture of the agreement is now in place and it is clear to developing countries what they can expect from it.

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SC & PCNS Conference, 13 October 2021

Conference: International Taxation from Global South Perspectives 

In Partnership with The Policy Center for the New South

Wednesday 13 October 2021 15h00 – 16h30 GMT+1 Live-Stream (YouTube, Facebook, Live Tweet)

The key questions that will be discussed in this event will be:

  • What reforms are needed to international standards that can strengthen the capacity of governments to raise revenue from MNEs without discouraging economic activity?
  • What is the cost of tax havens for developing countries and what role can international cooperation play in dealing with this issue?
  • What might the future of tax reform look like in the post-COVID-19 era, given the growing digitalization of the economy?

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Tax Cooperation Policy Brief 19, October 2021

Developing Country Demands for an Equitable Digital Tax Solution

 By Abdul Muheet Chowdhary

The taxation of the digitalized economy is the foremost challenge in international taxation today. Countries around the world, especially developing countries, are struggling with taxing the rising profits of major tech giants which operate on entirely new business models that have made traditional international tax rules obsolete. A “Two Pillar solution” is being negotiated in the OECD/G20 Inclusive Framework on BEPS that seeks to update these rules, re-allocate taxing rights and establish a global minimum tax. However, as it stands, the solution has very limited tax revenue benefits for developing countries and is administratively complex. For the solution to be durable, it must be equitable, and accordingly must incorporate the concerns of developing countries going forward.

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SC Submission, September 2021

Comments on Draft Agenda of the UN Tax Committee

The South Centre welcomes the UN Tax Committee’s invitation of public comments into its draft agenda and four-year work plan. By engaging the public in preparing the work plan, the UN Tax Committee’s work can be more responsive to the needs of developing countries, and of UN Member States as a whole. By stating that “the goal to ensure that the Committee’s agenda is practical and relevant to developing countries and includes the most pressing challenges they face in tax policy and administration” the Committee has shown a laudable intent which is also in line with its mandate, which is to give special attention to developing countries. The South Centre offers its written comments on the three topics on which inputs have been requested. These have been prepared based on consultation with the South Centre’s Member States, which are exclusively developing countries.

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SC Contribution, August 2021

Comments on the STATEMENT ON A TWO-PILLAR SOLUTION TO ADDRESS THE TAX CHALLENGES ARISING FROM THE DIGITALISATION OF THE ECONOMY

The BEPS Monitoring Group, 31 July 2021

On 1 July 2021 a statement was issued by the OECD outlining the agreement reached through the Inclusive Framework of the OECD/G20 base erosion and profit shifting (BEPS) project. These comments by the BEPS Monitoring Group (BMG) aim to contribute to a wider public understanding of the issues involved. The BMG is a network of experts on various aspects of international tax, set up by a number of civil society organizations which research and campaign for tax justice including the Global Alliance for Tax Justice, Red de Justicia Fiscal de America Latina y el Caribe, Tax Justice Network, Christian Aid, Action Aid, Oxfam, and Tax Research UK. This report has not been approved in advance by these organizations, which do not necessarily accept every detail or specific point made here, but they support the work of the BMG and endorse its general perspectives. It is based on previous reports, and has been drafted by Sol Picciotto with comments and contributions by Abdul Muheet Chowdhary (Senior Programme Officer, South Centre Tax Initiative), Jeffery Kadet, Annet Oguttu, Sudarshan Rangan, Attiya Waris, and Francis Weyzig.

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Tax Cooperation Policy Brief 16, July 2021

Article 12B – A tax treaty solution by the UN Tax Committee for taxing digital incomes

By Rajat Bansal

Taxation of income of multinational enterprises engaged in digitalised businesses by source or market jurisdictions is currently the most important challenge before the international tax community. The current membership of the United Nations Tax Committee in April 2021 finalised a tax treaty solution to address this challenge. This brief explains the rationale for coming up with a particular solution of inserting a new Article in the United Nations Model Tax Convention, its merits and how it can be beneficial for all countries, especially the developing ones.

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Statement, July 2021

Statement by the South Centre on the Two Pillar Solution to Address the Tax Challenges Arising From the Digitalisation of the Economy

The South Centre takes note of the statement by 130 members of the OECD/G20 Inclusive Framework (IF) on a two-pillar solution to address the tax challenges arising from the digitalisation of the economy. The agreement by the members is indeed historic and marks progress in the right direction. Unfortunately, the agreed upon solution is limited and disappointing as it falls short of the more ambitious and transformational reforms needed for a balanced agreement that fully responds to the concerns of developing countries, especially in the backdrop of the socioeconomic challenges posed by the COVID pandemic. Nine jurisdictions have not agreed with the statement, with the reasons still not public; however, it is a signal that cannot be ignored.

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SouthViews No. 220, 28 June 2021

Improve nexus rule for fair distribution of taxing rights to developing countries

By Radhakishan Rawal

One of the open issues for Pillar One in the discussion on the taxation of the digital economy is the nexus threshold, which would determine which Multinational Enterprises (MNEs) have a taxable presence. Big developed economies or smaller developing economies both may be deprived of taxing rights as a result of nexus thresholds as presently described in the Pillar One proposal. Further, even where smaller thresholds are adopted, some countries may still be denied taxing rights. Financial threshold was never a parameter of distributing taxing rights between the countries. A minor tweaking of the tax certainty process could address the issue.

This article recommends giving the taxing right over Amount A of Pillar One, which covers the main portion of taxable profits from the digital economy to all the market jurisdictions, but to give rights related to affected tax jurisdictions only to those countries meeting the nexus thresholds. This approach will result in a fair distribution of taxing rights and will also ensure that there is no additional burden on the tax certainty process, which will be easier for developing countries.

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Tax Cooperation Policy Brief 14, June 2021

The Tax Sovereignty Principle and Its Peaceful Coexistence with Article 12B of the UN Model Tax Convention

By Kuldeep Sharma, ADIT (CIOT, UK)

Article 12B of the United Nations (UN) Model Tax Convention (MTC) provides developing countries with a practical and easy way to administer policy solutions for taxing the digital economy, in particular income from Automated Digital Services. It merges seamlessly with the existing provisions of the UN MTC and it is completely aligned and coexistent with the Tax Sovereignty Principle.

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SouthViews No. 219, 31 May 2021

Opportunities and Challenges: Tax Cooperation and Governance for Asia-Pacific Countries

 By Sakshi Rai

An informal technical meeting was organised on April 8th 2021 by the Secretariat of the High Level Panel on International Financial Accountability, Transparency and Integrity for Achieving the 2030 Agenda (FACTI Panel) for tax officials from the Asia-Pacific, to discuss the relevance of the Panel’s recommendations in the context of the region as well as to familiarise tax officials with its final report.

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SouthViews No. 215, 6 April 2021

Technology and inequality: can we decolonise the digital world?

By Padmashree Gehl Sampath

In this article, the author argues that techno-centric explanations of progress and industrialisation are deeply entrenched in a wider social context that encourages us to ignore the historical roots of current inequalities – which, in fact, are not amenable to a technological solution alone. Making the data economy work for all will require a serious reflection on how we want to frame this debate, and how to align ourselves to a common vision of social progress that technology could help to accomplish.

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SC Submission, March 2021

Comments on Discussion Draft: Taxation of Software Payments as Royalties

South Centre Tax Initiative

The South Centre supports the proposal being discussed in the UN Committee of Experts on International Cooperation in Tax Matters (UN Tax Committee) to tax payments for computer software as royalties. This will help developing countries more effectively tax the digitalized economy and will bring clarity to the application of existing bilateral tax treaties.

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