Digital Economy

Research Paper 189, 21 December 2023

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.

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Research Paper 187, 4 December 2023

The Global Digital Compact: opportunities and challenges for developing countries in a fragmented digital space

By Carlos Correa, Danish, Vitor Ido, Jacquelene Mwangi and Daniel Uribe

The adoption of a Global Digital Compact (GDC) as one of the outcomes of the Summit of the Future opens up the opportunity to address in a systematic manner issues that are of critical importance for the digital global governance. It also poses a challenge to developing countries, as most of them lack the infrastructure and capabilities to fully participate in the digital transformation. Many inequalities, including a deep digital divide, do exist and would need to be addressed by the GDC for it to become a real instrument of change and improvement in the living conditions and the prospects of a better future for most of the world population. This paper examines the current fragmentation in the digital governance and some of the issues raised by the proposals made by the UN Secretary-General for adoption of the GDC.

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Policy Brief 122, 30 November 2023

Data Access and the EU Data Strategy: Implications for the Global South

By Marc Stuhldreier

This study explores the value of data in the digital economy and the challenges surrounding data ownership, access rights, and equitable distribution of the value. It examines the European Data Strategy and highlights its shortcomings as well as its implications for the Global South. This contribution emphasises the need for unlocking the potential of collected data by enhancing accessibility and challenging protectionist measures and discusses the importance of fair competition and innovation. It also discusses the importance of balancing access rights with legitimate privacy concerns, trade secrets, and intellectual property rights. The paper concludes by highlighting the importance for developing countries to introduce tailored regulations that suit their specific needs, empowering them to seize opportunities and navigate the digital economy effectively.

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SC & IHEID Report, October 2023

Taxation of the Digital Economy 

by Adnan Sose, Nicolás Tascon and Anders Viemose

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.

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Statement – SC/WATAF Special Technical Session on 2 Pillar Solution, 4-5 July 2023

OUTCOME STATEMENT

SOUTH CENTRE-WATAF JOINT SPECIAL TECHNICAL SESSION ON THE OECD TWO PILLAR SOLUTION

(JULY 4-5 2023)

The South Centre and the West African Tax Administration Forum (WATAF) successfully organised a two-day special session in Abuja, Nigeria, from 4-5 July, 2023, aimed at enhancing the understanding of WATAF and South Centre member countries on the draft rules of the OECD Two Pillar solution to taxation of the digitalised economy. The session brought together officials responsible for tax policy, legislation, and administration, along with experts representing African and Latin American countries in the OECD Inclusive Framework Steering Group.

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SC Statement – Two Pillar Solution, 28 July 2023

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

28 July 2023

The South Centre takes note of the Outcome Statement by 138 member jurisdictions of the OECD/G20 Inclusive Framework (IF) made on 11 July 2023, on the Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy. In this statement the South Centre highlights the inclusion of rules that have the practical effect of reducing the tax payable to developing countries under Amount A, the limitations of Pillar Two and other key aspects of the OECD proposed rules that require attention by developing countries before they decide to be tied up by such rules.

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Tax Cooperation Policy Brief 32, 30 May 2023

Global Minimum Taxation of Multinationals: Opportunities and risks for some African States

By AMAGLO Kokou Essegbe, KOUEVI Tsotso and ADJEYI Kodzo Senyo

To face the challenges posed by the digitization of the economy, the OECD’s Inclusive Framework has developed two Pillars to address tax base erosion and profit shifting. The objective of Pillar Two is to define the minimum amount of tax to be paid by multinational enterprises in the jurisdictions where they operate. The OECD’s Inclusive Framework has adopted an average effective rate of 15% for this purpose. The objective of this study is to show whether the implementation of Pillar Two in African jurisdictions constitutes an opportunity or a risk for them.

The results show that it is an opportunity for countries with a low effective tax rate and a risk for countries with a high effective tax rate. Therefore, setting a 15% income tax rate for non-resident multinationals is an opportunity for some African countries. For it would constitute for these countries a source of additional tax revenue mobilization. For this reform to be an opportunity for Africa, however, the minimum effective tax rate must be raised to at least 20%, as was demanded by the African Tax Administration Forum (ATAF).

The risk that lies in the application of an effective rate of 15% for Africa as a whole is that some African countries might have to reduce their effective tax rate. This would be a loss of revenue for those African countries. Since most countries in the African jurisdiction have effective tax rates and statutory corporate income tax rates that are more than 20 percent, above the set average effective rate, multinationals would seek to shift their profits to the countries with the most advantageous taxation. This could lead to a transfer of profits to other jurisdictions.

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Research Paper 177, 18 May 2023

Policy Dilemmas for ASEAN Developing Countries Arising from the Tariff Moratorium on Electronically Transmitted Goods

By Manuel F. Montes and Peter Lunenborg

This paper examines the policy dilemmas facing developing countries in ASEAN in working within, and participating in, international negotiations toward making permanent the WTO tariff moratorium on duties applicable to electronically transmitted goods. In the context of ASEAN’s countries’ trade-oriented development strategies, the analysis considers the moratorium’s impact on tariff revenues, economic performance, and industrial development prospects. The paper presents estimates of tariff impacts and studies the national policy implications of the moratorium. An extension of the moratorium would establish a special regime for a class of goods whose components are contentiously defined but with a potential of being an important source of tariff revenue and of having an impact on industrial development in the future for developing ASEAN countries. This special regime for electronically transmitted goods cannot be justified as a global public good and is unnecessary. The removal of the regime would restore national space in developing ASEAN countries and allow them to obtain tariff revenues from the trade of these goods and to upgrade domestic capabilities in participating in the digital economy.

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SC Submission to the Global Digital Compact, April 2023

Submission to the Global Digital Compact

Apply Human Rights Online

 South Centre

 Geneva, April 2023

The South Centre’s Board approved in September 2022 its Programme of Work 2023-2025 where the policy dimensions of digital transformation are highlighted as one of the priority areas for developing countries, including the need to harness digital technologies in education, health and the production of goods and services, support the development of a domestic digital industry, improve their digital infrastructure, advance digital equity and inclusion, effectively tax the digital companies and contribute to shaping the digital governance architecture to advance the Sustainable Development Goals (SDGs).

Following the call made in the Declaration on the Commemoration of the Seventy-Fifth Anniversary of the United Nations (A/RES/75/1) for improved digital cooperation, the United Nations (UN) Secretary General’s Roadmap for Digital Cooperation and his report ‘Our Common Future’, the South Centre submits the following written contribution to the UN Secretary General ahead to the Summit of the Future with the objective of providing support to developing countries in the intergovernmental process concerning the digital transformation.

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Tax Cooperation Policy Brief 29, 3 March 2023

Digital taxation under the OECD Amount A and UN Article 12B mechanisms for market jurisdictions in Africa: a comparative analysis

 By Erica Rakotonirina

This Policy Brief examines the need for the evolution and harmonization of international taxation in the face of the digitalization of economic transactions.

Between the OECD proposal for shared taxation of residual profits through the Amount A mechanism and the UN proposal of Article 12B for taxing income from Automated Digital Services on a gross basis through shared but capped taxation, with an optional variant of the taxation of net profits, African States need to make vital political and technical choices.

The strategic negotiations must include regulatory sustainability, the right balance and fiscal fairness between the divergent interests of residence states vs source states (which include almost all African countries), and MNEs in their quest for profit and expansion.

The Policy Brief carries out quantified evaluation of possible revenue estimates using a case study approach. However, such an exercise remains difficult for questions of accessibility and reliability of data relating to the activities of multinational companies.

To be realistic, the scope of the study was restricted to a reference company in the digital sector but targeted economies of different scales. The results of the revenue estimates represent an optimistic case of the impacts on tax revenues of the application of the OECD and UN measures on different types of economies.

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South Centre Comments on the Amount A Draft MLC Provisions on DSTs & Other Relevant Similar Measures, 20 January 2023

South Centre Comments on the ‘Amount A Draft Multilateral Convention Provisions on Digital Services Taxes and Other Relevant Similar Measures

The South Centre provided its comments to the OECD Inclusive Framework’s Task Force on Digital Economy (TFDE) on the Draft Multilateral Convention Provisions on Digital Services Taxes and other Relevant Similar Measures under Amount A of Pillar One (MLC). This MLC is part of the components of Pillar One to address the tax challenges arising from the digitalization of the economy. It aims to restrict countries which sign to the Pillar One MLC from implementing any digital tax policy solution apart from the OECD’s, such as Digital Service Taxes (DSTs) and other relevant similar measures.

These draft provisions are amongst the most controversial aspects of the Pillar One rules, as countries which decide to implement the OECD solution will be expected to give up the use of DSTs and similar measures on all companies, not just those in-scope of Amount A.

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Tax Cooperation Policy Brief 27, 21 December 2022

Taxing Big Tech: Policy Options for Developing Countries

By Abdul Muheet Chowdhary and Sébastien Babou Diasso

Even as the COVID-19 crisis wreaked havoc on the global economy, it gave rise to a small set of winners, namely Big Tech. The increasing prevalence of remote work and an acceleration of the digitalization of the economy allowed Big Tech companies to raise enormous revenues during the pandemic, which in some cases dwarfed the gross domestic product (GDP) of several countries. This policy brief explores the rising untaxed profits of Big Tech in particular, and the digitalized economy in general, and explains why the existing rules are insufficient. It also critically examines the solution that has been devised by the Organisation for Economic Co-operation and Development (OECD), an intergovernmental organization of developed countries. Finally, it outlines alternative policy options that are more suitable for developing countries to tax the profits of Big Tech.

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