Impact of a Minimum Tax Rate under the Pillar Two Solution on Small Island Developing States
By Kuldeep Sharma
The Research Paper commences with an overview of Pillar One and Pillar Two followed by detailed discussions on salient provisions of Pillar Two.
Pillar Two is envisaged to have a widespread impact on Small Island Developing States (SIDS) which are a distinct group of 38 United Nations (UN) Member States and 20 Non-UN Members/Associate Members of UN regional commissions that are exposed to unique social, economic and environmental vulnerabilities. In all, 36 SIDS that are members of the Group of Seventy-Seven (G-77) have been analysed, namely, Antigua and Barbuda, Bahamas, Bahrain, Barbados, Belize, Cabo Verde, Comoros, Cuba, Dominica, Dominican Republic, Fiji, Grenada, Guinea-Bissau, Guyana, Haiti, Jamaica, Kiribati, Maldives, Marshall Islands, Mauritius, Federated States of Micronesia, Nauru, Papua New Guinea, Samoa, São Tomé and Príncipe, Seychelles, Singapore, Solomon Islands, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Suriname, Timor-Leste, Tonga, Trinidad and Tobago, and Vanuatu.
¿Una elección difícil? Comparación de los ingresos fiscales que recaudarán los países en vías de desarrollo a partir de los regímenes del Monto A y del Artículo 12B de la Convención Modelo de las Naciones Unidas
Por Vladimir Starkov y Alexis Jin
En este documento de investigación, pretendemos calcular los ingresos tributarios que obtendrán (o perderán) los Estados miembros del South Centre y la Unión Africana con arreglo a los regímenes del Importe A y del Artículo 12B. En nuestro análisis hemos recurrido a fuentes de información disponibles para el personal investigador del sector privado, aunque no ha conllevado el examen de ninguno de los datos que los contribuyentes proporcionan a las autoridades fiscales. Nuestra investigación demuestra que los efectos comparativos en los ingresos obtenidos con los regímenes fiscales del Importe A y el Artículo 12B dependen en gran medida de a) los detalles de diseño del régimen del Artículo 12B; b) si el país es sede de empresas multinacionales que puedan estar dentro del ámbito de aplicación de los regímenes fiscales del Importe A o del Artículo 12B; y c) la desgravación a partir de la doble tributación, de haberla, que conceda el país a los contribuyentes nacionales sujetos al pago de tributos en virtud del régimen del Importe A o del Artículo 12B.
The Progress Report on Amount A, the latest version of the OECD’s proposed solution for taxation of the digitalized economy, makes it clear that the revenues expected for developing countries will dwindle even further than estimated by CODA and the South Centre.
With each successive update of the rules, the proposed solution is becoming increasingly less appealing to the developing countries. The OECD must, at a minimum, release revenue estimates for the 141 jurisdictions of the Inclusive Framework such that each can take an informed decision in the national interest. As an organization that sets ‘transparency’ standards, OECD must itself be transparent and provide countries with the essential information needed for making what may become a historic decision for the international taxation regime.
Two Pillar Solution for Taxing the Digitalized Economy: Policy Implications and Guidance for the Global South
by Irene Ovonji-Odida, Veronica Grondona, Abdul Muheet Chowdhary
The taxation of the digitalized economy is the single most important topic in international tax negotiations today. The OECD has devised a “Two Pillar solution” to the problem. Pillar One is focusing on a reallocation of taxing rights to market jurisdictions, which are largely expected to be developing countries, and Pillar Two is instituting a global minimum tax. The Pillar One solution, known as Amount A, will be codified into a Multilateral Convention (MLC) and is expected to be placed before countries for signature in early 2023. The solution ushers in a new paradigm in the taxation of multinational enterprises but has immense complexity and likely minimal revenue gains for most developing countries. It will also require them to give up the right of unilateral tax measures on all out-of-scope companies, meaning they will only be able to tax the fewer than 100 companies likely to be in-scope, if at all. The decision to sign or not is thus a historic one, as it will lock developing countries into a constricted new framework, at a time when revenue needs are especially critical to recover the economies from COVID-19 in the context of a turbulent state of the global economy.
However, the United Nations too has a solution, known as Article 12B. This operates in a different manner and is a minor modification to the existing decentralized international tax system which is based on bilateral tax treaties, and which developing countries are more familiar with. It is also likely to generate far higher revenues than Amount A, and does not restrict any of their sovereign taxing rights. This Research Paper assesses the various implications for developing countries from adopting the OECD’s or the United Nations’s respective solutions and concludes with a possible global South response to the Two Pillar solution.
Outcomes and Recommendations of the CoDA-South Centre Dialogue Series on Illicit Financial Flows (IFFs): Comparing Tax Revenues to Be Raised by Developing Countries from the OECD and UN Solutions for Taxing the Digital Economy
Comparaison des recettes fiscales à engranger par les pays en développement au titre des régimes du Montant A et de l’Article 12B du Modèle de convention des Nations Unies
Par Vladimir Starkov et Alexis Jin
Le présent document de recherche se propose d’estimer le montant des recettes fiscales qui seraient engrangé (ou perdu) par les pays membres du Centre Sud et de l’Union africaine dans le cadre de la mise en œuvre du Montant A et de l’Article 12B. Notre analyse s’appuie sur des sources d’information accessibles aux chercheurs du secteur privé et non sur les informations communiquées par les contribuables aux autorités fiscales. Elle démontre que les effets comparatifs sur les recettes de la mise en œuvre du Montant A et de l’article 12B dépendent en grande partie (a) des détails de conception du régime mis en place par l’article 12B, (b) du fait que le pays accueille ou non le siège d’entreprises multinationales susceptibles d’être imposées au titre du montant A ou de l’article 12B, et (c) de l’allégement éventuel de la double imposition qui sera accordé par le pays aux contribuables nationaux imposés au titre du Montant A ou de l’article 12B.
WTO Moratorium on Customs Duties on Electronic Transmissions: How much tariff revenue have developing countries lost?
By Rashmi Banga
This research paper highlights the adverse impacts of the continuing WTO moratorium on customs duties on electronic transmissions on the developing and least developed countries. The rapidly progressing digitalization along with the ongoing pandemic and the food crisis are creating multiple demands on the government revenues. However, because of the moratorium almost all developing, and least developed countries are losing tariff revenues especially at the time when they are most needed. Not only are they losing the fiscal space but are also losing their regulatory space as they are unable to regulate the growing imports of digitizable products, especially of luxury items like the movies, music and video games. It is estimated that in the period 2017-2020, developing countries and LDCs lost $56 billion of tariff revenue, of which $48 billion were lost by the developing countries and $8 billion by the least developed countries. It is interesting to note that this loss of tariff revenue is from the imports of just 49 products (at HS six-digit). With no clarity on the definition of electronic transmissions (ET) and thereby on the scope of the moratorium, the continuation of the WTO moratorium on customs duties on ET can lead to substantive tariff revenue losses for developing and least developed countries in the future.
A Tough Call? Comparing Tax Revenues to Be Raised by Developing Countries from the Amount A and the UN Model Treaty Article 12B Regimes
By Vladimir Starkov and Alexis Jin
In this research paper, we attempt to estimate the tax revenues to be gained (or lost) by the South Centre and African Union’s Member States under the Amount A and Article 12B regimes. Our analysis relied on sources of information available to private sector researchers but did not involve review of any information that taxpayers provide to tax authorities. Our research demonstrates that the comparative revenue effects of the Amount A and Article 12B taxation regimes largely depend on (a) design details of the Article 12B regime, (b) whether the country hosts headquarters of MNEs that may be in scope of Amount A or Article 12B taxation, and (c) what relief from double taxation, if any, the country will grant to domestic taxpayers subject to taxation under either the Amount A or Article 12B regimes.
The Regulated Financial Services Exclusion seeks to remove financial institutions such as banks, insurance companies and asset managers from the scope of the tax, known as Amount A. This may greatly reduce the amount of tax that can be collected by the developing countries from the OECD solution.
DATA FOR DEVELOPMENT: HOW TO LEGALLY CHARACTERIZE DATA?
SOUTH CENTRE’S CONTRIBUTION TO THE eTRADE FOR ALL LEADERSHIP DIALOGUE OF THE UNCTAD eCOMMERCE WEEK 2022
Radical technological changes have always challenged pre-existing legal frameworks as demonstrated, for instance, by the commercialization of computer software independently from hardware and the use of genetic information to develop biotechnological innovations in various areas such as health and agriculture. The emergence of big data is a new and outstanding example of such situations. With the growing digitalization of multiple activities, ranging from education and health to ‘smart farming’ and the supply of the most diverse goods, the production and storage of data have exploded. Individuals, businesses and governments are generating an immense amount of data and this will only continue to grow in the future. Yet, the legal characterization of data is still a matter of considerable divergencies and debate. Policy makers and scholars are still searching for legal approaches suitable to address the complex relationships among producers, processors, controllers and users of data…
South Centre Comments on Amount A: Extractives Exclusion
The South Centre today provided its comments to the OECD Inclusive Framework’s Task Force on Digital Economy (TFDE) on the Amount A: Extractives Exclusion. These rules are part of the overall OECD project on the taxation of the digitalized economy known as Pillar One. They determine the amount of a Multinational Enterprise’s (MNE) profits that will then be partially redistributed to market jurisdictions, which are expected to be largely developing countries.
Extractive Exclusion is of critical importance to developing countries as it is meant to ensure that revenues from natural resources such as mining, oil, gas, etc are excluded from the scope of the tax, known as Amount A.