Inclusive Framework

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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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 15, June 2021

Conceptualizing a UN Multilateral Instrument

By Radhakishan Rawal

Recent changes to the United Nations (UN) Model Tax Convention have resulted in provisions that are more advantageous for developing countries in raising revenue through international taxation, i.e. taxation of foreign income. These include taxation of income from automated digital services, software payments, capital gains and others. Normally, these would be incorporated into bilateral tax treaties through time-taking negotiations. A UN Multilateral Instrument (MLI) provides a speedy manner for updating multiple tax treaties through a single negotiation. This will help developing countries in collecting revenue more quickly. This Policy Brief discusses the possible structure of such an MLI.

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SC & GA4TJ Webinar, 15 June 2021

Build Your House on Your Own Pillars – Key Issues for Developing Countries at the OECD Inclusive Framework Negotiations on the Taxation of the Digital Economy

Tuesday 15 June 2021 – 1 PM to 3 PM (CET)

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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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Report by the South Centre Tax Initiative’s Developing Country Expert Group, August 2020

Assessment of the Two-Pillar Approach to Address the Tax Challenges Arising from the Digitalization of the Economy

An Outline of Positions Favourable to Developing Countries

Report by the South Centre Tax Initiative’s Developing Country Expert Group

Irene Ovonji-Odida, Veronica Grondona, Samuel Victor Makwe

This report is written primarily for developing country negotiators in the Inclusive Framework and accordingly contains a technical assessment of Pillars One and Two. The aim is to discuss the positions and principles which can inform the negotiations in developing countries’ best interests. However, it is also written for a larger audience, particularly diplomats involved in financing for development discussions and international trade rule making, so as to sensitise them to the nuances of the ongoing discussion on the taxation of the digitized economy. In the midst of the COVID-19 pandemic and a devastating economic downturn, it is more important than ever to ensure that developing countries obtain their due taxing rights. This report is an initial contribution in that direction.

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SouthViews No. 210, 30 November 2020

Redistributing Taxing Rights to the Global South through the Digitalized Economy

By Carlos Protto

A historic discussion is underway within both the United Nations (UN) and the Organisation for Economic Co-operation and Development (OECD) on redistributing taxing rights to the Global South through proposals on taxing the digitalized economy. An overview of the issues at stake is provided in this SouthViews by Carlos Protto, Member of the UN Committee of Experts on International Cooperation in Tax Matters and Argentina’s representative in the Steering Group of the OECD/Group of Twenty (G20) Inclusive Framework on Base Erosion and Profit Shifting (BEPS). The text is based on his presentation at the international virtual seminar co-organized by the South Centre on “Equity in Global Tax Regimes and Implications for the SDGs” held on 7 October 2020. The recording is available here: https://www.youtube.com/watch?v=3wAESmfvRN4&ab_channel=uomlive.

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Document de Recherche 111, Septembre 2020

Mesures nationales sur l’imposition de l’économie numérique

Par Veronica Grondona, Abdul Muheet Chowdhary, Daniel Uribe

Le Cadre inclusif sur le BEPS de l’Organisation de coopération et de développement économiques (OCDE) envisage une approche fondée sur deux piliers en matière de taxation de l’économie numérique. Les premières estimations concernant l’impact de ses recommandations montrent une modeste augmentation de la collecte de l’impôt sur les sociétés, dont les bénéfices devraient revenir principalement aux pays développés. Dans le même temps, les mesures nationales de taxation de l’économie numérique se multiplient, en conséquence de la pandémie de COVID-19. Le droit international reconnaît pleinement ce droit aux pays, bien que cette approche soit considérée comme une forme d’unilatéralisme. Ce document de recherche met en lumière les mesures de fiscalité directe prises par différents pays et présente les trois approches clés retenues pour taxer l’économie numérique : (1) l’imposition de taxes sur les services numériques ; (2) l’élaboration de règles permettant d’établir un lien fiscal pour les entreprises numériques qui opère par l’intermédiaire d’une présence numérique significative ; (3) des retenues à la source sur les transactions numériques.

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Documento de Investigación 111, Septiembre 2020

Medidas Tributarias Nacionales  sobre la Economia Digital

Por Veronica Grondona, Abdul Muheet Chowdhary, Daniel Uribe

El Marco Inclusivo de la Organización de Cooperación y Desarrollo Económicos (OCDE) está considerando un enfoque de dos pilares en relación con el cobro de impuestos sobre la economía digital. Las estimaciones preliminares acerca de la repercusión de sus recomendaciones indican un modesto incremento en la recaudación de impuestos sobre la renta de las sociedades, cuyos beneficios se prevén que se dirijan principalmente a los países desarrollados. Al mismo tiempo, están proliferando las medidas nacionales en materia de cobro de impuestos sobre la economía digital, un cambio estimulado por el comienzo de la pandemia de COVID-19. Los países también tienen plenos derechos a aplicarlas en virtud del derecho internacional, pese a las etiquetas de “unilateralismo”. En este documento de investigación se ponen de relieve las medidas en materia de impuestos directos que están adoptando diversos países y se exponen tres enfoques fundamentales con respecto al cobro de impuestos sobre la economía digital: 1) impuestos sobre los servicios digitales; 2) normas sobre un nexo en base a una presencia digital significativa; y 3) retenciones en origen sobre las transacciones digitales.

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SC Webinar Series on Development and COVID-19

Webinar on Tax Policy Options For Funding the Post-COVID Recovery in the Global South

The COVID-19 pandemic has negatively affected tax revenue collection globally, with the Global South especially hard-hit. The decline in economic activity has meant reduced corporate profits, declining consumption and increasing unemployment. This in turn implies declining revenue from corporate income taxes, goods and services taxes and personal income taxes. Resource-rich countries are especially being affected by the drop in global commodity prices and decline in international trade. This reduction in revenue collection is limiting developing countries’ ability to effectively respond to the COVID-19 crisis. It is therefore necessary to explore what are the concrete tax policy measures developing countries can take to raise revenue at this critical time. Measures pertaining to the digitalized economy are of particular importance given the increasing sales of tech companies and highly digitalized businesses during the lockdown.

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Research Paper 111, May 2020

National Measures on Taxing the Digital Economy

By Veronica Grondona, Abdul Muheet Chowdhary, Daniel Uribe

The Organisation for Economic Co-operation and Development (OECD)’s Inclusive Framework is considering a two-pillar approach on taxing the digital economy. Preliminary estimates about the impact of its recommendations show a modest increase in corporate income tax collection, the benefits of which are expected to go mostly to the developed countries. At the same time, there is a rise in national measures on taxing the digital economy, a move spurred by the onset of the COVID-19 pandemic. This is also fully within the rights of countries under international law, despite labels of ‘unilateralism’. This research paper highlights the direct tax measures being taken by various countries and finds three key approaches to tax the digital economy: (1) digital service taxes; (2) nexus rules based on significant economic presence ;(3) withholding tax on digital transactions.

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