Comments on Discussion Draft: Possible Changes to the United Nations Model Double Taxation Convention Between Developed and Developing Countries Concerning Inclusion of software payments in the definition of royalties
The South Centre Tax Initiative (SCTI) offers its comments on the discussion draft on inclusion of software payments in the definition of royalties. As is well known, this is an important issue that developing countries have been fighting for, for a while now. The SCTI supports the proposed change which seeks to insert the phrase “computer software” in article 12(3) of the United Nations Model Double Taxation Convention Between Developed and Developing Countries. The COVID-19 pandemic adds special urgency to resolving this long-pending issue as revenue from software payments made from developing countries continues to increase.
Base Erosion and Profit Shifting in the Extractive Industries
By Danish and Daniel Uribe
Developing countries with significant natural resources have not fully utilised them for financing their development aspirations. Extractive industries and the revenue generated from their extractive activities need to constitute a larger share of domestic resource mobilisation. However, the sector remains beset with massive tax base erosion and profit shifting by large multinational companies. This policy brief therefore looks at the extractive industries, and the potential impact of their practices on the national policies and regulations in developing countries. It further also considers some current initiatives at the international level for enabling countries to obtain more revenue from natural resource extraction, and offers some observations on the policy options available to developing countries.
Mesures nationales sur l’imposition de l’économie numérique
ParVeronica 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.
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.
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.
Taxing the Digital Economy to Fund the COVID-19 Response
By Abdul Muheet Chowdhary and Daniel Uribe Teran
The COVID-19 pandemic has weakened global economic growth, raising pressures on revenue authorities to fund the fiscal stimulus necessary to contain the spread of the virus and provide income support to affected households. Accordingly, countries are taking national measures to tax the digital economy as highly digitalized businesses are seeing a rise in sales, subscribers and profits owing to the work from home lockdown measures. The three main policy responses undertaken are digital service taxes, nexus rules based on significant economic presence and withholding taxes on digital transactions. These are briefly summarized here and elaborated in detail in a forthcoming research paper by the South Centre Tax Initiative (SCTI).
India and recent updates on the OECD/G20 Inclusive Framework’s Two-Pillar Approach
By Subhash Jangala
The Organisation for Economic Co-operation and Development (OECD)/Group of Twenty (G20) Inclusive Framework in its January 2020 Statement has affirmed the commitment to arrive at a consensus-based solution to the tax challenges arising out of digitalization of the economy by the end of 2020 and take forward the on-going discussion on the two-pillar approach. This article examines some of the key issues in the Statement for developing countries, such as the scope, new nexus rules, role of accounting standards and proposed source rules. India’s proposal on profit attribution through a two-factor apportionment using employees and assets is mentioned as a potential option for country-wise thresholds in the new nexus.
The Role of South-South Cooperation in Combatting Illicit Financial Flows
By Manuel F Montes
Developing countries bear the brunt of costs from illicit financial flows (IFFs). These losses are the result of the facilities that the global system provides transnational companies, operating in multiple tax jurisdictions, to move their profits to favorable locations. International cooperation has been seen to be a key ingredient in restricting IFFs. However, a difference in interests in the treatment of many types of transactions between developed and developing countries is an obstacle to a fast solution of the problem. Developing countries must seek to seize the initiative to restrict their losses from IFFs. They can deploy various joint and concerted actions, within the umbrella of the principles of South-South cooperation for this purpose.
Third Annual Developing Country Forum on South-South Cooperation in International Tax Matters (Report)
The South Centre organized, in cooperation with the Research and Information System for Developing Countries (RIS), the Ministry of External Affairs and the Ministry of Finance of India, the Third Annual Developing Country Forum on South-South Cooperation in International Tax Matters (the Forum). The Forum is an activity of the South Centre Tax Initiative (SCTI) which serves as a platform owned by developing countries to facilitate the networking and access to their officials to technical and academic resources, as well as to provide a venue for discussion among developing countries to identify collective efforts towards their participation in international tax fora and negotiations on matters of global economic governance. Discussions during the forum addressed the most relevant tax issues that may impact developing countries currently being discussed at the international level, especially in the OECD. The Forum also allowed the exchange of expertise among developing countries coming from Asia and the Pacific, Latin America and the Caribbean, and Africa, which consolidated this space as a necessary mechanism to identify coordinated positions among developing countries towards the consolidation of a network of tax officials from developing countries and strengthening their voice in the international fora.
International Tax Cooperation: Perspectives from the Global South
About the Book:
A substantive reform of the global tax system involving a variety of multilateral platforms is underway. The question is not whether the tax standards and practices will change, but in which direction.
Developing countries have long sought changes in rules, standards and procedures shaping the allocation of taxing rights among sovereign states. In the wake of the 2008-2010 Great Recession, developed country governments engaged in massive public sector layoffs and channeling enormous public resources to bail out large financial companies and their wealthy investors. The Panama Papers, the Paradise Papers, the Lux Leaks became household words in the United States and Europe because of the journalistic coverage. Other scandals, such as the “cum/ex” fraud in Germany involving a loophole in the taxing of dividend receipts were less known but just as materially significant. Tax reform, particularly as it applied to the treatment of corporations working in multiple tax jurisdictions, thus became not only a problem of developing countries but an issue of global concern.
Addressing Developing Countries’ Tax Challenges of the Digitalization of the Economy
By Monica Victor
This Policy Brief sheds light on some of the implications for developing countries concerning the new international taxation global governance structure and the ongoing corporate tax reform process under the Organisation for Economic Co-operation and Development and the Inclusive Framework on Base Erosion and Profit Shifting (BEPS) Project umbrella in the context of the digitalization of the economy. The objective is to inform developing country tax authorities on the issues that may require further South-South cooperation and action to protect taxing rights that are of vital importance for the achievement of the Sustainable Development Goals. Firstly, the new international collaborative mechanisms created after the BEPS Project – the Platform for Collaboration on Tax and the Inclusive Framework on BEPS – are described. Secondly, the international tax reform proposals under negotiations in the Inclusive Framework on BEPS are outlined. The final remarks will address the challenges for developing countries to participate in the ongoing international tax reform effectively.
Comments on the OECD Secretariat Proposal for a “Unified Approach” under Pillar One
The South Centre Tax Initiative (SCTI), the South Centre’s flagship program for promoting cooperation among developing countries on international tax matters, submitted its comments in November 2019 to the OECD Secretariat’s Proposal for a “Unified Approach” under Pillar One. This proposal is the key solution proposed by the OECD to address the challenge of taxation in the digital economy. In today’s world, it is a common occurrence that large multinational enterprises pay little or no taxes on their global profits by exploiting gaps in international tax rules. Approximately $500 billion is estimated to be lost globally due to corporate tax avoidance each year. This number is five times the annual requirement for funding the Paris Agreement ($100 billion) and around 20% of the funding requirement for achieving the Sustainable Development Goals in developing countries ($2.5 trillion). Hence, revenue lost to corporate tax avoidance could go a long way in financing sustainable development and actions regarding climate change.