UN Model Double Taxation Convention

Tax Cooperation Policy Brief 17, July 2021

An Albatross Around the Neck of Developing Nations – MFN Clause in Tax Treaties

By Deepak Kapoor, IRS

The Most Favoured Nation (“MFN”) clause in double taxation avoidance conventions epitomises the basic principle of non-discrimination and intends to bring parity in business and investment opportunities among treaty partner countries and jurisdictions. Inclusion of provisions like MFN and non-discrimination clauses in tax treaties are intended to promote equity among treaty partners. In the context of tax treaties between developed and developing countries, the MFN clauses also act as negotiating tools to bargain for better treaty tax rates.

However, lately these clauses have started demonstrating disadvantageous effects for the source countries, which are mostly developing countries. The MFN clauses generally do not appear to be creating potential risks if they are operational between two equally developed countries but when the relationship is between a developed and developing country, where one partner receives more investments from the other than it makes, such risks are inevitable. Lately, problems have started arising due to various interpretations of the MFN clauses by the courts forcing the source countries to extend benefits of reduced rates and restricted scope to treaty partner countries under the MFN rules. Such beneficial interpretations have gone beyond the basic objective and purpose of the MFN clauses.

In light of recent court cases in South Africa and India, it appears that the MFN clauses are creating opportunities for “reduced taxation” and leading to unintended erosion of tax base of source countries. The problem also lies with the ambiguous drafting and formulations of the MFN clauses, which eventually leads to unexpected negative outcomes for countries who have bound themselves with the future commitments. Therefore, a comprehensive review of existing MFN clauses in tax treaties, their cross connections and possible negative spill over effects to other treaties is the urgent need of the hour for the source jurisdictions.

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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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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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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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SCTI Submission, October 2020

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.

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