UN Model Tax Convention

Statement, 13 October 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 136 member jurisdictions of the OECD/G20 Inclusive Framework (IF) made on 8 October 2021, on a two-pillar solution to address the tax challenges arising from the digitalisation of the economy. The broad architecture of the agreement is now in place and it is clear to developing countries what they can expect from it.

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Statement, October 2021

STATEMENT BY DR. CARLOS CORREA, EXECUTIVE DIRECTOR OF THE SOUTH CENTRE, TO THE MINISTERS AND GOVERNORS MEETING OF THE INTERGOVERNMENTAL GROUP OF TWENTY-FOUR (G24)

The world economy is showing signs of recovery, yet very uneven, and is facing a multitude of challenges including rising inequality within and among countries, vaccine nationalism in the face of raging COVID-19 variants, escalated debt burden for many developing countries, ravages of climate change and weakening multilateralism.

Now, we are at a pivotal moment to mend and fix the global systemic problems so that we can recover better, greener, more inclusively, and more resiliently. It is time to address root causes of the fragility, instability, divergence and asymmetries of the global economy.

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Tax Cooperation Policy Brief 19, October 2021

Developing Country Demands for an Equitable Digital Tax Solution

 By Abdul Muheet Chowdhary

The taxation of the digitalized economy is the foremost challenge in international taxation today. Countries around the world, especially developing countries, are struggling with taxing the rising profits of major tech giants which operate on entirely new business models that have made traditional international tax rules obsolete. A “Two Pillar solution” is being negotiated in the OECD/G20 Inclusive Framework on BEPS that seeks to update these rules, re-allocate taxing rights and establish a global minimum tax. However, as it stands, the solution has very limited tax revenue benefits for developing countries and is administratively complex. For the solution to be durable, it must be equitable, and accordingly must incorporate the concerns of developing countries going forward.

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Tax Cooperation Policy Brief 18, September 2021

Combatting Tax Treaty Abuse: Tools available under the BEPS Multilateral Instrument

 By Kuldeep Sharma, ADIT (CIOT,UK)

The anxiety of taxpayers, consultants and advisors over the consistent application of Principal Purpose Test (PPT) provisions in tax treaties can now be put to rest as tax authorities are expected to consistently read the PPT provisions in conjunction with the preamble, i.e. the key to application of PPT provisions lies in the preamble of the treaty itself. This follows on taking a leaf out of the Preamble to the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion & Profit Shifting (MLI), Vienna Convention, Commentaries on PPT in the respective Organisation for Economic Co-operation and Development (OECD) and United Nations (UN) Model Tax Convention (MTC), 2017 and Australian Taxation Office’s (ATO) instructions on PPT which abundantly highlight on conjoint application of the preamble in the course of invocation of PPT provisions. Now, the entire focus of extending treaty benefits has shifted to undertaking bonafide transactions and preventing double taxation as against a tendency of securing tax savings through tax avoidance. Therefore, PPT as read with the preamble can clearly be invoked to combat treaty-shopping arrangements, abusive tax planning and abusive tax avoidance arrangements or transactions. At the same time, tax authorities in any part of the world may not be inclined to invoke PPT as read with the preamble in respect of any arrangement or transaction when taxpayers are able to discharge their onus establishing that (below mentioned conditions to be satisfied in tandem):

– genuine business and commercial reasons for a transaction exist;

– a purpose for the transaction cannot be ascribed to non-taxation or reduced taxation through tax evasion or tax avoidance;

– despite no tax advantages, the transaction would be carried out exactly in the same way; and

– it cannot reasonably be considered that one of the principal purposes of the arrangement or transaction is to obtain treaty benefits and that the object and purpose of the treaty is getting defeated.

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Tax Cooperation Policy Brief 16, July 2021

Article 12B – A tax treaty solution by the UN Tax Committee for taxing digital incomes

By Rajat Bansal

Taxation of income of multinational enterprises engaged in digitalised businesses by source or market jurisdictions is currently the most important challenge before the international tax community. The current membership of the United Nations Tax Committee in April 2021 finalised a tax treaty solution to address this challenge. This brief explains the rationale for coming up with a particular solution of inserting a new Article in the United Nations Model Tax Convention, its merits and how it can be beneficial for all countries, especially the developing ones.

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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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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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