The United Nations Intergovernmental Process – An Opportunity for a Paradigm Shift
By Kuldeep Sharma and Raunicka Sharma
Efforts are underway to strengthen the inclusiveness and effectiveness of international tax cooperation so that the current tax structures consider the equitable interests of developing countries. This is necessitated as a section of developing countries has lost confidence in the OECD and there is a lingering doubt whether OECD has developing countries’ best and equitable interests in mind. As a result, the United Nations General Assembly has launched intergovernmental talks to enhance international tax cooperation and draft a UN Tax Convention that aims to establish inclusive norms for transparency and tax cooperation, that leads to development of an acceptable and frictionless worldwide tax policy.
The South Centre’s Board approved in September 2022 its Programme of Work 2023-2025 where the policy dimensions of digital transformation are highlighted as one of the priority areas for developing countries, including the need to harness digital technologies in education, health and the production of goods and services, support the development of a domestic digital industry, improve their digital infrastructure, advance digital equity and inclusion, effectively tax the digital companies and contribute to shaping the digital governance architecture to advance the Sustainable Development Goals (SDGs).
Following the call made in the Declaration on the Commemoration of the Seventy-Fifth Anniversary of the United Nations (A/RES/75/1) for improved digital cooperation, the United Nations (UN) Secretary General’s Roadmap for Digital Cooperation and his report ‘Our Common Future’, the South Centre submits the following written contribution to the UN Secretary General ahead to the Summit of the Future with the objective of providing support to developing countries in the intergovernmental process concerning the digital transformation.
Contribución del Centro Sur al Informe del Secretario General sobre la aplicación de la Resolución A/RES/77/7 de la Asamblea General de la ONU sobre la “Necesidad de poner fin al bloqueo económico, comercial y financiero impuesto por los Estados Unidos de América contra Cuba”
Esta aportación del Centro Sur se presenta en respuesta a la solicitud del Secretario General como contribución al informe del Secretario General de acuerdo a la resolución A/RES/77/7, con respecto a la imposición de medidas económicas, financieras y comerciales unilaterales por parte de los Estados Unidos de América, contra Cuba, en violación de los principios básicos de la Carta de las Naciones Unidas.
Taxation of Computer Software: Need for Clear Guidance in the UN Model Tax Convention
By Abdul Muheet Chowdhary and Sebastien Babou Diasso
Developing countries pay enormous sums of money for the right to use intellectual property such as patents, trademarks, copyrights, etc. Such payments are known as ‘royalties’. The scale is enormous, and just 27 South Centre Member States paid $45 billion in 2020 as royalties. Some proportion of these payments are for the right to use computer software. Developing countries can gain significant revenues if the United Nations can provide clear international tax guidelines that payments for the right to use computer software should be taxable as royalties. This Policy Brief provides the world’s first country-level revenue estimates for 34 of the South Centre’s Member States and finds that they could collect potentially $1 billion in tax revenues in 2020 had they been able to tax payments for the use of computer software as royalties.
Enforcing Secondary Taxing Rights: Subject to Tax Rule in the UN Model Tax Convention
By Abdul Muheet Chowdhary and Sebastien Babou Diasso
The Global Anti Base Erosion (GloBE) Rules under OECD’s Pillar Two recommendations, with a minimum effective tax rate of 15%, are expected to play a significant role to end the ‘race to the bottom’ in corporate taxation, which is one of the main drivers of profit shifting. However, the thrust of these rules is designed in a manner to give priority to the developed countries. In this light, the Subject to Tax Rule (STTR), which is a treaty-based rule that allows source jurisdictions to impose limited source taxation on certain payments that are taxed below a minimum rate in the country of residence, is of extreme significance for the developing countries. Under Pillar Two, application of STTR is restricted to base eroding payments or mobile income between related parties only, which does not address Base Erosion and Profit Shifting (BEPS) concerns in an entirety. That apart, the withholding tax rate of 9% proposed by the OECD may not result in generation of significant resources for the developing countries. In this light, developing countries keenly expect that the UN Tax Committee should devise an STTR that is simple to operate, has a broad scope covering all payments in a tax treaty and imposes a higher withholding tax closer to 15% to bring meaningful revenues for them. Also, developing countries desire that STTR provisions may be introduced at the earliest so as to speedily implement them through the UN Multilateral Instrument under contemplation. This Policy Brief also examines existing average withholding tax rates on interest and royalty payments in existing tax treaties of 48 South Centre and 52 G-77+China Member States and finds that out of a total of 100 developing countries, only 25 would stand to benefit from the STTR in its restricted form in Pillar Two, further strengthening the need for an improved version formulated by the United Nations.
South Centre Inputs to UN Secretary-General for “Promotion of inclusive and effective tax cooperation at the United Nations”
The South Centre submits the following comments and recommendations to the UN Secretary-General for the report being prepared in response to UN General Assembly resolution 77/244 on “Promotion of inclusive and effective tax cooperation at the United Nations.”
The Midterm Comprehensive Review of the International Decade for Action on Water for Sustainable Development amid growing tension between a human rights perspective and the commodification and privatization of water
By Luis Fernando Rosales Lozada
Climate change is affecting the availability of water resources in different regions around the world. In addition, some growing trends towards water commodification and privatization could exacerbate the problem since they are guided by profit maximization strategies. The United Nations (UN) will hold the Midterm Comprehensive Review (MCR) of the Implementation of the Objectives of the International Decade for Action, “Water for Sustainable Development”, 2018–2028, from 22 to 24 March 2023. This is an important opportunity for the international community to assess the challenges on access to clean drinking water and sanitation. The MCR debates and outcomes should be guided by a human rights approach towards promoting access to water for all in 2030 in alignment with Sustainable Development Goal (SDG) 6.
Digital taxation under the OECD Amount A and UN Article 12B mechanisms for market jurisdictions in Africa: a comparative analysis
By Erica Rakotonirina
This Policy Brief examines the need for the evolution and harmonization of international taxation in the face of the digitalization of economic transactions.
Between the OECD proposal for shared taxation of residual profits through the Amount A mechanism and the UN proposal of Article 12B for taxing income from Automated Digital Services on a gross basis through shared but capped taxation, with an optional variant of the taxation of net profits, African States need to make vital political and technical choices.
The strategic negotiations must include regulatory sustainability, the right balance and fiscal fairness between the divergent interests of residence states vs source states (which include almost all African countries), and MNEs in their quest for profit and expansion.
The Policy Brief carries out quantified evaluation of possible revenue estimates using a case study approach. However, such an exercise remains difficult for questions of accessibility and reliability of data relating to the activities of multinational companies.
To be realistic, the scope of the study was restricted to a reference company in the digital sector but targeted economies of different scales. The results of the revenue estimates represent an optimistic case of the impacts on tax revenues of the application of the OECD and UN measures on different types of economies.
Strengthening United Nations Actions in the Field of Human Rights through the Promotion of International Cooperation
Geneva, 24 February 2023
The South Centre submits the following written contribution to the United Nations Secretary General’s Report on ‘Strengthening the United Nations’ action in the field of human rights through the promotion of international cooperation’, in line with the United Nations General Assembly (UNGA) resolution A/RES/76/164, adopted on 16 December 2021. The resolution recognises the need for respecting the political, economic and social realities of each society in compliance with the principles and purposes of the Charter of the United Nations. The report to be presented by the Secretary-General to the UNGA represents an important opportunity to recognise that global challenges do not affect all societies equally, and that they require a broader consideration of policies and innovative solutions that can cater to the unique realities and specific needs of each society.
Taxing Big Tech: Policy Options for Developing Countries
By Abdul Muheet Chowdhary and Sébastien Babou Diasso
Even as the COVID-19 crisis wreaked havoc on the global economy, it gave rise to a small set of winners, namely Big Tech. The increasing prevalence of remote work and an acceleration of the digitalization of the economy allowed Big Tech companies to raise enormous revenues during the pandemic, which in some cases dwarfed the gross domestic product (GDP) of several countries. This policy brief explores the rising untaxed profits of Big Tech in particular, and the digitalized economy in general, and explains why the existing rules are insufficient. It also critically examines the solution that has been devised by the Organisation for Economic Co-operation and Development (OECD), an intergovernmental organization of developed countries. Finally, it outlines alternative policy options that are more suitable for developing countries to tax the profits of Big Tech.
UN Model Tax Convention: Selective Territoriality – The Specter of Privileged Player in a Rigged Game
By Muhammad Ashfaq Ahmed
This paper lays out the chessboard on which taxes on international incomes from immovables are contested, bargained, and harvested as per pre-determined rules that are starkly tilted in favor of developed countries. This embedded and pronounced bias in the international taxes regime in favor of developed countries makes them a privileged player. The developed countries then make maneuvers to optimize on their economic gains at the expense of developing nations rendering it a rigged game setting. The paper derives its rationale from an exceptionally selective choice of territoriality on incomes from immovables, which was astonishingly not aligned with the expected reverse capital movement, that is, from developing to developed countries. The genesis and evolution of selective territoriality are traced through its various institutional development phases – League of Nations (LN), Organisation for Economic Co-operation and Development (OECD), and United Nations (UN). An overwhelming international consensus on selective territoriality on incomes from immovables notwithstanding, the UN’s role is brought into spotlight to argue that the developing countries may have suffered massively over the past one hundred years by instinctively believing in the UN Model Tax Convention’s (MTC) efficacy and blindly pursuing Article 6 in their bilateral double taxation conventions (DTCs). The inimical implications of herd-mentality on part of developing countries got galvanized in the particular wake of developed countries employing innovative optimization tools – citizenship/residence by investment programs, tax havenry, manipulable ownership structures, beneficial ownership legislations, and porous exchange of information regime – to maximize on the economic gains. The paper undertakes both normative and structuralist evaluation of selective territoriality to sum up that this is an unjust principle of distribution of fiscal rights at the international level particularly in asymmetric economic relationships, and can hold its ground only until developing countries attain full cognition of the reality and start raising their vocal chords in unison to dismantle it.