I.
Thank you.
We I just so that that.
Yeah.
Yes.
I I I I Just remember to think of that.
And I I think.
Good morning.
Okay.
It's a good story Good morning, everyone.
Happy to see you again this week.
I hope everyone enjoyed the weekend.
Last week we finished the discussion of Workstream one, the convention, the tickets for the convention.
Last week, actually it was the first time to see the full tickets of the convention, but not the first time to see a tickets for the convention.
It was just we get the complete version.
But this time today for Workstream two, actually is the first time to see a text.
We didn't see any versions of text.
I think what we reached in February, it was a solutions paper or solution options, I think it was named.
In which we were trying to agree the approach, the concepts, try to reach a common ground in understanding the different meanings of different things.
So this was the main purpose of the last phase, which concluded by the options paper.
And now we are moving to the text.
Actually, this text has been formed based on this solution options and the discussions that took place within the workstream in the intersectional session and even based on all the discussions that we used to do since we started this committee.
So today we are seeing a version of the text of the protocol and so we can say this is the first reading for it.
So I think it would be very useful if everyone carefully can listen to the other because we need to start to, of course, we expect that normally to be big divergences in different point of views.
So this is expected and normal.
And we welcome this because this is what will enable us to go to the next stage and get more refined and better for the next sessions.
I'm not going to take too much time.
I think it's better to jump to the tickets and start the discussion.
In doing this, I would like to thank our colleague, Lisa, for all her work and this hard work across the period of the intersectional.
I saw this myself, actually, also, we would like to thank Patricia and all the team of Secretariat who contributed to this work for their hard working through the intersectional period.
Here, I would like to hand over to Lisa to start the discussion for Workstream two.
Thank you.
Lisa, over to you.
Thank you very much, Rami Chair, and good morning to everyone.
If we can have the first presentation up, Katie, that would be great.
And It's a pleasure to be here.
Perhaps a little bit of caution.
We only have two days to look at this protocol one text.
So we need to be very, should I say economical, concise and precise on input in order to be as useful as possible.
So Slide one, please.
First of all, perhaps the goal, a little bit repetitive because the goal hasn't changed, surprise, surprised.
The goal is the same as we started off with, thank God.
This is the goal to deal with services that are remotely now performed.
The traditional focuses on physical performed services has changed and therefore, that's the first point on the goal why we are here.
Perhaps just to add to that then that I know that there are several of you in this room that considers that the physical presence is the best solution.
But remember, we are here to solve the problems because it's not the best solution for everything, what doesn't work for lots of services cross border.
The other goals, it will add new nexus rules and they should be flexible to deal with future because the business model might change.
We also have some of our members have found that although a lot of new tax treaties are including provisions on services in their treaties at source, a lot of old treaties do not consider taxation at source for different reasons, and there's very difficulty for some of our members to deal with those issues.
That's also one of the goals that we have in order to be helpful in those cases.
Also, we are including the discussion on ADS at automated digital services, but it should be remembered that in fact, in the whole scope of what we're doing, they are actually quite a small proportion, of course, very important and we do want to include it, but we have to take that into consideration as well.
The next slide, please.
So the highlights of the draft and perhaps I should say immediately that I think it's a draft that no one likes.
It's probably the best drafts, which no one likes.
So it doesn't deal exactly with all the discussions that we've had in the intersessional meetings.
But I would like to perhaps also thank very much the Secretariat because as our chair recently said, there are very divergent views on these issues.
We have had in the internationals internal intermittent meetings between sessions have a lot of discussions and a lot of text.
We shouldn't forget that those texts don't go away.
They are there and they could be used, they could be referenced.
We have a draft text from the Africa group as well.
The text that is provided for now is a new text.
It's not something that has been presented in this format.
It includes, of course, the issues, but it hasn't been presented to the group in the meetings in between.
So bear with us, bear with me because the point what we tried to do is do something that can provide for a way forward to discuss this at this meeting.
So I Of course, the consensus is also what we're trying to achieve, but consensus with so many divergent views is probably going to be difficult.
It's good to be also quite realistic in these issues.
Probably some of us will not be very happy and some will be slightly happier.
But the point in good negotiation as someone told me once, is that not everyone should be happy about everything.
We'll see what we end up with.
Let's see the highlights we have.
It's a broad scope, but we have different treatment for different types of services.
The source and access rules could have different rates, for instance.
We also had a discussion on the traditional terms that we use like permanent establishment, income attributable to permanent establishment, et cetera In some cases, we actually did away with those terms because we thought they were not helpful in the multilateral setting like the draft convention that we are dealing with.
We have used some of the known models in order to be when we think it works for a multilateral setting.
We have also deleted those terms by modifying the substantive rules, and the using on new terms may require more elaboration.
Of course, that is the case.
Now, with permanent establishment, for instance, that is a concept which is different in different bilateral treaties.
So even if we did use the concept of permanent establishment, it does need to be elaborated on.
We also wanted to have a possibility of election where income of remote services can be taxed if there was a physical presence.
There was a set of remittance back to the rules of some members thought that they work very well, and therefore could be allocated on the gross revenue.
Let's look at the structure, Katie.
Yeah.
I can't see them.
Well, I can see it's okay.
Thank you.
Technical issues.
What we're trying to do, of course, is a multilateral instrument, a convention, an agreement that can solve disputes between multiple states that claims the right to source taxation.
The issue is that we need to be very clear and the way that we resolve the disputes needs to be clear and over what subject matter is under dispute.
So we need also to look very carefully at the relationship with existing bilateral or materal tax instruments.
There are many issues that once we settle what we want, we can actually deal with the implementation of it in the next stage.
Some rules need to be decided before and those are the things that we need to try and discuss these two days and be very interesting to hear what you are thinking about these things.
But this draft is initially focused principally on the substantive technical rules that we are going to include in our multilateral text.
Here I also say that we are following a familiar structure.
And also terminology in certain cases, although we have, as I said, already been doing away with some terminology that we think is confusing and is not helpful.
With that, I'm going to move on and as we do have very little time for quite a substantial discussion, my proposal now is to dive into the text itself.
And we will not go article by article.
We will jump some articles, but we can come back to articles that we have not, discussed.
But I would like, perhaps, first of all, to show you the first draft here is the 20th of July draft.
You all have the same draft in front of you.
This is a draft protocol by me, the co lead, of course, with the help of the Secretariat, and I want to thank them very much because with something which is so divergent views.
It's not easy to get all the points in there.
But thank you very much to the Secretariat again.
Katie, can we perhaps look at the text of Article 1? We have it up here.
I suppose that you have brought a copy with you.
And I have, together with the Secretariat, prepared some slides so we can start and discuss article by article 0F course, we're not going to do any drafting online or on the text itself.
This is a opening for the discussion.
I don't know if chair wants to comment anything or shall we just put the slides up with the articles, please, Kate.
Thank you.
Yes.
Just perhaps I'm a little bit quick because I do think we have two days and we have lots to go through.
But we have chosen some articles here that we think would be particularly interesting because they're core subjects.
If you do feel that we need to choose some others, if we can come back to that afterwards so that we now have at least from our perspective here, a way forward to discuss the certain core elements of this protocol.
But if you do feel that they're missing, you would like to talk about some other articles, perhaps we can accommodate that after we've gone through the articles as proposed by me and the Secretary.
Article 1, you have, I hope, been able to study it.
It's the draft 20th of July.
What it does, it deals with persons covered Of course, we know persons covered is a typical inclusion in our double tax treaties, and it could be also, of course, used in this context of a multilateral treaty.
So one of the issues that is included is the subject to tax rule, the low taxed income rule in paragraph three, Based on the 2025 UN model.
We did have a discussion in our group on the necessary inclusion of a subject to tax rule or a low taxed income rule.
We have it here for your discussion.
But as it has been part of both OECD and the UN models, we thought that it was a good point to have in our tax.
The question we should ask ourselves, should you have a more wider subject to tax rule than the one that we are proposing? B, you're very welcome to start with your comments on Article 1, if you have any.
How do you So I have someone who wants to break the ice.
I'm very grateful.
United Kingdom, please go ahead.
Thank you very much.
The UK would like to thank the co lead and the Secretariat for their efforts to advance Protocol one.
We'll turn to our detailed comments on Article 1 shortly.
But before we do so, we wanted to make some more general comments on the draft protocol.
Overall, we continue to have significant concerns about the substance of the draft protocol.
The UK is a jurisdiction that has supported reforms to the international tax framework to better business profits are taxed where businesses act and create value in a more digitalized and globalized economy.
However, we think that the approach taken in the draft protocol would fundamentally depart from that principle.
We also think it would give rise to double or excessive taxation that will act as a barrier to cross border trade and investment.
We understand that the protocol is intended to be optional and that there might be states that despite the points above support the approach taken and are willing to incorporate it in their bilateral treaties.
However, we wanted to register our position and our concerns and linked to that, emphasize the importance of it being made clear that this is an optional protocol and should not be viewed as an articulation of Article 5 of the Framework Convention or give effect to the obligations that it imposes.
Turning now to then our comments on Article 1, the UK notes that whilst Article 1 broadly follows established treaty drafting, we would welcome clarification on how these provisions are intended to operate alongside equivalent provisions already contained within bilateral tax treaties.
In this context and more generally, it remains unclear whether the protocol is intended to supplement existing treaty networks or establish an alternative framework for the taxation of cross border services.
Thank you very much.
Thank you, the UK.
I think perhaps a quick comment on that.
I think it has not been decided yet if the multilateral agreement should apply to be a optional one to include in double tax treaties.
Because what has been identified in the goals, if you, what I just mentioned is one of the problems for many members here is that they cannot change the double tax treaties and they have problems of cross border services because they are limited to tax, because their tax treaties limits their ways of applying their taxation in domestic law on those cross border services.
One of the goals that we have here today is actually to change that rule.
But I just wanted to make that clear.
It's part of the goal, and I think perhaps Rami want to comment something.
Yes, I get a little bit confused in this, but I like to clarify things.
I think our colleague from UK mentioned the protocol itself is optional and which is true all the protocols are optional.
There is no talk about it.
About the mechanisms that this protocol we're going to use to apply the new rules.
I think it's not decided yet whether it's optional rules, part of it is optional and the part is mandatory, whatever mechanism, it's yet to be decided.
But when we are talking about the protocol, of course, it's optional.
If you sign to it, then you'll be committed with what is the protocol, whatever it is, whether it's part of it optional or mandatory, whatever, if you didn't sign, again, you're out of this protocol, you're not part in this protocol, so it's not applied to you.
So just to be clear for everyone about the difference between mechanisms that we have inside the protocol and the protocol in general as a whole.
Thank you.
Yes.
Thank you, Rami.
I heard that it's optional to include in your bilateral treaties.
That's what got me perhaps I'm misunderstanding the comment.
But thank you, Rami, for clarifying that.
That's helpful.
It's really important point that we are all understanding the same here.
But it's important as well to know that one of the goals here is actually amend or modify tax treaties that are not complying with some members wishes of how they can tax cross border services.
I have Jamaica, please go ahead.
Thank you very much.
Thanks a lot and thanks a lot for the work that you've been doing on this along with the Secretariat.
My comment on paragraph one is whether the paragraph should be extended to read after the words, state parties who are parties to the convention and the protocol.
Now, I notice that the parabula provisions have not been included.
I'm wondering if that will be included.
If that is the case, then fine.
Thank you, Marlene.
Note, taken.
Thank you.
Thank you.
I have Italy.
Thank you very much, Madam Colleague, and thanks also for the work done on this protocol.
Let me start by subscribing entirely the comments made by the delegation of the United Kingdom as general remarks.
Maybe a couple of complimentary comments on substance and implementation aspects.
The first one on substance, we believe that the taxation of services in jurisdiction should be based should be defined on a principle basis.
And in our view, the mere location, the payer and the consumer may be a distortive indicator of value creation and therefore cannot be considered as an appropriate nexus per se for the attribution of tax right over income derived from services performed in so countries.
We believe that a more proper and principle based requirement to trigger attribution of taxi right to so jurisdiction is a meaningful and stable economic contribution of the activity of taxpayer to the economic life of that jurisdiction.
Um, on the implementation aspect, we believe that an elective mechanism for a voluntary accession should be envisaged also in this protocol.
I mean, despite the protocol being optional, we see the need also for a kind of opt in solution in relation to a defined set of treaties, And then if we may comment on Article 1, we believe, as general remarked that the aim of the protocol should be to amend the existing treaty with respect to the allocation rules, and therefore, we do not consider appropriate to include a subject tax rule in this, um, in this article.
As drafted, it seems to apply of any kind of income regardless of whether the income arises for the provision of services or the taxes covered under Article 2.
It's also unclear whether the subject to tax rule prevails over the taxation established in Article 5 to seven or how it is coordinated with the provision of this article.
Thanks.
Thank you very much, Italy.
Can I just ask you perhaps because I think one of the things that is important to try and here is regarding the optionality.
You were in favor of having a possibility to perhaps have an annex and list countries that have already treaties that could be modified? Is that what you were aiming for or is it a I mean, there's so many options here on how to make this treaty enforce with different countries.
One can have that possibility.
One can have an automatic, you sign it and all your treaties are amended immediately.
You can have also a rule that makes countries who do not have double tax treaties have the rules.
There's so many options here that I think it's important to hear a little bit of what Members think is useful in this case.
I understood you talked about optionality, perhaps if you could give us a little bit more of your views on that.
Thank you.
Italy, please.
Thank you.
Thank you very much, Madam Colleague.
Just to come back on this, we have a substantive issue here because as reiterated, we have some substance concern on the way the protocol is drafted and that's on the top of our comments and And then on the procedure and on the implementation aspects, I would say that at this stage, this is unclear and this also relates to, say, the relation with Article 21 of the Framework Convention, how this protocol will be implemented.
In general, we are concerned, and this concern has been highlighted in the discussion on a on Article 21 of F Convention that we are we should not be forced to change existing treaties where, you know, the proper allocation of those treaty is concerned.
When it comes to this particular protocol, we believe that in general, there should be an optional, an opt mechanism, I would say, in the protocol that would allow to change to the extent it is necessary and appropriate and there is a consent of the party to, um, to enter the amendment of the treaty with specific treaties a bit like the MLI approach that we followed in the context of the BEPS project at UACD.
Thank you very much, Italy.
I have the Netherlands.
Please go ahead, Netherlands.
Thank you, Madam Colleague.
As I only arrived yesterday, first of all, hello everyone.
Good to be here again and I'm looking forward to the discussions this week.
And then, first of all, of course, I want to thank the co lead and the Secretariat for all the work done.
I would like to notice our surprise though, that when the draft of the first protocol was published, during the intersessional work, discussions were difficult and it showed again that the membership is divided.
Nonetheless, we believe that at the last intersessional meetings, the Secretariat and the Cole came up with a proposal that would, in our opinion, have been a good basis for these plenary discussions, and that the colete just referred to as well, I think.
This is a draft that would in our opinion have the potential to work towards getting a wider membership behind some of the important principles behind the protocol through a so called stage approach.
Maybe we can come back to that later.
Now, unfortunately, it seems that during this meeting, we are not discussing this draft this while there are not that many sessions left.
That being said, I want to share some more general remarks as to the draft at hand.
It will come as no surprise that the Netherlands has real concerns going into the direction of gross withholding taxation.
I will not repeat all the reasons that we have now heard many times, and we can align ourselves here with the UK as well.
Do take the call to seriously consider the impact of digitalization and globalization seriously and are prepared to talk about an all encompassing and consistent approach, looking at net income and at goods as well as services.
However, as long as the discussion is going in the direction of gross withholding taxation as a solution, the Netherlands will not be able to make any commitments in a multilateral context.
We see DTAs as a balanced outcome of bilateral negotiations, taking into account the interest between contracting states.
For the Netherlands, it would be simply impossible to commit to amending DTAs affecting the allocation of taxing rights without reconsidering this overall balance of each individual DTA.
In this spirit, in order to enlarge the potential participation to the protocol, we would encourage making the substantive provision of this protocol optional to avoid missing out on jurisdiction committing to one of the provisions because they cannot support another provision.
And we would shape it so to allow jurisdictions to consider per treaty partner which choices would keep the specific DTA imbalance.
That's it for now.
Thank you.
Thank you very much, the Netherlands and I think you are not the only one who was a bit surprised at the draft text.
But again, as I explained, the intention behind it was to surprise you a little bit.
But the thing is, and I think this is really important that It's a basis.
The thing is that we do have texts that we have presented.
You do have the Africa group draft.
You do have also the draft that I presented in the discussions and issues within it, of course, can be discussed and added to this discussion.
But what we have now is a skeleton and with some of the issues that we think are more urgent that we try and settle as much as possible.
Thank you for that, Netherlands.
I now have Switzerland.
Please go ahead.
Thank you, Madam Colt.
Good morning, distinguished colleagues.
Switzerland would like to make some general remarks in the form of a disclaimer.
Switzerland agrees to residual taxing rights of source countries for service fees, but only if this is done in a comprehensive and balanced package that reflects the bilateral relationship between the two countries.
We therefore cannot support the general policy direction that protocol takes, but nevertheless, we are committed to a discussions and we will be happy to contribute mainly with the view of making the protocol technically function.
In the light of this, I would like to pass on to my colleague who will make remarks in that regard.
It's the Swiss Bald tag team today.
Hello to everybody.
Hello, misses Tier.
It's nice to see you.
Yeah.
Just in light of what my colleague just said, as we begin our discussions this Monday morning, a state of the situation where we are today and this protocol.
For us, tax treaties are carefully balanced agreements between countries in view of the particular situation between the two countries.
The difficulty there it seems to me the structural fundamental difficulty here as we're trying to find a landing zone for Protocol one is that at this point, it would seem with today's version that actually signing on to Protocol one would mean, in fact, accepting Article 12 AA, 12 C of the UN model.
That's where we're at here.
It's like an everything or nothing situation with other compromise given back to you.
From a practical point of view, I don't see how in the real world, um, that could work.
In that light, before getting into the technical discussions on the different articles, It seems to me that fundamentally for Protocol one to have any chance of working, there needs to be more flexibility.
There needs to be flexibility regarding the content.
Maybe some countries would want only 12 A, maybe the 12 A, 12 B, 12 C.
There could be flexibility regarding the implementation.
Maybe some people would want to have it change their tax treates directly like MLI some parties, maybe others would prefer bilateral approach.
And we had that direction in the two part approach paper that we got in June, which was an interesting direction, and I think it was unfortunate that we didn't get the text before the discussion, and then we had three days to make comments and many people are on vacation and I think it's something that we should still think about regarding this.
So in that context, as we now discuss the different details of u the Protocol one, I think maybe it's elements to keep in mind to get to some landing zone that could be more broadly accepted.
Thank you, Switzerland.
Yes, I think you are correct.
I also with the help of the Secretariat, we didn't feel that we got sufficient support for the proposal that we had.
It could be different reasons, but there was even there was 110 members online and we didn't get the support we felt that we needed for going forward with it.
But again, as I said, there are parts of it that could be forms part of the negotiation now and the flexibility can be introduced and that's why it's important to hear what actually, if you like something of the text that we have, that you actually promote that and say this is something that we'd be interested to have in the text.
I think when you mentioned that some may want an automatic application and others a bilateral to have those two possibilities, that's something I hadn't thought about.
It's quite an interesting thought as well and to have that flexibility that interesting to hear if others think it is a good way forward.
I hadn't thought about that.
I've thought of being totally optional or totally automatic, but to have the flexibility within the treaty is something that I hadn't thought of before.
That was an interesting point.
Thank you.
I agree.
We need to be flexible.
This is the skeleton and it's just used now in order to try and move forward.
Thank you.
I have France.
Please go ahead.
Yes.
Thank you, miss Chair.
Hello everybody as they arrive today only.
I wanted to start by thanking the colleague for this piece of work.
But first, France would like to reiterate what he has said all during the process that starting with such an issue might be had a to get over the line with a consensus based approach.
Now we have taken this route, so let's try to be constructive.
But once again, I think that's pretty unfortunate.
I wanted to reiterate and said what my colleagues said before, but I have my explanation why the text differs so much from the first draft we had in the last day of June.
Um, it's because you felt that you didn't have enough support.
But on the other hand, it might complicate the discussion here because, as my Swiss colleague said, we only had, like, a few weeks to analyze with most of our team being out on holiday.
You said you wanted to surprise us, but finally, it's a very, um, It's a very classical form of mini DTA.
I don't know if it's a surprise, but I wouldn't call it a good surprise.
I'm rather surprised as well because basically it's a mini treaty that just embedded Article 12A, B, and C of the current UN tax convention model.
I thought that we were here to think out of the box.
We had previous discussion last year about what other routes could be taken on services that are not reflected here.
Because as you know, friends still believe in physical presence, although we do acknowledge that in some specific areas, there are issues where a new reflection on nexus is needed.
So it's not going to be a surprise that, um, On the draft, the nexus that you have proposed and the taxation on a gross basis for all services, even though that might need some very big expenses might not be a starting point because we are just going to ruin the economic that are behind those services.
In a nutshell, I know we shouldn't keep going back to the past and saying the draft that you have proposed in June um, was more promising, but I'm still doing it because as my Swiss colleague said, it did offer more flexibility on optionality, on the scope, on the details that we might want to cover other countries.
So but as you said, all or nothing, um, I don't want to be pessimistic, but for France, it might mean nothing.
I do acknowledge for more flexibility.
Thanks.
Thank you, France.
Yes, thank you.
You were one of the few actually who supported the draft that we presented earlier, so thank you for that support.
Now, I think I Again, I want to be as positive and optimistic as possible and I think take this draft as a working draft.
It's a zero draft and there are texts that we have looked at and we are here to listen to what can be included from texts that we have.
There is a reality behind this.
The reality is that we have a membership that talks together, which is the Africa group, and that is a lot of a big part of this group.
When we talk here, we try to get to consensus.
But if you don't get to consensus, we will have a majority vote.
Therefore, the votes count.
It's not individual countries, it's groups or if many of this group comes together and says, look, this is what we would like to push for, then of course, the way forward will be in that direction.
That is the reality of this negotiation.
So I thank for the support from France and Switzerland.
I think you both actually were the ones who liked the approach, but there wasn't very much more support for that and perhaps that will change.
As I said, the text has not gone away.
The text is there and it could always be referred to and included in the negotiation.
Thank you, France.
I have Belgium.
Please go ahead.
Thank you, Colete and thanks for all the work done.
We would like to align ourselves with the distinguished delegates of the UK, Italy, the Netherlands, Switzerland, and France.
We would also appreciate very much further clarification from the Colete regarding the decision to depart from the architecture of the 29 June draft.
You already said now that you are willing to think about flexibility as the Swiss delegate proposed.
But now you've also told us the votes count.
That is for us a structural issue then in these negotiations because if positions are determined solely by majority preference rather than through genuine efforts to reconcile differing views, then it becomes very difficult for us from a political view and from a technical point of view to regard this process as being real meaningful negotiations because if there is no possibility to provide us with further clarification as to why the draft of the 29th of June, which provided the possibility of a principal part that was an an obligational part and then a possibility of a part that is applied by election, an optional part that would have been the preferable starting point and would help to bridge two differing views that were also very clear and expressed by multiple delegates during intersessional meetings and also afterwards, as you referred to, that some people explicitly sent in written comments as the Belgium to towards the Secretariat.
Also for the sake of transparency of this process, Um, we believe it's important in an inclusive and member state driven process that we receive clarification why it is dismissed and if it's only the votes count, then it's clear that there is not really a will to reconcile differing views, and that is for us very difficult to understand.
So if you could give us more explanations on the reasons why views expressed by multiple delegations, although it is a minority, but we are here to what I thought was to get the broadest participation and willingness for all of us to achieve a new framework convention with protocols where as many UN member states as possible would be willing to participate.
For us, it is very important to receive more explanation.
We were very hopeful when we saw the 29th of June draft, which was actually a real proposition to bridge differing views from different UN member states.
So we would still Yeah, want to make then the minority, the majority of the UN member states to consider if the draft of the 29th of June would not be a possible starting position and work further from that, or at least as you said, miss Solly to think about providing flexibility.
Because from a Belgian side of view, we will refrain from further comments on this proposal since we have not get enough transparency on how this process has been taken, and we would really be supportive of meaningful negotiations where bridging proposals, such as the draft of 29th of June are taken seriously so that we can provide the broadest participation for this work also and for this protocol.
Thank you.
Thank you, Belgium.
Rather than clarifying, I think it's important to listen to what this group says because it's not for me to clarify, it's for you to tell us what you want.
If I or the Secretariat are misinterpreting the views, well, hopefully that doesn't happen.
As you can see, this draft is not the Africa Group draft.
Then if we had taken such a step just to say, look, this is a draft text as a basis, then we would have taken that because clearly the majority and it isn't.
It is trying to do a bit more than just taking the majority view in this negotiation.
I hope you appreciate that.
Now, I think from the perspective of the negotiation here, it's important that you clarify instead of you clarify instead of us clarifying and say, look, this is perhaps the thing I like it's important for me to include in this so that we can do it and hear what others says because we are striving to a consensus based solution.
It's going to be extremely difficult.
I've said it several times because we do have so different views on this, but we're striving towards it and we do need everyone to pull their weight and clarify that point, otherwise, it will just be the majority.
So I hope you can take part anyway Belgo.
Thank you.
I have Norway, please go ahead.
Thank you, Madam Colley.
It's nice to see you and good morning to all colleagues.
I First of all, we would like to thank you for providing us with such a comprehensive draft and leading the discussions.
Like many others, we have some general remarks before turning to Article 1.
We can agree with most of the general remarks that have already been made.
We support efforts to solve issues arising from the digitalization of the economy and relating to tax and to find solutions that achieve balanced taxing rights between source and resident states in a principled manner.
We note that there is no broad agreement on what problems and issues this protocol is envisaged to solve, as you also noted in your initial remarks, and that therefore is limited agreement on the scope of the protocol.
Know that we risk sounding like a broken record here, but we reiterate that further conversation and analysis and economic as well as legal and principle based would be beneficial.
It's important to understand how different parts of the value chain in the provision of service contribute to value creation and the wide range of business model that exist to properly design the different rules relating to allocation of taxing rights and also the mode of taxation.
This is especially important in new business models.
Of course, a jurisdiction that signs up to this protocol needs to know what it actually stands to gain or lose and that the problems we aim to solve are actually solved through the mechanisms here.
Economic impact assessments are perhaps worth considering going forward.
Given the large network of bilateral tax treaties, it's important to get a clear understanding of how the protocol will be implemented and we have the same questions that other delegates has raised here this morning.
There's probably no surprise that jurisdiction have very different views on this proposal, and of course, the continued relevance of physical presence as a part of the nexus.
In order to try to get to a place of broad agreement, we recommend working on a solution that builds on the permanent establishment concept and explore how this can be adapted to business models where there is broad agreement that the current nexus rules does not work properly.
And explore the principles anchored in the PE concept as nexus and the arm's length principle for attribution of profits to PEs.
In our view, it should also be possible to make reservations to specific parts of the protocol and which treaties to which this protocol would apply.
It's important that the protocol prevents doubled and multiple taxation of the same item of income and retains a balance of source and resident state taxing rights, including leaving meaningful taxing revenue to be collected by the resident state.
So regardless of the approach decided upon in the end, we think that explanatory notes or maybe a commentary, if you like, is very important to develop here.
I in order to seek to minimize disputes and as far as possible, seek coherent application by taxpayers and tax authorities.
A number of technical issues arise in the draft and we will comment on some of them today and tomorrow while reserving our final position on this draft.
Now, turning to Article 1, our comments here are relating to the subject to tax rule in paragraph three.
We read it as possibly having a scope beyond income from services as it refers to any income.
That would mean, for example, that it could relate to dividends, captain gains, and we would like to ask if this is intended, or in any case, it should be clarified what kind of scope this provision has.
We recognize the risk of profit shifting relating to the rendering of services, but also that there are measures in place to address this in the existing framework, such as Pillar two and the SDTR MLI that you also mentioned in your presentation.
As such, we should discuss what problem another measure should solve and we should design such measures carefully to ensure that any measures are complementary and do not fragment the efforts made to combat profit shifting.
If the SDTR in paragraph three is taken forward as it currently stands, we are not sure what effects it will have, and we suggest limiting the scope to income from services and allowing for reservations on this part.
Thank you.
Thank you, Norway.
Yeah, I was just going to ask you so it will be helpful for you if you limit the scope to income on services.
That's the comment by you.
You just said that at the end, apparently.
I was going to ask you, that's fine.
Thank you.
The other thing I think it's a comment that we had in the meetings as well, the explanatory notes.
I think that becomes more and more important that we take some time to think of what should be included in the explanatory notes.
So When you make your comments or anything and you think that this could be a bit more developed in an explanatory note, that'd be probably quite useful to have that flagging already.
Thank you for that, Norway.
Also, The optionality, I think it'd be interesting if you can tell us when you make your interventions because I've been discussing this with different participants and some things are implementation after you set the standard and you just implement it.
But some things you need to know how it's going to be applicable before you set the standard.
I think the optionality is one of those things.
I think what we heard from Switzerland was quite an interesting idea that you can have both.
You can have an automatic automatic treaty, an automatic application for those countries who want it and you can have an optionality that you list your countries that you would have the treaty to apply to.
Of course, then there's the possibility that this is a freestanding agreement, so it could apply to anyone who signs it.
So those are the rules that we could hear from you if you want to make those comments.
Thank you, Norway.
I have Austria, please go ahead.
Thank you, colleague.
We appreciate the determination advancing the work of Workstream two and the provision of the first full draft of Protocol one.
However, we believe that further discussions are needed to determine the objective of Protocol one and its envisioned functioning.
We reiterate our point previously made that it appears that many interventions and written inputs did not inform the first full draft of Protocol one and in this regard, we echo the distinguished delegates before us referring to this point, such as the Netherlands and France.
We remain in favor of evidence based analysis as a precursor for far reaching overhauls of longstanding principles such as neutrality and simplicity and we consider it of utmost importance to bring together the different perspectives and nuanced approaches for advancing The discussions in a balanced and impartial manner, and thereby facilitating an equitable discussion without prejudging or predetermining the outcome of the negotiations, as also highlighted by Belgium and Norway.
In the draft paper, we observe a strong tendency towards growth based taxation, which as mentioned in our comments before and by other delegates bears the risk of overtaxation, multiple, double taxation, and as a result, could be a determined to conduct cross border business, also as highlighted by many written inputs by jurisdictions.
Thank you.
Thank you very much.
I have Azerbaan, please go ahead.
Thank you very much, Madam Colleague.
We have several comments related to Article 1.
First, subject to tax approach, we are thinking that paragraph three appears to introduce a subject to tax approach, although this is not explicitly stated.
Under this provision where income arising one state party is taxed below agreed minimum level in the resident state, source state retains its right to tax that income.
I see the same logic in subject to tax rules.
Also, we support the protection of source country taxing right.
However, reference to any income is too broad for protocol dealing with cross border service.
We would appreciate clarification as to whether reference to any income in paragraph three is intended to cover all categories of income or only cross border service income addressed by this protocol.
If later is intended, we suggest stating this explicitly to avoid unintended interaction with existing bilateral tax treaties.
Also provision should also clearly specify both minimum tax rate used to determine taxation and the maximum rate may be imposed by source state.
Otherwise, its application may result in excessive taxation.
In addition, temporary differences, use of tax losses and generally available tax incentive linked to genuine economic activity should not automatically cause income to be treated as low tax.
Thank you very much.
Thank you very much, Abaan, this is a little bit on the comment on what Norway made as well.
I think we'll just have to look at the scope because you can have different views on the scope.
If it's too wide in one article, but perhaps if the scope of the whole protocol is such, then it's limited by the scope of the protocol.
But I take the point and we'll think about it.
Thank you.
I have Nigeria, please go ahead.
Thank you, Madam Chair, and good morning, everyone.
This morning, I will be wearing the cap of the 54 African countries.
I will be making or presentation on behalf of the African countries.
And after finishing that, I will be removing the cap of the African countries and I will wear Nigerian cap.
Thank you.
The African group appreciates the work undertaken by the co leads in developing the draft protocol, which seeks to address the challenges associated with the taxation of cross border services in digitalized and globalized economy, while facilitating trade and investment, strengthening multilateral cooperation and supporting domestic revenue mobilization.
While we recognize that more work lies ahead, the AG remains fully committed to this work stream.
We stand ready to make all necessary contributions to ensure the success of a protocol that embodies our shared commitment to the fair allocation of taxing rights and the development of rules that rebalance the current international tax framework.
Together, through collaboration and determination, we can achieve a protocol that reflects equity, inclusivity, and the evolving needs of the global tax space.
Before we address the substantive articles, the African Group proposes that the title of the protocol be revised to reflect its scope, purpose, and subject in line with the terms of reference.
Therefore, in accordance with the terms of reference, the African Group proposes the following title, Protocol on taxation of income derived from cross border services in an increasingly digitalized and globalized economy under the United Nations Convention on International Tax Cooperation.
Colleagues, the African Group considers it important that the title clearly reflects the scope and purpose of the protocol as it could provide relevant context for the interpretation of its provisions.
On the structure of the protocol, the African group noted a comment by France on the need to think outside the box rather than immedity.
This informs our earlier submission.
We are of the view that our earlier submitted drafts present a good representation of the discussions we had at the first session and a good basis for negotiating the protocol consideration.
That said, Madam Colleagues, the AG is willing to continue negotiation on the basis of the Coles draft as presented here for consideration.
In that wise, we go to Article 1, questions covered.
The African group supports draft of Article 1, noting the provisions are reflective of the discussions we've had on the article.
The age support the text in paragraph one on persons covered, transparent entity rule in paragraph two, and savings clause in paragraph four.
However, in paragraph three on STR, we wish to raise two technical concerns that merit further clarification and refinement.
The first one is, what do we mean by statutory rate? The text refers to statutory rate, but the term tax rate is not defined.
We know that a tax statute may contain several rates, some of which may relate to specific type of income or category of taxpayers.
We may also have net basis and several gross basis rates in the same tax statutes.
Therefore, the statutory rate should be defined in the protocol for clarity and to avoid interpretative disputes.
The second is the effect of the subject to tax rule, switching of the protocol.
We note that the current drafting suggests the switch off of the protocol when income is subject to a low level of taxation.
The African group seek clarity on the applicable taxation instrument in that instance.
When there is that switch off, we leave the existing bilateral tax treaty that we apply all the domestic law.
In our view, when the protocol is switched off by the SETR, the applicable law should revert to domestic legislation and not the bilateral treaty.
Madam Chair, I will now remove my cap for the AG and put on the cap of Nigeria.
So in its national capacity, Nigeria wish to make the following additional comments.
Number one, we think the STR has been presented here is broader than the scope that is envisaged under the terms of reference because this is meant to cover gross basis, I mean, sorry, it's meant to cover cross border income tax of cross border income.
We also seek clarity on how the top of tax would be implemented to prevent double taxation, where the source state is taxing back and the resident state has also taxed bought below the SETR rates.
We would need clarification on this, especially as there's a comment on whether there will be explanatory statement within explanatory statement should clearly provide sort clarity.
Then, Madam Coles, Paragraph four reads, The protocol shall not affect the taxation by a state party of its residents except with respect to the benefits granted under Article 9, ten, and 11.
That is in the savings clause.
Nigeria is unclear why there is a reference to the whole of Article 9.
Greater clarity is required as to the rationale for the listing of the paragraph in the savings clause.
If it is because of the nondiscrimination provision in paragraph two, then the reference in the savings clause should be limited to paragraph two of Article 9 and the whole paragraph not the whole Article 9.
Without such clarification, there's a risk of uncertainty in the application and inconsistency in interpretation across jurisdictions.
Thank you, Madam Chair.
Thank you, Nigeria, initial comments and also your technical comments.
I think at least one of the points was the same that Azerbaijan and Norway on the scope.
I think that's not difficult to solve.
I think perhaps the way I read it is that it only applies to the scope of the protocol, so I don't have that concern, but it can be clarified.
Thank you for those comments, Africa Group and Nigeria.
I have India, please go ahead.
Thank you, Chair.
At the outset, we would like to place on record our appreciation and congratulations to the co lead and the secretary for their considerable efforts in preparing the draft and advancing the work on Protocol one on the taxation of cross border services in an increasingly digitalized economy.
We do appreciate that you had invited article by article intervention.
However, given the significant interlinkages within the draft, I'm taking the liberty of making a few broad observations on certain provisions that have an overarching bearing on the framework as a whole and in our view, require greater clarity before we proceed to the detailed article by article examination.
We would begin with the issue of taxes covered under Article 2 to start with.
India has expressed its reservation regarding the inclusion of excise taxes within the scope of covered taxes under Protocol one.
In the Indian context, excise duties are levied on manufactured goods, especially at this stage of production.
Bringing such taxes within the framework of this protocol introduces a layer of complexity that in our view requires careful consideration.
This is more relevant when we consider the treatment of goods and services taxes and value added taxes.
These taxes which may themselves contain components relating to the taxation of services are not proposed to be included within the scope of covered taxes.
Against this background, the inclusion of excise taxes could create an asymmetry in the treatment of different forms of indirect taxation on services.
More importantly, the taxes covered under the protocol would have implications for the determination of tax liabilities and in particular for the tax credits that may be available or granted in respect of direct taxes.
Introducing taxes of a different character and incidence into this framework would make the administration considerably more complicated, particularly in determining the interaction between indirect taxes and direct tax credit mechanisms.
India therefore believes that the inclusion of excise taxes requires considerably greater examination, both from the perspective of principle and importantly, from the perspective of practical administration.
We could consider developing a definition that encompasses taxes imposed on income derived from the provision of cross border services or the functional equivalent of such taxes while excluding other forms of taxation that do not fall within this ambit.
India would also like to make some broader observations on Article 5 and Article 9, particularly from the perspective of its interaction with the existing international tax treaty framework.
India has an extensive network of bilateral tax treaties with provisions dealing with the taxation of fee for technical services or other services forming part of many of our existing treaties.
These treaties contain established provisions relating to business profits, permanent establishment, specific rules dealing with service fees.
Against this background, the question for us is how the proposed framework under Protocol one is intended to operate alongside the bilateral tax treaty framework.
We note that the definitional provisions of the draft recognize an applicable tax instrument, which includes a bilateral agreement, multilateral convention, protocol, or other instrument in force between two or more parties establishing rules for the allocation of taxing rights.
This would appear to indicate that existing bilateral and multilateral instruments are intended to continue to operate.
If that is indeed the approach, we would benefit from greater clarity on how the provisions of Protocol one are to be integrated with the existing framework.
A country may, for example, become a party to the convention and opt for Protocol one, while at the same time having bilateral tax treaties with its treaty partners containing different rules for taxation of fee for services.
In such circumstances, which framework would prevail? Would the provisions of the protocol apply in addition to the bilateral treaty? Would they modify or overriding the existing treaty provisions or would the bilateral treaty continue to apply independently? Unless this relationship is clearly established, there is a potential for different standards to apply to the same transaction depending upon the instrument under which the taxpayer or tax administration seek to approach this issue.
There could potentially be situation where different taxing outcomes are available under different instruments and creating scope for treaty or instrument arbitrage or forum shopping.
We therefore believe that the issue of coexistence is fundamental to the operation of the proposed framework.
There is a similar concern in relation to Article 9 and the proposed taxation based on physical presence.
The proposed physical presence rule could therefore produce situations where the same service activity is treated differently under the protocol and the treaty framework.
This becomes even more significant when the physical presence rule is coupled with the proposed profit allocation mechanism based on the revenues generated.
Conceptually, we understand the objective of providing a mechanism for taxation of cross border services.
However, from an operational perspective, these provisions may be difficult to administer in countries that already have a developed treaty framework.
For countries that presently do not have an established framework for taxing services, a common approach may provide a useful mechanism.
But for countries with an extensive network, the introduction of an entirely new framework may actually create an additional layer of complexity.
In this regard, we would also like to recall the discussions that took place in the various workstreams.
One approach that appeared more workable from a practical perspective was to address the gaps that may exist in the existing bilateral treaty framework rather than prescribing something entirely new.
From mechanics perspective, this would seem more feasible.
Where a particular aspect of taxation of services is not adequately addressed in an existing bilateral treaty, the framework could provide an agreed mechanism to address that gap.
This would allow countries to retain their existing treaty structure while progressively addressing areas where additional rules are required.
We will suggest if the draft could provide clear rules on the hierarchy between Protocol one and the existing bilateral treaties, the circumstances in which the protocol would apply where an existing treaty already contain provision on fee for services, the treatment of existing service fee and business profit provisions, and the avoidance of overlapping or competing taxing rights arising from different instruments.
This would ensure that we develop a convention which is a coherent part of the existing international structure rather than creating a parallel system of rules.
India remains supportive of the objective of addressing the taxation of cross border services.
Our concern is principally with ensuring that the mechanism adopted is compatible with the existing bilateral treaty framework that already exists and is capable of being implemented in practice.
Thank you, Chair.
Thank you, India.
Yes.
I think there is one part where once you know the rules, the implementation is not that complex.
I think when you need to know what you're going to implement and you need the technical before that, then it becomes more difficult.
I take your point on covered taxes, which actually I think is one of the things that we didn't have it on our list for discussions, but I do think and I'll make that comment, I think The way I understand the drafting here is that it includes excise taxes while they have a similar economic effect with respect to income from services.
That's the way I think we had agreed.
Now, I I think your English is probably better than mine, but I think we can make sure because I think we have the same objective clear here, that we should include all type of taxes that affects cross border services, cross border when you apply the tax on the other country.
The way we do that, I think we have to think about that a bit more.
We have to look at this text and perhaps just have a meeting where we just discussed that because the input from different jurisdictions with what type of taxes they have.
We first of all, have to decide if we're going to include in the scope here, levies, excise taxes, income taxes, whatever they called when they have a similar effect as the income taxes.
I think that's the point that we have discussed earlier.
I take that point and I wanted to reiterate it a little bit so that others can think about that.
Although I haven't put covered taxes on the agenda actually, I think we will have to come back to that.
Regarding your comments on five and nine, we are going to open the floor on those so we can come back to that.
Thank you, India.
I have Germany.
Thank you, Madam Colette, for giving me the floor.
Germany appreciates the effort undertaken by you, Madam Colette, and the Secretariat and all delegations in advancing the negotiations on this first protocol.
At this stage, I would like to share some general observations.
We remain committed to engaging constructively and in good faith towards an outcome that strengthens international cooperation while fostering certainty, fairness, and sustainable cross border investment.
However, the relationship between the protocol which is drafted in the same way as a DTA or rather as a mini DTA as referred to by the distinguished delegate of France and existing DTAs, the relationship remains completely unclear to us.
In that context, in coming back to a remark that was made by you earlier, Madam Colleague, we do not share the assessment that the very goal of this process is to amend existing agreements.
If this were a predetermined goal, any substantive discussions on this matter would be rendered obsolete.
Germany recognizes that many member states have expressed legitimate concerns regarding the ability of existing international tax rules to adequately address increasingly digitalized and remote business models.
We share the objective of ensuring that international tax rules remain fit for purpose in a changing global economy and continue to support fair taxation of cross border economic activities.
At the same time, we believe that any new allocation of taxing rights should continue to reflect internationally recognized principles of genuine economic activity, value creation, and an appropriate nexus between the taxing jurisdictions and the income concerned.
These principles remain essential to ensuring predictability, neutrality, and the long term stability of the international tax system.
We therefore continue to favor a solution that complement and build upon existing standards, encouraging that work under the Framework Convention should remain coherent with these ongoing international efforts.
In line with previous speakers like the Netherlands, Switzerland, we to prefer flexibility for states through an elective mechanism while respecting the continued application of existing bilateral tax treaties.
In our view, this structure provides an appropriate balance between facilitating future cooperation and preserving treaty autonomy.
We would encourage maintaining this approach, which allows interested treaty partners to modernize their bilateral relationships without affecting treaties where no common intention exists.
Um, I also like to echo the sentiments of Belgium who have, based on the current direction of travel, expressed a pessimistic outlook on the outcome of these negotiations, in particular, if one settles for merely accommodating the majority.
Going forward, we will contribute to certain aspects of the discussions.
However, we emphasize our fundamental reservations regarding the current state of work.
Thank you.
Thank you, Germany.
I have checked here.
Thank you, Madam Colette, for giving me the floor.
Good morning to our colleagues.
First, let me thank you, Madam Colit and the Secretariat for your hard work on preparing the draft document.
Jakv would like to provide general comments on the workstream two work and I code the comments made by the distinguished delegates of Belgium, Austria, Switzerland, France, and many others intervening in similar manner.
Similarly to France, Norway, Austria, and others, we have been raising a point that the work of Workstream two should follow a rigorous and unbiased analysis to deliver an effective, efficient, equitable and inclusive solution.
Yet we have not conducted such an analysis even though many member states have asked for it.
Therefore, absent any rigorous analysis, the Workstream two has based its work on individual preferences of the member states rather than on a systematic analysis of the current understand tax system.
Hence, Czech have used the current draft as reflecting preferences of only a subset of member states rather than a fully inclusive effort to deal with the issue of taxation of cross border services.
Consequently, we think that the protocol is not going in the direction that will be preferred by us.
We would also argue for having more flexibility in the protocol, and we are really concerned about the current drafts practical application as raised by other member states.
Hence, CCA believes that the current drafting would increase legal uncertainty and despite seemingly being simple to administer might lead to more disputes and complicated work of tax administrations, increase compliance costs of taxpayer significantly and crucially would distort economic decisions.
While saying this, Cheka would like to express that we understand that member states have different priorities, which are often related to their specific economic and development situation, but we believe that any solution or solutions should reflect needs of all member states.
In this manner, it is very concerning for us to hear that we are not striving to reach consensus necessarily, but the Workstream two is heading to the voting on the text possibility.
In relation to the SDTR in Article 1, we would also like to join others in understanding better what is the scope of the provision and we would generally suggest deleting the provision or allowing reservations in relation to this provision or provisions as suggested by the distinguished delegate of Norway.
Thank you very much.
Thank you very much.
I sincerely hope that you didn't hear that comment from me because I said from the beginning that we are striving for consensus.
However, with the divergence that we have met in the discussions, I thought it's going to be very difficult to reach consensus, but we are striving towards it.
Please do not understand anything differently.
Thank you.
I have Japan, please.
Thank you, colleague.
First, Japan, would like to appreciate all the work done by Colleague and Secretariat.
At this stage, we also would like to provide a general comment to the protocol.
As we stated during the discussions on the principles of the Framework Convention last week, provisions that create risks of double taxation or uncertainty or that may hinder cross border trade and investment and the growth they generate should be avoided.
In this regard, we are deeply concerned that the protocol in its current form, would increase uncertainty and discourage cross border trade and investment.
Therefore, we align with the UK, Italy, Netherlands, Switzerland, France, Belgium, Norway, Germany, and others that we do not believe that the current draft is yet in the form that we can support.
We would also support the inclusion of greater flexibility in the protocol as suggested by the co lead during the last intersessional meeting, such as the optionality proposed by Switzerland.
Thank you.
Thank you very much, Japan.
That's helpful and we look forward to try and reach as much as possible the input and hearing from you in the negotiation.
I have United Arab Emirates, please go ahead.
Thank you, Madam Cole, and we would like to thank the coles and the Secretariat for all the work done on this protocol.
At this point, we would just like to make some general remarks.
We echo the comments made by our colleagues from the UK, Italy, Netherlands, and Belgium.
As we have previously mentioned in our written comments and interventions, we remain quite concerned on the proposed approach for grows based taxation for a broad range of services.
And including where there's limited or no physical presence at all.
Even with the optionality to elect for a net based taxation, we think this goes against the principle of tax neutrality.
More broadly, as a jurisdiction with a significant treaty network, we echo the views that treaties are a result of bilateral negotiations and reflect the interest of states that are party to the agreement.
On this basis, we would struggle to provide support to the protocol in a multilateral setting.
Thank you.
Thank you very much.
I have Denmark, please go ahead.
Thank you for giving me the opportunity to speak, miss Coley, and thank you for all your efforts in this process.
There has been a lot of work indeed to be done.
We appreciate also all the Secretariat efforts.
I must say that we are rather disappointed and surprised by the drafts in front of us today, so our comments will be of general nature.
We align ourselves with the comments made by the United Kingdom, the Netherlands, France, Belgium, Italy, Austria, Switzerland, Cechia, Japan, and lately UAE.
With that, I'll stop.
Thank you very much.
Hopefully we'll get a little bit more technical input later and then we can work forward towards something a bit more in your taste.
Finland, please go ahead.
Thank you, colleague and thank you for all the work done with the draft.
I have general remarks on the protocol at this point.
Finland aligns with the concerns raised by many previous speakers, EU member states, and also others.
We have emphasized the need to work towards outcomes that are broadly supported by diverse groups of member states.
In this respect, we regret that the draft does not appear to seek a solution that could be broadly supported by diverse groups of countries.
We remain concerned that insufficient attention has been paid to clearly defining the problem that this work is intended to address.
The fact that there is no preamble or paragraphs in the draft is indicative of lack of shared understanding and building that shared understanding should be a priority for us moving forward.
We also note that taking into account economic implications is essential for assessing whether the measures are likely to achieve the intended outcomes without creating unintended effects.
As we now have the draft to be discussed here, We would like to make a general remark that one way to increase opportunities for support could be to allow for optionality or flexibility as requested by many others as well today.
That could be one concrete way to address concerns raised by many this morning in the work going forward.
And since the draft presented in the workstream gets a lot of attention in the discussion, my final remark is that we would also appreciate if minority views or alternatives at the table could be reflected in the forthcoming drafts.
Thank you for the opportunity to speak.
Thank you, Finland and thank you for that technical comment on the optionality.
On the comment you made on the preamble, I think what we have said there is that if it's desired, basically we want to hear from you if you think it's desired.
I understand that you do think it's desired.
I take that as a comment from a technical comment that it's important to have the preamble.
Thank you, Finland.
I have Kenya, please go ahead.
Greetings, call it, Chair, Secretariat, and member states.
I do thank you for your induligence and giving me this opportunity to address the plenary.
As Kenya, we align fully with a statement read by the distinguished delegate of Nigeria on behalf of AG constituting 54 states.
Further, allow me to put forth our views in relation to the subject matter.
One thing that we would wish to note is that the draft that has been put forth, I believe they call it draft and not the ages because our draft was totally different in terms of structure and content therein.
Um Further to that, we need to look at the objects and principles that are mandated by the TOR, which is to ensure inclusivity, fair allocation of taxing rights, which definitely will be effectuated by the protocol.
From our understanding, the protocol is a separate binding legal instrument which emanates from the FC to elaborate its articles as indicated under paragraph 14 of the TOR.
That being that, we would wish to point out a few things that were put across on your second slide.
On the issue of optionality, we believe that what is on the table is to draft a concrete protocol which addresses the issues that are currently faced by member states and which led to the advent of the current process.
I believe the slide that you put there and the objects and principles do address that.
Or we have an all encompassing instrument which could be interpreted as an MTC or a model task convention with no impetus connection or adherence to the binding effect envisaged under the TOR.
I believe there exists biases, they're actually biases.
The reason why we are having these biases is because of the categories that exist.
Either it's on availability, confirmation or member states are anchored towards a particular bias, which will definitely affect our inclinations and that one we will have to deal with as we proceed.
On the question of interpretation, based on your first slide, for us to achieve appropriate results, we propose to avoid use of traditional terms that are detrimental to achieving the objects and principles and I underline that objects and principles of the FC and the protocol.
However, we need to anchor and put into consideration the terms as used in existing instruments, to the extent that they do not contravene the requirements.
Especially of the Vienna Convention, which if a term contravenes the objects of a particular protocol, then it's not supposed to be used.
Um.
Then deep diving into the article that has been presented, Paragraph one, we believe the paragraph captures its intent to identify residents of the involved state parties.
Then on paragraph one, two, the paragraph addresses the issue of physical transparent entity.
This is a near similar replica of the OECD MTC, which speaks to a transparent arrangement like partnerships, trusts, and LCs whose residency and ability to benefit from or inclusion to the is really dependent on the resident state party.
While this paragraph aims to prevent double non taxation, it creates a structural inherent imbalance, which leaves the source country vulnerable with regards to asymmetrical information, dependency where a source party cannot independently verify if the resident state actually taxes the income and relies on foreign tax declaration and foreign legal interpretation.
Um, another point to that is the paragraph also does not have a minimum holding of economic substance by granting treaty benefits solely based on structural tax classification, the resident states, it ignores whether the transparency process any physical footprint, employees or genuine economic activities within the resident state.
Further, it is our view that the paragraph should mandate AEO, that is automatic as a condition to grant the transparency relief on an operational.
I underline that reciprocal automatic verification mechanism so that we are able to look at that.
These cements are request to have a detailed Article 12 down the line on exchange of information.
Then as mentioned by the distinguished Geld of Nigeria in relation to the statement that he read, paragraph 13 introduces the STTR by pointing out the issue of low level taxation and further stipulating a statutory limit, which is yet to be conversed.
Further, as mentioned, the paragraph features of the protocol, and that is in the event that the condition therein are not fulfilled.
If the protocol is off, then the existing bilateral systems will kick in, that if they exist, overriding domestic laws under the public international law and as envisaged under the articles of the Vienna Convention.
Therefore, we propose and as it was said that we have a paragraph expressly bring into play and prioritize domestic law in the event the protocol is switched off.
That is a suggestion.
Thank you for your indulgence.
Thank you very much, Kenya, for those technical comments.
I was thinking particularly on the optionality that if you could just tell us a little bit more if you did mention the optionality, if I got you correctly, would you prefer a standalone treaty that actually works for all parties in the same way as if it's signed by, of course, those parties.
Is that a fair interpretation of what you said or am I not understanding it correctly? Kenya, please.
Sorry.
There you go.
Yeah.
It is better to have it the way you've put it, but definitely it will be put within our written submissions as to how we are looking at it.
Thank you.
Thank you very much, Ken.
I have China.
Please go ahead, China.
Good morning, everyone.
First, I would like to express our appreciation for the efforts of the co lead and the secretarat in preparing the drafts.
Actually, in reading the different versions of the draft, we have our treaty network in mind and first, please allow me to express our concern for the time being as a general comment.
You know that China has more than 100 tax treaties, and as many colleagues have mentioned, each treaty is an overall balance of different articles, and these articles include the taxation of cross border services, but they are not limited to them.
The package and the overall balance of the existing treaties, we think they should be duly respected.
Therefore, we welcome the flexibility in the draft, the June version.
And we think that it will help address the different needs of the state parties when they face different treaty partners.
We think that this will also make the protocol more inclusive.
Thank you.
Thank you very much, China.
I have.
Please go ahead, Singapore.
Thank you, Madam Colleague and the Secretariat for the revised draft and the work steering this conversation.
Some general comments from Singapore.
We echo the concerns that the UK, Italy, Netherlands, Switzerland, France, Norway, Japan, and the UAE, among others, have mentioned about the approach and direction the protocol has taken in the revised draft.
In our view, as China has mentioned as well, treaties represent a negotiated balance between two states across a wide range of issues.
So our view is that the protocol should not automatically override or modify existing bilateral tax treaties merely because two state parties because two jurisdictions become state parties to the protocol.
Any modification of an existing treaty should only take effect where both treaty partners have expressly chosen to apply the relevant protocol provisions to that treaty.
In that regard, the protocol, in our view should establish a clear mechanism for recording these choices and explain how they interact with bilateral tax treaties.
Alternatively, the suggestion raised by Switzerland for a less binary approach could be explored further.
We also know that in the absence of a robust economic assessment of the problem the protocol seeks to address, which many member states have called for, it will be challenging for states to assess the economic impact and trade offs of the provisions and how they are aligned with their individual policy objectives.
This makes the option to enter reservations more crucial to encourage wider participation.
And more specifically on Article 13, our view is that the scope of income which the subject to tax rule applies should only apply to cross border services if such a provision is needed, given the intent of the protocol, and welcome your clarification earlier in that regard.
Thank you.
Thank you very much, Singapore.
I now have the Russian Federation.
Please go ahead.
Thank you for giving us the floor.
I'd like to thank the Secretariat and the co chairs for the work they've done in preparing the protocol.
They worked hard and I want to thank all the participants in this process for their comments and contributions.
It's probably very difficult to comment now.
We begin starting to look at article about article and now we've moved to more general issues on discussing the protocol as a whole and how it will be applied.
I'd probably need to comment on both of these aspects in my statement.
Well, first of all, it should be noted that we have consistently been in favor of taxing goods and services at source, and we have supported that approach throughout our work.
For implementing or rather taking Article 12A, 12 B of the UN model Convention as our basis and to incorporate that into our work on the protocol.
So in this part of our efforts, we support the protocol and its structure as it has been developed.
But as far as the work on the protocol, the development of the protocol and its future, it's difficult probably to discuss this given the way this discussion has unfolded.
It's clear that the protocol will be optional as all the other protocols to the Framework Convention.
This is an issue that has been discussed more than once, and this is something that will be resolved in specific provisions of the Framework Convention.
The states will be free in their decision whether they will accede to the protocol or not.
If you support the protocol, you can sign the protocol and accede to it.
As far as the optionality, the versions and the flexibility within the protocol itself, that is quite a complex matter and we probably need to resolve it through consensus, which is what we're striving for.
As I said it and I've repeated it, we have supported the initial approach.
Again, I taxing source taxing goods and services at source, but we need to hear the various versions, various sides, various states, and we need to understand where we're trying to arrive, what should be our final outcome.
Ultimately, it should not be some kind of a model.
We already have a model.
We have a UN model agreement.
We all have all these provisions.
We have an OECD model.
We don't need a model.
We're here to develop an international agreement treaty.
With all the consequences that entails of an international agreement, such as having it legally binding.
The consequently, in that case, we need to understand what we'll have as a result.
We'll have an international convention? What kind of membership, who's going to take part in that convention? If we don't come to some kind of an agreement or consensus, then who will the protocol be for? What purposes will it be there for? I think everything depends on ourselves and we need to agree now On the text, on the language of this protocol so that it is acceptable to as many states as possible so that we don't have a situation where a huge amount of work has been done, a lot of effort, a lot of time has been spent, the money from our taxpayers has been spent and as a result, ultimately, we won't we won't be successful, let's put it that way.
Ultimately, the protocol won't be signed by a majority of states.
So if we want our work to end in success, we all need to make an effort, maybe concede on something and what can help us do this? I don't know, maybe during the intercessional period, maybe we could have some vote as far as who is in favor of which versions, which options so that we'd be absolutely clear what are the possible ways forward and which direction we should move in so that we should understand once and for all, How many states are in favor of this version or option, how many are in favor of another one? Because it's not always easy to understand how broader support there is for whichever version so that member states then once they go back home in their capitals can consult with the government, parliament, et cetera, to what extent they can be flexible so that this instrument function can function, can be effective and can be truly useful for all states.
Because the second aspect I want to touch upon currently, we have this instrument in this stage, but we do have a conference of parties and it could be somehow amended or updated or improved upon in the future, and we should keep that in mind.
That is, as far as the general comments on the protocol, how it will work and our cooperation.
The other aspect, cooperation with agreements on avoiding double taxation or taxation agreements that various states have.
Some states have broader agreements, some states have, let's say, less broad agreements, but we do have to resolve this matter.
We all have to understand how the protocol will interact with all these different taxation agreements so that everyone understands what the outcome will be ultimately.
It can't not cooperate because the protocol and the bilateral taxation treaties deal with the same issues and the way the text is worded, There are articles that regulate the taxation of services, digital services, and maybe there are technical options that will resolve any collisions or conflicts between these international treaties or instruments.
But we also need to be absolutely clear as to what we want.
Do we want the protocol to prevail so that the protocol replaces certain articles in existing treaties, or some other version, but that's something that needs to be discussed and we need to understand how this will all work, how it'll function.
As far as now I'll move on to the specific articles regarding Article 1 and the question that was asked of us and specifically A three, three A and B.
It's clear that this is similar to the provision of the model Convention.
We understand the goals, objectives of these paragraphs, we support them, but there are various technical aspects and issues that countries should discuss if we move towards a more detailed discussion of this instrument, issues related to doing away with double taxation.
We must understand that if we take the UN model as a basis, then this this article 0R this paragraph has a situation.
If the taxation rate of a state is low, then we will use our national.
We will resort to national legislation and national legislation, everyone has different tax rates, sometimes very high rates that can be applied to services.
Will the country of residence be ready to take into account or to offset, to offset, let's say, different rates.
That's something that needs to be discussed whether this article works in conjunction with the article 0N avoiding double taxation.
If we don't apply tax breaks on this protocol or the provisions established by the protocol and resort to national legislation, does the article 0N avoiding double taxation function in that case and what we will receive? Or perhaps maybe I didn't quite understand how this technically would actually work.
As for the possibility of using the mechanism of STTR which is in the OECD model, Maybe that's a more flexible model, a softer model.
This depends on each one of us, what we want to choose, possibility of levying a certain amount at source or not or referring to national legislation.
That's again up to the delegates, participants in the conference of parties, but the possibility of having this function in the protocol is a good idea to deal with tax avoidance and fraud.
As for comment that the protocol is not applied.
If the country of residence has an excessively low rate of taxation, then what should we refer to? If we read the UN provision of the UN Model Convention, it's clear that we refer back to national legislation.
However, in this case, given that we will already have this protocol and also an agreement on avoiding double taxation until we clarify the mechanism of the way this will interact, it's not clear what we will refer to.
Is it national legislation, a taxing services based on national legislation, or are we going to move to relevant DTA? That is why the wording probably needs to be slightly adjusted here and perhaps a minor technical aspect to comment or proposal to think about this.
How we're going to actually apply this in practice.
For example, for us, we don't see a problem, but The way legislation, we don't know how legislation is in all different countries, but how does this mechanism work? You need to check the rate of taxation at the country of residence.
If using paragraph one, if we look at the general tax rate, then it's easy at the time of the transaction and the payment of profit.
However, if we apply subparagraph two A, then we have special regimes, a deduction, I'm almost done.
Then that could be only determined at the end of the fiscal year.
Then in that case, the application of the protocol, we already apply a certain rate at source, and at the end of the year, we will probably need to refer to national legislation.
In our legislation, we will take into account withholding tax but tax withheld somewhere else.
But I don't know how it works in other legislations.
We have to make sure that one type of income does not taxed twice, basically.
Thank you for your attention.
Thank you very much, Russia.
I think you have very eloquently explained and highlighted the difficulty that we have and what we have to consider in the negotiation, which is a group of countries that are striving for consensus, but we have very divergent views and we have a minority, we probably have a majority.
The way forward, of course, is to try and marry these two groups as much as possible to see how we can increase the majority by including the views from the minority.
I think that is the big challenge we have now and I invite you all to consider what our delegate from Russia said about this flexibility.
Thank you.
Ireland, please go ahead.
Thank you, Madame Colead for giving me the floor and also thank you for all the work done by you and the Secretariat since we last met in February.
Given the short time frame we have for discussing the protocol that you alluded to, I don't want to spend too much time repeating what's been said already.
But I will note that we echoed the concerns and comments of the delegates from the UK, Italy, the Netherlands, Switzerland, France, Belgium, Norway, Austria, Germany, Checha, Japan, Finland, China, Singapore, the UA, and others.
Um, thank you as well for explaining how the 29 June version of the document was replaced with this version because it didn't have the sufficient support.
That was one of the questions we had.
We were one of those countries who had sent a written comments supporting the direction of travel, in that version, so thank you for clarifying.
Regarding the optionality within the protocol, we shared the views of the distinguished delegates of Switzerland, that we need flexibility, both in terms of which treaties the protocol would apply to and which articles of the protocol would apply to which treaty.
And finally, we would also add our voice to the points raised by the delegates from Norway, Austria, and some others that the discussions would benefit from an economic impact assessment.
Thank you.
Thank you, Ireland.
Let's see.
Thank you.
Malaysia, please.
Thank you so much, Cole.
As this is the first time I'm taking the floor for this session, allow me to thank the co lead and Secretariat for facilitating the discussion on the first protocol.
On general comments, we note that the draft aims to present one practical way forward by offering a multilateral protocol that provides a detailed technical rule, specifically in the allocation of taxing rights for cross border services.
The objectives of the draft should ensure elimination of barriers to cross border trade and investment, promoting economic efficiency, ensuring tech neutrality, simplicity and administrability.
SHA supports the approach taken by the Secretariat, and it's based on a negotiable basis that any amendment is circulated within members and may be refined, as well as provided an alternative approach for member states to consider before finalizing any proposed tax.
Although we have not reached Article 2 yet, we would like to echo India on the taxes covered, which is under Article 2.
For Malaysia, excise tax, digital services tax, and sales and services consumption tax are considered as indirect taxes in Malaysia and therefore should be included in the carve out sentence.
Thank you for the opportunity.
Thank you very much, Malaysia.
Brazil? No, I think I had Luxemburg first Luxemburg first.
Please go ahead, Luxembourg.
Thank you, Cole and also thank you to the Secretariat.
Also to save time, I will just echo the statement by Ireland and also the one by Switzerland.
Thank you so much.
Thank you very much.
Then I have Brazil.
Sorry, we're still discussing.
I'd like to have some general comments for this stage, and hopefully I had taken notes, so I'll probably forget a few points.
And number one is the origin of the whole work here, it was to regulate situations in which one of the countries has a context or a concern of human rights deficits.
So this is intentionally designed to regulate situations in which at least one of the states was developing countries suffering from significant human rights deficits, and to achieve or to alleviate those concerns, they should resort to maximization of available resources and then to renegotiate treaties, or we have also started discussing whether we should also apply to of the situations, whether the protocol should address just the DTA situations or situations in which there is not a DT in foresight.
This is still under discussion.
Even if we decide to apply in situations in which there is no developing country involved, we can consider to make it optional because the state is in a much balanced position compared to the situation in which one of the states involved, even in the absence of a DTA is a developing country.
Number two, that can be part of the scope and how we design optionality.
Number two, I would like to make a reference to, there are some papers and some data showing there is a growing share of services compared to the global GDP.
We are moving in terms of the trade of international trade.
We are moving more or the share of services is growing more than the share of goods.
Trading services is relatively increasing, and that is part of the concern here.
It's not about just the digitalization.
It's a fact that in the balance of payments, services, and intellectual property in general, the share has increased.
And the third aspect is, I would take from a paper from Picotto.
So there is another effect that we have to take into consideration that is a substitution effect of traditional services for digitally provided services.
In the past, we had to send an engineer to provide a service in the source country.
Nowadays, the engineer can simply look at the machine online to have the feedback of the machine and decide how to approach it.
Definitely, those concerns will increase with artificial intelligence and more developments that we face in the near future.
Um.
What I wanted to address here is that we are not only discussing that the concepts were outdated, but we also discussing that there is a growing concern on taxation of services for different reasons.
I addressing that we can design different options.
But in general terms, that situation will affect all countries involved.
All countries are probably importing more, but most countries are likely importing more services compared to goods that they have in the past.
I would like also to stress that we see the draft proposal as an open documents too.
There are a lot of uh places where clarification for the scope should be redrafted, for instance, in the subject to tax clause, if we retained it.
I think it was not the intent to have it covering all sorts of payments, how to apply to excise taxes, how should we do it? There's also something open for discussion, the relationship with the PE.
If there is a PE in place or if there is a service P in place, how to address it.
I think those are minor adjustments to be made, and we are positive that we are in a good direction.
Because of the changes, the economic changes that we mentioned, and also because of the context upon which this whole work has been developed.
To begin with in the context of the issue with human rights and the fact that very often developing countries cannot renegotiate treaties.
Persuade, sometimes even internally to have treaties announced or to begin with, to try the renegotiation.
Sorry for being a bit long and instructed, but thank you.
Thank you, Braci.
That was very helpful.
I agree.
I think the point here is we're here now to listen to each other.
There's a very basic skeleton here and the invitation is for you to all of you to support and give your views on what should be added to it and what should be changed with what we have.
It's not more than that.
With that, I'm going to give the floor to Ghana.
Please go ahead, Ghana.
Chair, Ghana would like to begin by thanking the co lead for the excellent work and the balanced draft.
Alliance itself with the statement by the African group.
Chair, Ghana agrees that there is a work in progress and we need a consensus.
But flexibility cannot mean that the core of the protocol becomes optional.
If we make it written optional, we'll end up with no protocol at all, we propose that core articles such as exhaust taxing rights, anti abuse, like Article 12 remain mandatory.
Flexibility can be discussed for thresholds, rates, and administrative provisions only.
On Article 1, we are comfortable with the text as drafted, especially paragraph two on fiscal transparency.
Thank you, Chair.
Thank you, Gonna, for that clear message.
I have now Sauth Arabia.
Thank you, Cole.
Saudi Arabia is pleased to see the publication of the draft protocol, and we thank you, Cole for this significant step forward.
I would make a general comment as well.
Generally, related to the scope of the protocol, as we understand it to the core mandate here is the allocation of source taxing rights over cross border services, including automated digital services, and we align ourselves with the comments made by other delegates in this regard when it comes to the scope.
Another general point is that we note that certain provisions in the draft appear to overlap with the rules already established under existing bilateral treaties, agreements or the UN model Convention.
We would, I'd like to see or reconsider as the text develops which provisions are essential to this protocol core function and which might instead rely on cross referencing existing instruments.
We also and we would like to see a more focused protocol and look further to revisiting the definition of automated digital services with a view to a more objective and durable formulation.
Our main observation that we would like to emphasize is that the current draft did not consider the appropriate and important carve outs and exclusions of certain industries and sectors that should be integrated properly in the draft.
We look forward to engaging further on each point as we go forward article by article, and we will also share our written comments that would help on the draft.
Thank you, colleague.
Thank you very much for that input.
That was very helpful.
I think I'm going to give the floor to first time speakers first.
I'm sorry, Belgium, but I'm going to give the floor to Portugal first.
Thank you, Madam Collid.
Glad to be here today discussing this text that it came as a surprise for us.
Portugal was also one of the states that written comments regarding the two part approach that we said that it appears to be a useful basis for further work and in that regard and many of the other observations we'd like to echo Ireland.
And also in a different thing about preamble, we're not going to discuss it now, but in our view and given the innovative nature of the protocol, we believe that short preamble section would be valuable in providing a common framework for its interpretation and application and explaining clearly the why, the what and how of the new arrangements, that would be important.
It's not a question of say, we agree with this or that provision, it's giving a context.
It's something new, it will be important.
It will add transparency and greater legal certainty.
Just a quick note on the so called STTR rule that it is inspired in it and we We are looking at it and many of the observations like which income we are talking about, but all in all, we still struggle in saying this could be like SDTR rule or a narrowly tailored rule, we are thinking about it, but either way it should have a clear scope, defined threshold, the cap and safeguards against double taxation.
Thank you.
Thank you very much, Portugal.
I have Morocco, please go ahead.
Thank you very much, Madam Collet and thank you for the proposed draft, which we see as a good basis to go forward.
So as you explained in your presentation, the objective of the protocol is to address the imbalance in the allocation of taxing rights and services imposed by tax treaties.
This imbalance is further exacerbated by exacerbated by the use of the new technologies in providing services as explained by our distinguished colleague of Brazil.
This makes the physical presence criteria irrelevant.
And this is an urgent matter for many states, hence the choice of the protocol as an early protocol to be addressed.
Look at the mandate and the title of the protocol, so taxation of cross border services in increasingly digitized and a globalized economy.
So it comes as no surprise that we uh the draft seeks inspiration from the UN model because in the model, we can find different categories in structured the way.
We think this is a very good basis to go forward.
And it's clear that we favor the adoption of rules that are familiar with that would allow fill the gaps and fulfill the need of rebalancing the allocation of taxing rights while remaining simple to administer for both, taxpayers and tax administrations.
That said, of course, we're willing to discuss with all the colleagues their concerns and the technical suggestions and to explore collectively in good faith the solutions to those concerns.
I nuts, we think this is a good basis to move forward.
There, there is certainly room for improvement, and we're looking forward to continuing the discussion on the technical proposals and counterproposals.
Thank you.
Thank you very much, Morocco and yes, indeed, I agree with you.
There definitely room for improvement and that's why we're here today and tomorrow to see if we can get some more agreement on ways forward.
Thank you, Morocco.
I have Sambia.
Please go ahead, Sambia Thank you so much, colleagues, for the opportunity to intervene.
I want to start by first appreciating you, colleagues and Secretariat, for this wonderful text.
Indeed, it serves as a good basis for discussion going forward.
I also want to register our support for, I think the intervention that was made by our distinguished delegate from Nigeria on behalf of Africa Group.
Indeed, we aligned with that intervention, which was further supported by distinguished delegates from Kenya, as well as Ghana.
In our view, colleagues, we feel that paragraph three of Article 1 supports source based taxation, and so it is particularly important for most developing countries which are predominantly capital importing and hence rely more heavily on source based taxation.
The paragraph therefore allows these countries to impose a limited additional tax where certain payments leave their countries and are subject to insufficient taxation in the recipient jurisdiction.
We believe that absence of this clause will allow income to move from the country of economic substance to a low tax jurisdiction without an adequate level of taxation, and this will create an incentive to structure transactions around tax outcomes rather than genuine economic activity.
We consider this issue critical and because of that, we do not believe that it is one that the Framework Convention and particularly through this protocol seeks to ignore.
Paragraph seven B of the terms of reference clearly mandates that this work we are doing must respond to existing and future tax and tax related challenges on an ongoing basis.
Therefore, shunning efforts such as presented in paragraph three, which are aimed at addressing some real challenges faced by some member states will not be in the spirit of achieving the objects of the Framework Convention, as well as the related protocols.
Thank you for the opportunity.
Thank you very much for that technical input, Samba.
Very helpful.
I will now turn to Belgium for a second intervention as there's no new interventions on the floor.
Please go ahead, Belgium.
Thank you, miss Colte for letting me come in a second time.
Just wanted to come back on something because I think we heard now across the room that many delegations have at least a preference to explore flexibility or optionality as what was expressed already in the draft of 29th of June that didn't make it and you explained it was because there was not sufficient support.
But I do hear a lot of support now for allowing at least partially flexibility or I think it's a good idea what the distinguished delegate of Saudi Arabia also brought up that we look at what articles are seen as crucial or which could be optional.
I think there are a lot of people asking for flexibility, a lot of countries.
I think we need to see this and that in order to have member state ownership of the negotiations, we should have at least a text to discuss which allows some optionality, which is not the case in this draft.
I also want to reiterate we only discussed the 20 June draft once in one meeting.
I think that is also part of the fact now we have the 20th July draft, but it was very short between the international work that has been done on the 29 June draft.
It was only discussed once.
So I think there could have been more discussions on the fact of allowing optionality maybe in a less way than that draft like we hear now in the room.
Another question that I still have because also Brazil mentioned that one of the reasons to have this protocol is that it's not possible for a lot of countries to renegotiate existing tax treaties.
But since it will be also a sovereign right for every country to sign up for this protocol or not, how do they see that having this protocol will allow them to have renegotiated treaties because it still will Have the need of the approval of the other country too.
I'm not, it would be helpful that this could be clarified how this protocol would exactly solve that problem.
Thank you.
Thank you, Belgium.
Yes, I think you have properly understood the objective of today and tomorrow is to actually hear what members are saying and include what members are saying that is missing from the draft text.
Absolutely.
I'm not too sure that everyone who have expressed a I wouldn't say concern, but expressed that they don't like the proposal, actually like the optionality.
I have invited people members, please tell us what you want because that's what we're here for.
Again, we are here to hear what you would like to be included in this draft.
Therefore, I agree completely with what Belgium has said.
We should hear and include, of course, as much as possible from whatever we can include where we see there is a clear majority or a consensus, of course, which we're striving for.
The second part, of course, I think the value is to have a multilateral agreement, but I will leave that up to others to clarify more if they want to.
I think the process being a multilateral process is what is particularly beneficial for developing countries.
With that, I'll give the second floor, Switzerland, please come back.
Thank you very much, miss Colleague, for giving me the floor a second time.
I'll be brief.
I have three points.
My first point is to thank you for your dedication and courage in leading this group.
I just want to remind all of us that there was a second seat to be a co lead and nobody put themselves forward, including us, and, It's a very difficult task.
This is an important topic and we're getting really to the heart of the whole discussions in this framework convention.
I wanted to recognize that and thank you for that at this point.
My second point was, I heard before majority minority regarding this draft.
It's not clear to me a majority would be for this draft.
On the contrary, I have the impression after hearing all these interventions, that not only the global North, but also many other countries from other regions wouldn't be satisfied with this draft and that's why we're here today, as you just rightly pointed out, to try to move forward and get to something that could be more acceptable.
My final point is regarding informal discussions, last week, I asked for a couple of informal forals Not at all because we'd want to have a process that's not transparent, but because in the real world in negotiations, you need those moments to be able to discuss more freely, more flexibly to try to find solutions.
Here, I know we have time constraints and it wouldn't be possible in these two days.
I was frustrated last week that we had so little coffee breaks.
I think we could gain by limiting our statements where we're often repeating ourselves.
To having a little more time for coffee breaks because that's also a very important moment to exchange informally.
I fully understand that this morning a coffee break was not warranted because it's important statements and we have to get through this.
But in the next couple of days, I think it will be important to take that time in order to exchange bilaterally.
Thank you, Switch.
I think you made three excellent points.
First, thank you.
Second one, the draft and I think perhaps I should clarify it a little bit again.
I hope I clarified it initial.
The draft doesn't, it's not considered majority or minority.
Basically, it's trying to draw a line between two quite big movements.
The idea for this meeting here is to draw and hear what you think hopefully with a consensus.
But so far I don't think we've had it, but move forward with what we can assume being a majority.
And so don't see the draft.
It's a zero draft.
It's not something we're going to sit and draft on, but we need to hear from you the way forward.
What Belgium just said, a hopefully others can say, look, we need to go this way and whatever way that you want because that's what we're here for.
Third coffee is really important, but I agree with you.
I was considering that today we'll skip it, but we'll definitely have them later on.
Thank you.
Now I've sent a couple of new hands are up.
I will give the floor first to Mexico and then to Hungary, who neither of them have spoken before, please go ahead, Mexico.
Thank you very much, dearest Lisa.
Thank you.
Welcome back.
Apologies for being late last week was so taxing.
I developed an illness, but I'm here focused on this first protocol.
Just wanted to mention that for us, while we understand that the process is going a certain way and the benefit, I guess, from having this be negotiated outside of the UN is that sometimes allegations don't proliferate with language and then it becomes an accordion of proposals.
I think that we understand that this year draft just collects the views that member states have presented over the past couple of months and that the changes from the draft in June to this one hope, I guess, to present a more concerted version of those perspectives.
We do agree that some of the elements that we had in the past, at least for my delegation, were more favorable.
Last week, my interventions mostly focused on trying to ensure that this process is flexible enough.
I think that negotiations here at the UN when it comes to tax have been very polarizing and I know that we're doing a multilateral convention negotiation.
But at some point, we also have to face the music and say, is this a process in which we're going to come and agree with the lowest common denominator because it's what drives the consensus, or are we going to try to be inclusive? As my colleague from Switzerland mentioned, a little bit more out of the box thinking into what we can land on in a concerted way.
From my perspective, last week's discussion derived again in the subject of whether or not we're going to strive for consensus or if this is going to be a single majority perspective, I think that the last thing we would need is for a convention or protocols to be negotiated in which even if consensus is strived for the will of the majority to pushes forward because at the end of the day, having protocols and a convention that don't allow for reservations and that are not as flexible as we would like them to be could then trigger member states to think twice about ratifying or maybe just conduct the exercise for two years and then withdraw from the convention making it a little bit more difficult for others to actually implement because the magic of this convention would only work if all member states work together to implement it.
I think in that spirit, in this protocol, particularly, I know that the question of physical presence versus the digital economy is going to be discussed for us.
What we would like to avoid also is that some of these articles don't take into consideration some cross border services that are very specific and important to countries, particularly in the Global South.
I think for us, since the terms of reference, before we merged the two protocols into one, we mentioned that for us cross border services should not in any way open the door for the taxation of remittances and the digital economy and those aspects that have made it more easy for citizens in the global south to access the markets and to access bankable services.
We also need to ensure that the allocation of, that fair allocation of taxing rights and the perspective of human rights is also contemplated in the protocol.
I think that for us, whether this is going to be a conversation that guides us to Nairobi and we have a line by line discussion which we would favor or more informal informal or coffee.
I think that we should not lose sight that what we would like is for member states here to also make a commitment to get other voices involved in this case, particularly the business perspective.
We're going to talk about source taxation and the digital economy, then we also should listen to the perspective on how this would impact the business relationship within countries, particularly in developing countries, if some of these changes to have effect.
So I completely agree that this is just the beginning of an exercise, and we welcome all the work that you've done for us.
We will try to participate as constructively as possible and as much as my tax policy knowledge allows me.
But we should also try to make sure that this protocol is as flexible as possible to give member states, I guess, relief in the sense of that they can join and there's going to be ways to also work under different perspectives on what we have put forward.
We would have loved to avoid a situation in which the final product is seen as the draft or the Final draft that is the perspective of one particular group.
I think that we've come this far because we tried to make it inclusive.
But just hearing that Perhaps the convention itself will not lead to a consensus based outcome.
It's a little boring.
Hopefully, we don't get to the point and that the will of the majority is just barring one or two countries.
But in that case, we would also ask for flexibility for those countries to be a part of this conversation.
We will participate in the articles in which you have some comments and very happy as well.
I mentioned it last week.
If there's any drafting exercise or any working group informal that you would like to task to member states, you can count on Mexico to help you with that discussion.
Thank you.
Thank you very much, Mexico.
That was very helpful and I think your flexibility and your input has been very useful as a message for this group on how that we should try and listen to each other and move forward in consensus as much as possible.
Thank you for that very policy wise recommendation.
Thank you.
I had Hungary as well.
I think that will be the last one before No, it's Hungary because Jamaica is already spoken.
Yeah, but we're going to break for lunch.
Before lunch, we're going to listen to Hungary and then we have a couple of first country interventions, but we will break for lunch after Hungary.
Please go ahead, Hungary.
Thank you.
Hung.
Thank you very much.
Probably a little bit late for the first intervention, but hopefully not too late.
I would like to welcome all the colleagues as last week it was not myself, but my colleague participating on the negotiations, so I would like to welcome everyone.
Hungary would like to thank the work of the Secretariat and the chair and thank the work colleague on this second protocol as well.
I have to say that Hungary agrees with many other countries expressing concerns before, but I would like to highlight one issue, the question of optionality.
In our opinion, the committee shall elaborate a framework convention and protocols, but it is very important that it should be effective.
The success of our work will not only be shown on a draft which is voted at the end, but on the number of the countries participating in it after.
In this regard, in our opinion, optionality and flexibility is key features to be able to make reservations, to choose between different options.
Hungary also has more than 80 tax treaties which we also have to keep in mind.
Optionality to apply the protocols in their entirety, optionality to choose between paragraphs of the protocols and optionality in relation to its scope.
To what treaties it may be applied in our opinion is crucial.
Thank you very much.
Thank you very much, Hungary for that helpful input for the negotiation.
Now break for lunch now.
I think you deserve without the coffee break, you deserve 5 minutes extra and we'll meet up again at 3:00, I think it is.
3:00.
Thank you very much.
You're finished.
Congratulations.
I.
Both of them relationships.
Whether you want to or not Okay.
I
GA
General Assembly
(11th meeting) - Fifth Session of the Intergovernmental Negotiating Committee on the UN Framework Convention on International Tax Cooperation (INC Tax) - 3 to 13 August 2026
The Fifth Session will take place at the United Nations Headquarters in New York from 3 to 13 August 2026.
Description
The United Nations General Assembly has established an Intergovernmental Negotiating Committee (INC) to draft a United Nations Framework Convention on International Tax Cooperation and two early protocols.
The United Nations Framework Convention on International Tax Cooperation is a proposed international legal instrument aimed at improving global tax cooperation. This Member State-led process will run from 2025 to 2027, with the aim of developing a framework convention that leads to fully inclusive and more effective international tax cooperation.
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