I I I that I I I Yeah.
Doing I from T.
I Yes.
You have that I And Good afternoon, everyone.
We are going to continue the discussions for work Stream two.
Lisa, please go ahead.
Thank you, Chair.
Thank you, Rami.
Just some reminders, we have been asked by translators to speak slow and also if you have written interventions, please hand them in the translators.
Also, you have to be aware, and I think it's also a good practice that if you have the same view as in a group, that it would be very useful if you say that group and then we can think and listen to where the majority of views are going.
Just to remind you, the African group is the largest group we have and they speak normally together and that's 54 members.
When Belgium asks us about how we should calculate and et cetera, we should be aware of that.
So far, the views that I have counted on having optionality on certain things that were in our paper that the Secretariat and I proposed has not reached the 54 level yet.
So just so you be aware, when we are doing this work, it's a work that we have to look at the great movements within the group.
And as I think our Mexican colleague said just before lunch, try to be flexible on both sides because that's the way forward.
That's the way that we can create a large majority and not a very too balancing powers only.
Hopefully that those wise words from our delegate from Mexico will be helpful in that sense.
Thank you for that.
Now we're going to Rami, please go ahead.
It's just a housekeeping note because now we have four sessions for protocol one, and now we are in session two, and we are still in the first article.
Please, in order to give equal opportunities for everyone to contribute, member states and stakeholders, you have 3 minutes.
Once your mic start flashing, that's mean you have 30 minutes remaining.
Try to conclude within the 30 minutes.
And if I start doing this sign for you, that means that you significantly exceed 3 minutes.
So you need to conclude very fast about this.
Otherwise, you are wasting or taking some time from other delegates to give their also interventions.
So please stick to this rule.
Watch your mic, it's flashing.
If you miss the flashing, then I'm going to give you this sign, so you need to finish and wrap up, please.
Thank you.
Thank you very much, Rami, and if we can get this slide up again, Katie, that would be great.
We have the text up actually, and I'm now going to go to the list, actually, it's changed, but I will take countries who have not spoken before first and I have Liechtenstein on the first list.
Please go ahead, Liechtenstein.
Thank you very much, colleague.
Lichtenstein would like to thank the Secretariat for the work done regarding Protocol one.
Also, thank you for explaining your considerations for switching from the June proposal to this proposal presented end of July.
We certainly understand the difficulties in finding common ground, especially since we try to get as close to consensus as possible.
However, as other countries like France and Portugal have already mentioned, for a credible process, we need less surprises along the way.
That said, we wanted to align ourselves with statements from EU countries, but also from UK, UE, Switzerland, India, China, Saudi Arabia, and others, that the relationship between Protocol one to existing bilateral treaties should be clarified.
When there are existing treaties, it must be clear which provisions are applicable.
We have concerns if Protocol one would override existing treaties which are a well balanced result of bilateral negotiations, taking into account also other income allocation rules, not just the ones dealing with taxation of services.
So we would like to support more optionality, not just regarding the protocol itself, but also with regard to parts of the protocol, which optionality should be applicable.
And also, we support a system of opt in, opt out for specific bilateral treaties, similar to what we already have under DPEPS MLI.
Furthermore, as has been pointed out by, for example, Italy and Germany, but also by others, we support taxation based on principles, value creation and nexus.
When it comes to withholding tax on gross income, I believe we have to be careful not to run into over taxation, not to ignore the costs that were born maybe in the other country in making those services and the quality of those services possible in the first place.
Thank you very much.
Thank you very much, Liechtenstein.
Just to recap a little bit on the protocol.
The protocol is, of course, optional for all of you to every country can opt in to sign the protocol.
Now, when we talk about optionality, not only to sign up to it, but within the agreement.
We talk about optionalities as well.
Let's understand well here so we are taking note correctly.
Optionality within the project within the agreement would be an optionality to agree to certain principles, but not all.
That view, there is the other view that if you sign up to the protocol then that overrides all your tax treaties.
The other view is that that should be optional and you could list them, for instance.
Just to make sure that we understand when we express our preferences, those are the main ones, and then you have the intermediate one which was presented today by Switzerland whereby you can have some part mandatory in some type of optionality within the agreement itself.
So It would be very good when we talk that we keep clear and we can see how the rules would be applied and what your preferences are.
Thank you very much, Liechtenstein.
I have Algeria, please.
Thank you, co lead.
Before I begin, we would like to support the intervention made by Nigeria on behalf of the African group.
We'd like to thank the co leads, the Secretariat and delegations for the work done and the progress in terms of rules included in the protocol and the draft proposed.
Thank you for asking for our views and our understanding of the protocol to see where we want to go and the areas of convergence that we need to find.
The current draft It doesn't contain a mechanism.
I'm actually picking up on what has already been said by some colleagues.
It doesn't have a clear mechanism to ensure that it can work with existing bilateral agreements to address existing imbalances of tax conventions which were by highly digital economies.
The drafting of this protocol initially was driven by the existing limits of taxes of source countries because of tax conventions, where in these conventions where the rules are not always the same, the situation has completely changed.
Looking at the protocol and how it would interact with the Framework Convention, this approach could lead to a progressive implementation of new provisions and therefore make it necessary to renegotiate each convention bilaterally.
That could make It could increase administrative burdens that states parties would have, and it could also lead to additional costs.
It could mean that implementation takes longer and requires more human resources.
In that connection, we think it is important to include a mechanism to insert new rules based on the equitable use including ISTR rules.
We think this mechanism would avoid having multiple provisions that deal with the same revenue through different legal instruments and therefore would risk making tax administration's job more complicated and it would also reduce international disputes, we believe.
Thank you.
Merci that was clear.
Thank you.
Ja, Israel has not made an intervention.
Israel is first.
Please go ahead, Israel.
Thank you, Chan.
Thank you, and the Secretariat for all the work you've done.
I wanted to I will be very short.
We align with the EU, with UK, Norway, Lichtenstein, and all regarding what they said before, and also as you asked the optionality within reservations to certain articles, something like that.
Yes.
Thank you.
Thank you very much, Israel.
That was clear.
Just a question.
You mentioned EU.
I don't think the EU has made itself the member countries have talked, but I'm not too sure the EU has spoke.
If I stand to be corrected, yeah.
I think some members, yeah.
Okay.
Thank you.
I have Jamaica for a second intervention.
You're very welcome, Marlene.
Thank you very much, Chair.
Chair, notwithstanding that the protocol is optional, we believe that this protocol is critical to giving life to Article 5 in the Framework Convention in terms of balancing the allocation of taxing rights, and therefore, we should press to find common ground, which will make signing onto the protocol appealing to as many countries as possible.
Chair, earlier you spoke about marrying both sides of the debate and preliminary to a marriage, usually their courtship.
Chair, I don't think the courtship is going very well at all.
And I think that maybe perhaps we could look at, and this is not to deprive civil society of their views.
The views are critical and we look forward to hearing their input, but I think at some point during this week we should find time to have an informal on the issue of this protocol.
Thank you, Chair.
Thank you very much, Jamaica.
We'll try our best.
Now, I don't have any other members.
I have Senegal? Senegal.
Yeah.
Thank you.
Senegal, please go ahead, Senegal.
Marcie.
Thank you very much, Madam Chair.
A very good afternoon, everyone.
We align ourselves with a statement delivered by the African group and we also support what Nigeria said, notably in terms of the exemptions that would be granted to Article 9.
From a technical point of view, we also think it would be important for the rate that is mentioned in 83 to be studied very carefully because there are many different categories of services that could be encompassed by these rates, and this is something that needs to be studied very carefully.
We also need to make sure that we are clear about the different areas where companies operate in terms of where the rates would apply because, of course, certain companies operate in different countries.
Thank you.
Thank you very much, Smigel.
Now I will go to civil society BCS.
I don't know what that is.
BCS.
Yeah.
Thank you, Polin.
The TR requires that throughout this work, the intergovernmental negotiation committee should take into consideration the work of other relevant forums, et cetera.
Sorry, could you just present yourself first who you are.
Accordingly, the work done in the UN Tax Committee please present yourself so everyone knows who you are.
People don't know what BCIS is.
Okay.
Sorry.
Sorry, I was not listening to you.
My name is Rad Kish Raval.
I'm a chartered accountant from Mumbai and I represent Bombai Chartered accountant Society.
Okay.
Should I start now? Okay.
The TOA requires that throughout its works, the intergovernmental negotiating committee should take into consideration the work of other relevant forums, et cetera.
Accordingly, the work done at the UN Tax Committee should also be given due viage.
Probably this argument was not taken this morning by anyone.
Then there are certain technical observations and first comment is on Article 1, paragraph four.
There's a reference to Article 9 done in this paragraph.
I'm not sure why is it required because prima facie, the country of resident does not give any benefit to the taxpayer under Article 9.
However, if we do a little deep dive, a different interpretation emerges, a trick reading of Article 9 leads to a conclusion that the country of residence is not left with any taxing rights, and this is how it happens.
Article 54 read with Article 9, overrides para one and two of Article 5.
And effectively takes away the residents credit taxing rights contained in Article 51.
That's how the articles are interlinked.
Now, we may believe that Article 9 corresponds to Article 7 for tax treaty.
However, Article 7 of tax treaty give taxing rights to the source country as well as resident countries.
Article 9 does not give taxing right to the residents country.
That probably is not intended.
I hope that the drafting will be corrected.
There are certain other technical issues in Article 13.
I'll do a separate written submissions of that because that's the settled text of USA.
Thank you.
Thank you very much, Raval and we will have a look at those issues that you mentioned.
Thank you very much.
I now have a Caroon please.
Go ahead.
Thank you, Cole for giving me the floor.
First of all, Cameroon is very grateful to the Secretariat and the co leads for all of their hard work and for presenting this draft text to us.
I would also like to align myself with the position expressed by the African group by Nigeria and which has been seconded by many other colleagues, including Zambia, Algeria, Morocco, Senegal, and many other colleagues as well.
Just in my national capacity, I would like to just touch briefly on the issue of the hierarchy or the priorities to be established between the protocol and the existing conventions.
We think that this issue is already dealt with under the Framework Convention, notably the provision on the link between the Framework Convention and the previous or subsequent conventions.
This is notably spelled out in Article 21 of the Framework Convention.
Perhaps it would be useful to recall the commitment that is enshrined in that article, Article 21, the commitment for states to take measures both domestically and also within the context of international treaties, bilateral or multilateral treaties states enter into to align the previous treaty under the previous treaties with the convention.
We believe that this therefore gives primacy to principles and rules that are set out in the convention and subsequent protocols vis-à-vis previous agreements.
We therefore believe it's not so much a question of whether or not we should be talking about alignment between the different conventions because ultimately, we believe that the principles upon which the alignment could be made have already been set out.
I would just also like to suggest that paragraph three of Article 2, I think, which mentions persons covered by the protocol, could be taken out and put in Chapter three, which deals with issues of substance because we think that it doesn't really fall under scope.
We think it should be under the subsequent part of the protocol.
Thank you.
Thank you very much, Cameroon and I reminding us that the underlying objectives is also in the Framework Convention and of course, we have to have that in our minds when we go forward.
I do not have any other member countries, so I give the floor to DW UN Foundation.
Please go ahead.
Thank you.
Thank you for the floor.
I'm delivering this intervention on behalf of the DMUN Foundation and the financing for Development for Children Youth constituency of the major group of Children youth in Article 1.
We would like to highlight four issues.
First regarding paragraph one, we are commit an explicit cross reference to Article 4 to ensure that the reference to residents of one or more states parties is applied consistently with the protocol's residence rules.
Residents should determine the personal scope of the protocol displacing any additional conditions governing entitlement to specific benefits under other provisions.
Second, we support paragraph two and its recognition of fiscally transparent entities and arrangements, however, greater clarity is needed where states parties classify the same entity or arrangement differently.
We therefore recommend defining wholly or partly fiscally transparent.
And providing for consultation between competent authorities where classification differences may result in double taxation, double non taxation, or denial of protocol benefits.
Third, regarding paragraph three, we support the objective of preserving legitimate source country taxing rights, where income is subject to a low level of taxation in the resident state.
At the same time, the rule should operate through clear objective and consistently applicable criteria.
The low tax they sold should be determined only after careful assessment of its interaction with the protocol as a whole, including its impact on source country taxing rights and the fiscal interests of countries.
The relationship between the statutory rate tests and the tax paid test should also be clearly defined.
The protocol should specify which taxes, exemptions, exclusions, and reductions are taken into account.
Well as the relevant taxable period currency conversion rules and treatment of subsequent tax adjustments.
We also recommend reconsidering the reference to the beneficial owner in paragraph three B, where entitlement depends on the person to whom income is attributed for tax purposes.
The protocol should either define this term clearly or use more precise attribution based language.
The provision should further distinguish inappropriate non taxation and artificial arrangement from legitimate, transparent, and substance based tax measures adopted for recognized public policy objectives.
This distinction is important both to address profit shifting and to preserve appropriate domestic policy space.
Fourth, where additional source country tax arises under paragraph three, effective relief from double taxation and timely dispute resolution mechanisms should be available.
We therefore emphasize the importance of consistency with Articles ten and 11.
Regarding paragraph four, we support retaining the saving clause and ensuring its consistent operation with the benefits expressly provided under Articles nine, ten and 11.
For our constituency, these provisions are not only technical, a fair, coherent and administrative international tax framework is essential to strengthen domestic resource mobilization and protect the fiscal space needed to finance sustainable development, including essential investments for children and youth.
We thank you.
Thank you very much.
That was a quick technical input.
Very useful.
Thank you very much.
African Union, please, go ahead.
Thank you, colleague, for giving us the floor and thank you to you and the Secretariat for the work that you have done thus far on this protocol.
The African Union aligns itself with a statement delivered by Nigeria on behalf of the Africa group.
We also align with the interventions delivered by Nigeria in its national capacity, Kenya, Ghana, Morocco, Zambia, Algeria, Segal, and Cameroon.
We appreciate the interventions that were also made from India and Russia.
We welcome the contributions from the African Union and the African countries on strengthening this protocol so far.
For African countries, our economies are increasingly digitalized and services can now be delivered and supplied into our markets without the physical presence on which traditional tax rules have largely relied.
The protocol therefore provides an important opportunity to strengthen source based country taxation, while also ensuring that the rules remain workable and practical.
On this basis, we support the Africa group view that the current draft provides a useful basis of continuing the negotiations and support the contributions made by the Africa group and the African countries, especially on strengthening paragraphs 2 to four.
More broadly, for Africa, the protocol should contribute to an international tax system that strengthens domestic resource mobilization, preserves legitimate taxing rights and remains practical for tax administrations to be able to implement.
We therefore support continuing the discussion on the basis of this text and also stand ready to engage constructively as we continue to submit our written input.
I thank you.
Thank you very much, A Union.
Aaf please.
Thank you.
Thank you, Chair for giving us the floor.
We will start by congratulating you and the team who worked on this quarterly draft for producing the draft and also for laying foundation for further discussion on this matter.
One thing is clear, Chair, that our system for taxing cross border services as of today is not sufficient.
Not sufficient when you look at our domestic framework and is not sufficient when you look at our existing network of tax treaties.
If it were to be sufficient, we would not be here talking about this protocol.
To that extent, we are happy that the powers to make whatever we think works better lies in the hands of members and to that extent, we want to encourage members to pull together to ensure that rules that are developed as such that satisfied our strategic objective.
It's small enough to say the draft is not good or is good.
But what alternative do we have and what text do we have to supply to move the work forward.
We have two additional issues which you want to highlight on.
One is on optionality.
Here, we are not strangers to international multilateral instrument and going by the protocol, the terms of reference, and the element which touches this protocol in the convention, we see that the framework protocol design, which allows parties to opt into this protocol or not to do so providing enough flexibility for member states.
But what we have seen this money is optionality being pushed to extreme, where it is optional whether a party enters into the protocol, it is optional what scope of instrument will be covered by the protocol, and it's optional which paragraphs and possibly which sentence that applies to party.
Chair as technical organization, we struggle to find precedents for such instrument because even the multilateral instrument on BEPS which have been referenced to by some members, have core principles locked in, which are not optional to members.
We believe that to maintain integrity of this protocol and unchecked optionality have potential to derail this work, defeat the mandate of this workstream, and make everything unattainable.
And we ask members to desist from such direction.
The second issue that is correlated to push for extreme optionality is people who have argued that the protocol should focus on blocking gaps.
Chair, we note that the issues which we have to deal with are not necessarily gap.
If you look at the article 0N profit attribution and read it side by side with permanent establishment which narrowly define scope and excludes digital services.
These are clearly designed allocation options.
They are not gaps.
Until we come to a design which interacts with the existing instrument in a manner that is compatible with what members want and object of this workstream, we will not be able to really solve the problem.
For want of time share, we will submit our remaining comment via return inpter and we thank you.
Thank you very much, Aa, and we look forward to receiving your written input.
Thank you very much.
We have an organization called CFS.
Please go ahead and please present yourself and your organization.
Thank you, Madam Colt.
My name is La Latyf and I represent the committee on fiscal studies.
Now, a number of substantive issues have been raised from the floor and keeping them in mind, I want to refer to paragraph four of the draft text.
Paragraph four states that a state keeps full authority to tax its own residents except for the benefits granted under Articles nine, ten, and 11.
Articles five through eight are not on that list, and those are the four articles that actually cap withholding rates.
Read literally, a resident who is caught in a dual resident situation is then not guaranteed the protection of those rate caps against their own state.
I'm proposing this text to amend paragraph four to read, for example, except with respect to the benefits granted under Articles five through 11.
I hope that would do the fix.
Then on subparagraph three, B, Clause two, I think there is a need to tighten the language that reads there on the third line, which says linked directly.
Now, linked directly, it should be tightened to expressly capture incentive regimes that are formally of general application, but operate in substance to benefit a specific sector, activity, or class of income since a generally worded investment or special economic zone law can achieve exactly the effect the drafters are trying to prevent while technically escaping the current wording.
Then finally, Madam Colleague, On paragraph four, I think it's important to add a non regression clause providing that nothing in the protocol shall be read to diminish a state party's taxing rights below those it enjoys under its own domestic law absent the protocol, together with an interpretive clause directing that the instrument be read consistently with the domestic resource mobilization objectives that have been recorded the terms of reference so that a dispute settlement body that is going to be applying Article 11 of this particular Protocol one has expressed textual grounding for weighing source state revenue protection as an object of the protocol itself and not merely double taxation relief as its sole purpose.
Thank you.
Thank you very much for those technical inputs.
We have taken note and we'll have a look at your comments and see how we can fix the problems if there is a problem.
You might be right.
Please go ahead.
Yes.
Thank you, Madam Chair.
It's great to see you.
It's nice to see you here.
I speak on behalf of grit.
My name is Veronica Granona.
Um, Ec recognizes that growth spaces withholding taxes such as those proposed in Articles five, six, and seven present technical advantages.
They are simpler to administer, less susceptible to manipulation through profit shifting and may offer developing countries in particular, a more straightforward path to revenue collection.
Indeed, we strongly recommend that countries continue to introduce such taxes, including digital services taxes in the absence of a multilateral solution.
Moreover, addressing taxation domestically is always needed as a treaty cannot address what the domestic legislation has not taxed.
The protocol can provide a much needed standardized approach to these gross basis taxes across all services categories.
However, it is our view that gross basis taxation should not be the sole solution.
The final solution must include a method for sharing the rights to tax income or profits based on some form of apportionment, whether formulary or fractional.
Both parties to a transaction are necessary for its completion, the service provider and the service recipient in the absence of well established, well defined competitive prices for the service being provided a 50 50 allocation of the tax base between source and resident states may be appropriate.
Particularly in the cases of lack of physical presence, also, that's one issue.
But going to your questions on Article 1, paragraph three, which introduced a low level of taxation rule, a variation of the subject to tax rule.
ICRC recognizes the underlying principle of the subject to tax rule.
Which is where a source state has seeded taxing rights on certain outbound payments under a tax treaty, it should be able to recover those rights when the income is taxed in the pay state below a certain rate.
This is a legitimate mechanism to address base erosion and profit shifting.
Including a subject to tax rule in all treaties would allow source countries to tax income if the other country does not tax it at an agreed upon minimum rate, enabling mostly developing countries but any country actually to tax income that is currently avoiding taxation.
Um, egrep has recommended that countries introduce the UN subject to tax rule in their tax treaties as it provides a broader and more balanced framework than the OECD version as it permits taxing all income without any materiality thresholds and has a flexibility of taxing at the domestic country's rate unless otherwise agreed.
In relation to this last point, it would probably require some fine tuning, with the rest of the protocol, but we support its incorporation in the protocol.
Thank you very much.
Thank you very much for that input.
That's very helpful.
Thank you.
I now have IDS.
Please.
Thank you.
Thank you.
My name is Frederick Heid Muller, here on behalf of the International Center for Taxes and Development based at the Institute of Development Studies.
On the Article 1, a comment is that while subject to tax rule can safeguard the protocol against a being certain forms of tax avoidance against profit shifting subject to tax rule is not sufficient to address the possible problem of treaty shopping or as in that case, it would be protocol shopping.
So because for that, the statutory tax rate in the country doesn't necessarily need to be low.
One could establish a conduit entity in a country with a relatively high tax rate, but still use it for the purpose of Lowering taxation and granting basically the benefit of the protocol to a company that is in a non signatory state.
So in that sense, it may be necessary to include a provision against treaty shopping either in this Article 1 or elsewhere in the protocol as is now very common in most tax treaties since the OECD's base erosion and profit shifting as there is now in the OCD and the UN model Convention.
Thank you.
Thank you very much.
We will certainly take that into consideration.
I have Pierre de Solid.
Thank you, miss Collis de T Solid.
As requested, I'm Marie Selmani speaking on behalf of Ces deer Solire, a French NGO member of the Global Alliance for Tax Justice.
Thank you for giving me the floor and thank you also for the draft.
This is very helpful for our understanding of where we are at.
Regarding Article 1, we have the following technical remarks.
First, we believe that this protocol could benefit from a clear objective, and this would logically be Article 1.
An objectives clause would be an opportunity to explain exactly what this protocol is meant to achieve and how it links to the Framework Convention.
We believe that this protocol must be firmly anchored in the objectives and principles of the Framework Convention and help to operationalize Article 5 on fair allocation of taxing rights in relation to cross border services.
Furthermore, the draft mentions the option of a preamble, which we also believe would be helpful to recap key elements of the Framework Convention and to explain the problems we want this protocol actually to resolve.
We note that the protocol resembles very much a traditional double taxation treaty more than a typical UN protocol.
The form of the protocol may seem inconsequential, but actually it has a significant bearing on the substance.
For instance, one of the key areas of difference between a typical DTA and this protocol is that unlike the former, the protocol would lead to various competing or concurrent source taxing rights.
We are concerned that the typical provisions of DTAs then become increasingly complex.
We do not believe that source taxing rights on automated digital services should be pegged towards a consumer being resident in the source state.
We believe that residence is only relevant in relation to identifying the state that shall provide double tax relief.
Additionally, Article 1 and many other articles in the draft mention the term persons.
From the context, we get the understanding that we are in fact talking about legal persons, and we would suggest making a clear distinction between legal persons, meaning companies and similar and national persons, meaning individuals because their tax treatment will vary.
We believe this protocol must establish a genuinely universal and multilateral basis for fair allocation of taxing rights over cross border services, yet we are concerned to see in the draft the reemergence of precisely the elements that the convention should allow us to move beyond.
That is the centrality of physical presence, the transfer pricing system, and an excessive dependence on existing and bilateral tax treaties.
This protocol is critical in the extent to which it sets the tone of how instruments which should be developed in furtherance of Article 5 could look like.
We envision a world in which double taxation agreements are increasingly made redundant and instead we move towards a truly multilateral, clear, and consistent and coherent multilateral framework for the division of taxing rights, not only for parties that have existing imbalanced bilateral treaties between them, but also for those in no treaty situations.
For this reason, we are concerned with the current format and encourage moving towards a more genuinely multilateral approach.
We lastly would like to highlight that it is very difficult for us to engage in this discussion when we are not allowed to see the draft that have been mentioned and discussed since this morning.
Thank you.
Thank you very much.
Just one issue that you mentioned.
The term person is actually defined as an individual and the company and another body of persons, which is the typical double taxation agreement definition.
You do have it in that so that you can The thing is, and you're right, of course, we have a type of agreement here, which is using models that we've more acquainted with.
But that point is clear.
Thank you very much for that input.
I have the International Chamber of Commerce, please go ahead.
Thank you, Chair.
Firstly, thank you and congratulations for providing a comprehensive tax for this session.
The draft represents an important basis for discussion.
However, business from both global north and global South remains concerned about several elements, particularly those relating to growth bases evolving taxation of cross border services and its effect on trade and investment.
The fundamental issue is that gross bus taxation takes no account of the costs incurred in providing a service.
As a result, it can disproportionately affect low margin activities, create double taxation where expenses are not deductible, and render certain transaction economically unviable, as also indicated by a recent IMF papers.
These concerns are particularly acute also for SMEs and startups seeking to enter new export markets.
If cross border services become subject to additional withholding taxes, businesses may simply become less willing to trade across border, reducing competitiveness, limiting the availability of services, and ultimately affecting consumers, as the costs as already demonstrated on research on DSDs ultimately falls on consumers.
There is also a broader conceptual concern with taxing cross border services on a gross revolding basis.
In practice, such taxes operate much like a tax on turnover as they apply to gross receipts rather than at income.
Similar concerns can arise under approaches that seek to approximate profits through simplified formulas tied primarily to sales or customer within a jurisdiction.
To the extent that the taxing right for source countries is justified by the location of the consumer or where consumption occurs, it begins to resemble a sales based tax rather than an income tax.
Yet the profits associated with a business activity are often the results of a much broader set of contributions, including investment, innovation, workforce capabilities, infrastructure, capital, and other business environments in multiple jurisdictions.
Consumption is therefore only one factor in economic activity and does not necessarily reflect where value is created or where investment decisions are made.
Businesses choose to invest and operate in jurisdiction for many reasons beyond the location of customers, including workforce skills, infrastructure, energy, legal certainty, political stability, access to resources, amongst many others.
Taxing income primarily by reference to the location of sales or consumption risk disconnecting taxing rights from these broader drivers of investment, productivity, and growth.
Tax policy does not exist in a vacuum and changes to tax rules directly affect trade, investment, productivity, and growth.
While evolding taxes may generate short term revenue, as also presented in a draft paper last Saturday, behavioral responses of businesses and consumers are critical to assessing any new tax measure.
Evidence, including Oxford Economic study on Article 12 AUN model suggests that such gains can be offset by reduction in trade and investment.
The question before us should therefore not be only about revenue collection, but about creating the conditions for sustainable growth, investment, job creation in line with the sustainable development objectives that are reflected in Article 4 of the current draft of the Framework Convention.
This is not simply a North South issue.
These measures would also affect South South and regional trade in think about initiatives such as the African Continental Free Trade A.
We should carefully consider whether gross revling tax on services advances those goals such as the one in Article 4 or instead creates an additional barrier to cross border economic activity even within global south regions.
For the reason, we continue to encourage countries to undertake a comprehensive economic assessment, including impact on trade and investment.
Because what truly matters is not simply short term revenues, but whether the rules being designed today support the economy countries wish and strive to build tomorrow.
Thank you.
Thank you very much.
International Chamber of Commerce.
I have the International Chamber of Commerce of Mexico now.
Please go ahead.
Thank you, miss Colt, for the floor.
From the perspective of the needs of enterprises, not only in Mexico, but also in Latin America, we would like to address the following points.
First, from a legal perspective, uncertainty remains regarding the nature of this protocol and how it would actually interact with existing international tax, trade and investment agreements.
Questions also remain regarding key definitions and the relationship between different provisions.
We have to know that interpretation will definitely play an important role, but it cannot stand it on its own without the tools that it needs to draw from.
Second, from an economic perspective for Mexico and for some other jurisdictions in the region, extending gross basic withholding a category of income that has historically been taxable through a PE represents a significant departure from current trading practice.
Additional withholding taxes on cross border services are likely to discourage trade, reduce competitiveness, and increased costs for businesses and consumers alike.
This is in particular relevant for developing economies where access to affordable services is critical for growth and development.
Third, we believe that there is also an important human rights dimension, which is a key principle for this Framework convention and early protocols.
The ability to deliver services remotely expands access to education, health care, and markets for small and medium enterprises.
The cost of a grasuate holding tax is ultimately borne by real people.
The student in rural Mexico accessing to online education, the patient consulting a doctor remotely in Colombia, the small business in Peru seeking for new customers, or the work in Argentina looking for opportunities across borders.
On domestic capacity and revenue mobilization, we believe that there are more effective alternatives and states can still make use of international law for this purpose.
If the objective is sustainable development as reflected in the CivilI commitment, measures that help countries to formalize economic activity, strengthen tax administration, and improve compliance would definitely deliver much more durable benefits than taxing cross border services without a broad and definite consensus.
In conclusion, we would like to encourage delegates to carefully assess the legal, economic, and practical implications of the proposed approach, not only in an immediate term, but also in a long term one.
Any solution should promote revenue mobilization while preserving legal certainty, avoiding double taxation, supporting investment in trade, and expanding opportunities for citizens and businesses across developing economies.
Thank you very much.
Thank you very much, ICC, Mexico.
I'm actually thinking that we should probably have a half an hour break for coffee and we can chat a little bit and consider what you have listened to, and then we'll come back quarter 25.
Thank you.
I Are you I We appreciate I Yeah.
I really I So welcome back.
I hope it was very fruitful and that now courtship is much more progressive and intensive than before, Marlene.
I hope the courtship for coffee break was good and prospering.
Baby steps.
Good.
We're happy with baby steps.
I have ICC from Italy.
Please go ahead, ICC Italy.
Yeah.
I have a problem.
I'm sorry, Cherri.
I have a problem with my document.
It's not opening up.
Okay.
Let's come back to ICC Italy and we'll let CEDD talk first.
Please go ahead.
Thank you, miss Co Chair.
I speak for CEDDp We thank the colleagues for this draft.
All last week, colleagues told us the same thing, principle in the convention machinery in the protocols.
Colleagues, welcome to the protocol.
Three concerns were raised this morning.
I'll answer briefly.
First, the refuse of Article 1, two, and three as a block.
But look inside the block, persons covered, taxes covered, definitions.
This is how every tax treaty in the world begins, including the treaty of the delegation that spoke.
To refuse the doorway is to refuse the house and on definitions.
Last week, they were requested in every article.
This week, the definition article is refused.
We ask for the same standard on both texts.
Second, optionality article by article.
The optionality already exists.
Article 20 of the convention, join or not yet.
This protocol allocates tax rights between states.
Right on one side must match obligation on the other.
A right without a relief, double taxation, a relief without a right, double non taxation, a la carte break the arithmetics.
Third, the fear that source taxation diminishes economic activity.
Look at Article 10.
The resident states credit tax the tax paid at source for the provider.
The burden is often unchanged.
What change is Which treasury receives it.
The true question is the sharing of revenue.
That is a fair conversation.
Let us have one.
Remember, what truly diminishes activity in our countries, roads unbuilt, school unfunded.
This revenue is not taken from the economy.
It is invested in its conditions.
So our request is one, convert the refusal into proposal.
A block tells us what delegate feels.
A proposal tells us what they need.
Thank you, Mr.
Colt.
Thank you very much CDD.
Let's hear if ICC Italia has found his papers, please go ahead.
Thank you, Chair and apologies for before.
Yes, International Chamber of Commerce of Italy.
At the outset, we would like to thank the co chairs for their efforts in preparing a comprehensive draft.
While we appreciate the work undertaken so far, we remain concerned that important questions regarding Protocol one remain unresolved, particularly with respect to its legal nature, its interaction with existing international agreements, and the practical consequences of introducing gross basis withholding taxation on cross border services.
From a legal perspective, greater clarity is still needed.
As raised by many today, important questions remain regarding the relationship between the protocol and existing tax treaties, as well as its interaction with trade and investment agreements.
Uncertainties also persist regarding key definitions and the interpretation of several provisions.
Businesses and investors depend on predictable and coherent legal frameworks.
Where significant uncertainty exists, investment decisions are often postponed, scaled back, or entirely redirected aswre.
From an economic perspective, there are important consequences on FDI deriving from introducing gross withholding tax on all services, and we are concerned that the proposed approach could have consequences extending far beyond the immediate objective of raising revenue.
As raised previously, gross basis taxation does not take into account the costs incurred in providing a service.
These can lead to overtaxation of low margin activities, increased compliant cost, and a greater likelihood of double taxation.
But most importantly, the economic burden of these measures rarely remains within the service provider alone.
Higher tax and compliant costs are often passed through the value chain, resulting in higher prices, fewer choices for businesses and consumers, and potentially undesired inflationary effects.
The impact can be particularly significant for local supply chains which increasingly rely on cross border services such as software.
Cloud computing, logistics, financial services, and specialized expertise.
If these services become more costly and less accessible, costs re through the economy, reducing efficiency, increasing production costs, and affecting overall local economic growth.
We are also concerned that the broader conceptual direction of taxing cross border services primarily by reference to the location of consumption, to that extent, the approach begins to resemble indirect taxation rather than income tax.
Yet value creation depends on a much broader combination of factors, including investment, innovation, skills, infrastructure, and capital across multiple jurisdictions.
For these reasons, we believe more comprehensive economic impact assessments are needed before countries commit to measure of this nature.
Such assessment should consider not only potential revenues gain, but also impacts on trades, investment, on competitiveness and consumer welfare as undertaken by the Oxford Economic Study on Article 12 AA.
We therefore encourage delegates to carefully consider the legal uncertainties, the economic consequences, and the broader development implications of the proposed approach before moving forward.
Thank you.
Thank you very much, ICC, Italy.
Perhaps let me just address some of the points that you made.
I think I don't have that many more on the list for speaking, so perhaps take a little bit of time to make a bit of comments and ask a little bit of clarity because I think When some of you have said that there needs to be more clarity, I think we all agree with that.
That's not necessary to say that.
What we're here to hear, what we want to hear is suggestions because this text is yours.
When you lacking some clarity, then you propose something.
It's not only a question of saying, this is not clear.
I think we all agree that there are things missing here and that's why we're here to listen to proposals.
It's not enough to just say, we need hear more clarity, we need to hear proposals.
Then I also thought slightly comment on the optionality.
We've talked a little bit about the importance of finding a road together.
At this stage, we have a group, which is the African group who has expressed their non interest in optionality.
That's a group of 54 countries.
We have a group of I made a note, 13 EU countries and nine more in total, 22 countries who want optionalities.
Take this into account here and try to start the courtship because otherwise we'll have a majority who will lead us in one direction, but we don't want that.
We want something that more countries can sign up to.
Let's talk.
Let's start courting.
But the reality today is 54 22.
So when we're here, we need to have the reality as well.
It's just not wishful thinking.
When we talk about gross and net as well, be very interesting to hear that It's just the gross that you are not happy with.
If we have a net taxation in the source country, that is not the problem then.
That's how I understand the comments on gross taxation that some have expressed that they don't like.
But they haven't said anything about net taxation, haven't said anything about the allocation of taxing rights.
But if you are only mentioning the gross taxation, then to me, that means that you are nothing against net taxation at the source.
Because if you are, you should say that as well.
With those a little bit of input to keep on the discussion going and move forward in a consensus way, I give the floor to stakeholder one, which is a long name.
Let me just read it out.
It's called the Independent Expert on the Promotion of Democratic and equitable international order.
Please go ahead.
A long name, indeed, Madam Chair.
Many thanks for giving me the opportunity to intervene.
I'm going to give you some general comments from the vantage point of my mandate, part of the special procedures of the United Nations.
My name is George Catrogals and I am the independent expert for the promotion of a democratic international order.
I understand that the discussions of the protocol today reflect a more general, I would say, central issue regarding the role of the convention.
Regardless of how transformative or evolutionary it will be in its substantive content, I believe that the most fundamental achievement would be to establish a unified global architecture for international tax cooperation.
In many aspects, there is now a two tier system of global tax governance in which not all jurisdictions participate on an equal footing.
This is, of course, exacerbated after the January 26th OECD side by side packets of the global minimum tax.
So to respond to the discussion I have heard, flexibility is, of course, always necessary in all international treaties, and legal certainty is of course a la double goal, but it is equally or even more imperative to unify and democratize the existing tax rules.
A unified architecture would not override automatically existing bilateral treaties, but it would place international tax cooperation within a framework that is universal, inclusive, and democratically legitimate where every state participates on the basis of sovereign equality.
This is particularly important because the playing field is not level.
The conference therefore needs to decide on evidence based data, but there is not enough.
It must also take into account the political reality under the light of the UN values and principles.
Jurisdictions do not enter the international tax system with equal economic power, equal bargaining capacity, equal administrative resources, or equal ability to influence the formulation of international standards.
Therefore, the protocol is the necessary tool to give substance to Article 5 and this objective of achieving a fair allocation of taxing rights amongst jurisdictions.
Fair allocation is not simply a technical question of tax jurisdiction.
It is above all, a political question of equity and democracy in the international economic order.
Thank you, Madam Chair.
Thank you for that input.
I now have NFTC.
Please go ahead and present yourself as well.
Thank you, Adam Co chair.
My name is Ann Gordon and I'm the Vice President of International Tax Policy for the National Foreign Trade Council.
The NFTC membership is engaged in all aspects of international business, trade and investment and represents most major sectors of the US economy.
NFTC members account for over 6 trillion in global revenue and employ nearly 6 million people in the United States.
We recognize the work of the UN Secretariat and the co chairs on the protocol and greatly appreciate the opportunity to provide feedback on the draft.
The inclusion of the stakeholders in these meetings allows for a robust exchange of ideas and we are hopeful that you'll also consider incorporating our feedback into the protocol.
We align with the interventions from ICC, ICC Mexico, ICC, Italy, as well as the delegations from Belgium, the UK, Switzerland, and others.
I want to start by observing that we recognize that resource challenges that many tax administrations face and the desire to streamline tax collection.
The business community shares the desire for clear administrative rules.
In that spirit though, we must share from our perspective, the concept of gross basis taxation, which has been described as simple, does not make it the right answer.
Gross basis taxation is economically inefficient and according to multiple academic studies, will inhibit growth and development.
Gross basis taxation, for instance, does not account for the expenses of running a business and may lead to over taxation and double taxation, which will inevitably further reduce overall domestic investment.
As you just requested, Madam Co chair, as to whether net basis taxation would be appropriate here, we would need to see proposed language before providing any comments there.
Furthermore, I'd like to address some of the assertions and comments made during the multi stakeholder consultation on July 28th about the preferences of the business community.
While I cannot speak for every business operating across borders, NFTC members do not prefer gross withholding taxes even at a low rate.
That being said, should the framework adopt these taxes, it must ensure that any tax, including withholding taxes, would be credible in the country of residence as to mitigate double taxation.
A majority of our members operate around the world.
These companies have physical presence, pay taxes, and contribute to the economies of each of these countries.
We understand there's a concern about evolving business practices and models which have created a desire among certain tax administrations to champion flexible tax mechanisms.
However, we caution that flexible provisions that morph over time may erode certainty for both tax administrations and taxpayers.
Additionally, layering on cross border services withholding tax will lead to double taxation, which does not improve investment or the fiscal health of the country.
I want to close on a positive note though.
We do applaud the inclusion of timelines in the dispute resolution in Article 11 and urge that the protections from inappropriate denial of dispute settlement mechanisms, particularly MAP, be further included into the protocol.
We plan to submit written comments and I thank you for your consideration, Madam Chair.
Thank you very much for that technical and policy wise input.
That is very helpful.
I don't have anyone else on the list for speakers, so I suggest that we move on and look at our slide on articles and see if we can move on and see some questions.
I had a slide if I remember correctly on Article 2, and I said we can come back to that later because there have been some interventions already on excise taxes, et cetera I think just to come back and make a comment on that, I think what we should do is to look at the scope in the sense that we are dealing with taxes.
Our terms of reference talk about income taxes that reflect that are imposed on cross border transactions.
I think that what we try to do is to include all types of taxes when they act in the same way as an income tax.
And I think because most of us are familiar with the problem, of course, we don't want to go down that route is to try and say what is included in a double tax treaty or not today.
That is a contentious issue.
We're here to try and solve issues that we see today as problematic and that requires an internal, hopefully multinational solution to that problem and that is obviously a little bit bigger than just a referring to the taxes on income because we can call them whatever tax anything really.
Therefore, we need to talk about something that acts in the same way as the taxes on income.
That's been touched on because we mentioned in the draft some taxes that do that.
They are called in the domestic excise taxes.
They could be called anything really, but they act in the same way as an income tax on a digital service or a cross border service.
That's what we're trying to make sure that we get the right scope here.
I would leave you with a discussion for tomorrow morning on that.
I think it'll be interesting to see if you could open up and talk about your Taxes that you have on cross border services that are perhaps called something different from income taxes.
They could be equalization levies or they can be all names that acts in the same way as an income tax on those services.
We need to find out what you want as a scope here.
After we found out that, we can actually draft a better text.
We have found in our work so far that some excise taxes in some countries works exactly the same way as an income tax on services.
An excise tax on services and an income tax on services is actually applied in exactly the same way.
Therefore, that is the reason why it has been included in Article 2.
But this is a discussion that we really need your input and we need to find the scope for this article.
It's not only a question of how to draft it, but we need to know what you would like to include in that scope.
I now got a hand up.
I got Burkina Faso.
Please go ahead.
After that, Katie, if we can get the slide up with the questions on Article 3, I think.
Please go ahead, Burkina Faso.
Thank you very much, Colleague.
I don't quite follow the question.
Could you perhaps pose it again? Of course.
I think preparing for tomorrow's because this is led by you.
I just following the line of the articles in the proposal.
There is an Article 2 on taxes covered.
Some members here already have mentioned that they think that excise taxes should not be part of it.
Now, we have put here that excise taxes that acts in the same way as income taxes should be covered.
I'm trying to explain that we need to understand what is the scope we should have.
There are some countries that have something I've just learned called equalization levies and they also apply to cross border services on automatic digital services.
We need to hear from you on your and what you think should be the scope of covered taxes here.
Then we can probably draft a good solution there.
But we will now open the floor.
Is that okay? Thank you.
Yes.
On Article 2, For us, taxes on income as added value for a business.
Look Article 2, I wanted to ask why we were talking about excise taxes and digital taxes and equalization taxes.
Because for us, these taxes mainly refer to taxes on consumption.
Because all of these duties which are then taken, that happens either when the good is sold or consumed.
We think for things particularly that are dangerous for health.
These aren't taxes that are linked because of a profit or revenue for a business.
That's the same thing as taxes on services and digital services, that is, we have a specific tax for that that covers some digital services.
The taxes are part of the bigger umbrella on taxes on spending or consumption.
So it falls to the consumer and these taxes aren't taken on revenue for a particular business.
Before I came here, I had read the draft and I had a question mark over this article.
Hopefully we'll be able to get an answer to that why we've included those different taxes in this article.
First, for the Bikina Faso, these are taxes that are different and they focus on consumption and production of sale of some services.
And not a revenue.
Thank you.
Thank you, Burkina Faso and I think you are pointing out exactly what we need to understand, which is the different ways of countries, how they apply the taxes and not the name of the taxes.
I think that is that the crunch that we need to get to because if you look at the draft, we have it up, perhaps we could put it up, Katie's Article 2 of the text it actually excludes value added taxes, which is typically taxes on consumption and But, you know, the way that we go forward with this is that we need to clarify, you know, we need to get certainty on where the line is going.
What is a consumption tax that should be excluded and what is a tax that should be included here? Or, what is a tax? And we should probably try to avoid and name them, you know, because they can be a tax can be called very much in accordance with your domestic law.
What is your domestic way of explaining a tax.
So Probably the best way forward here is to try and talk about how you apply the tax and how it works.
But that is really up to this group and I've got a bit of interventions now, happy to hear first of all, from Honduras Porf Adelante.
Thank you, Madam Cole.
Our considers Article 2 to be a key provision of the protocol.
As it defines it materials, scope and provides the foundation upon which the substantive taxing rules will operate.
We support the intention of adopting a functional approach whereby the protocol applies to taxes on income from services regardless of the terminology used in domestic legislation.
Given the diversity of national tax systems, such an approach can promote greater consistency in the application of the protocol.
At the same time, in light of your invitation to help define the scope of this provision, Honduras believes that the discussion should focus less on the specific name of a tax and more on the characteristics that justifies its inclusion within in the protocol.
In that regard, we believe the reference to taxes having a similar economic effect would benefit more objective guidance rather than relying primarily on domestic classifications.
It would be useful to identify the common elements that such taxes should share.
For example, that they are designed to tax income or economic returns derived from cross border services within the scope of this protocol.
This would provide a clearer and more predictable basis for determining whether a particular tax falls within the protocol while respecting the diversity of domestic tax systems and preserving the fiscal sovereignty of states.
We would therefore encourage further work either in the provision itself or in the explanatory notes to clarify these functional criteria.
We believe this approach would strengthen legal certainty, promote a more uniform interpretation among state parties, and facilitate the practical implementation of the protocol.
Finally, Honduras considers that a clear deliation of the taxes covered is particularly important in light of the interaction between this protocol and the existing bilateral tax treaties, since legal certainty regarding the material scope of the instrument will contribute to avoiding future conflicts of interpretation and implementation.
Thank you, Madame Colleague.
Thank you very much, Honduras and I think again, this is probably one of the areas which you have identified as where explanatory notes could be very, very useful.
Thank you for that intervention.
I have Norway, please go ahead.
Thank you, Madam Colleague.
We share the concerns expressed by India and Burkina Faso on the scope of this article.
I think we have mentioned this quite a few times that Article 2 should distinguish between income taxes from gross based taxes and gross based taxes on consumption.
These are economically two different categories.
The article applies the term taxes on total income and on elements of income, but then include digital service taxes, equalization taxes, and excise taxes.
The STs and equalization taxes are not income taxes, gross based or turnover based taxes and treating them as covered income taxes is a category error that creates uncertainty and blurs the boundary between the income and consumption taxation.
In this draft, the line drawn between income taxes and consumption taxes is internally inconsistent.
The article excludes VNT and other generally applicable consumption taxes, but includes excise taxes, which in fact are specific consumption taxes related to goods.
We find no principal basis for covering one gross based consumption tax while excluding another.
Further, the term other taxes having a similar economic effect is undefined and open ended and may create uncertainty for taxpayers and tax administrations.
What would be considered other taxes having a similar economic effect should be further discussed and if this is retained in the draft and as Honduras also mentioned, be subject to explanation in an explanatory note.
We ask for more clarity on the definition of covered taxes and including such explanations in an explanatory statement.
We also maintain the view that Article 2 should be confined to taxes on income from cross border services as the stated theme for this protocol, covering cross basis levies such as ESTs, excise duties, and equalization taxes.
In the risk of double and multiple taxation as these are not income taxes and therefore generally not creditable under our domestic law mechanism for foreign tax credits.
Connection with this, we do not think it's appropriate to require a resident state to credit taxes related to consumption against taxes on income as suggested in Article 10, but we'll provide specific comments on this when we come to this article.
Thank you.
Thank you.
I think the point is that I think what we need to do is to understand what is an income tax.
I don't think there exists a whole agreement in this group of what is an income tax.
Because For instance, and I can give an example from my experience in our treaty negotiations.
The excise tax in the United States is an excise tax on services.
It's not an excise tax on goods, and it's not a tax on consumption.
It's a gross withholding on the payment of the insurance premiums from that country, and it's called an excise tax.
So What we're trying to do here is to go away from labeling the tax and looking at the construction of what is an income tax and what is the equivalent of an income tax so that we can identify really the scope of the article.
Then if we don't want to have that scope, we can reduce it.
But it's important that we get a clear understanding and we get away from saying, an income tax is because I don't think everyone agrees with it and that's why we have to be very careful here when we use terminology in this area.
That's my understanding of hearing interventions at this floor.
I hope that's helpful because I do need you to focus on the scope that you want and the taxes.
If you don't want to include, this group don't want to include taxes on digital services, would you say that? That's not that difficult.
I had understood, at least from the work in the group that we wanted to do that.
Therefore, let's see how we can get the correct scope without locking ourselves into terminology that not everyone agrees on what it is.
That's my suggestion that we talk on the real scope in explanation mode.
Hope that's useful or I hope I didn't get you all muddled up.
Azerbayan, please go ahead.
Thank you very much, Madam Collett.
Aban align itself with the comments made by Bukoasa and Norway, we tend to clarify regarding the scope of covered tax.
Provision initially refers to taxes on income, but subsequently includes digital service tax equalization taxes, and excise taxes, some of which may be imposed on gross revenue or consumption rather than income.
In particular, inclusion of excise taxes appears inconsistent with the exclusion of generally applicable consumption taxes.
We therefore suggest deleting this reference or defining more precisely which service related excise taxes are intended.
Digital service taxes and equalization taxes should also be subject to criteria and preferable listed in an annex.
If such taxes are covered, protocols should ensure effective relief from double taxation since they may not qualify for a foreign tax credit under domestic tax law.
Final comment related to expression, similar economic effect is very broad and may cover levise fee or sector specific charges that are not taxes on income.
We therefore suggest defining objective criteria for determining when a measure has similar economic effect.
We will comment specific voting for this article.
Thank you very much.
Thank you very much, Jeban.
France, please go ahead.
Thank you, Madam Chair.
I'm going to keep my intervention very brief because I share most of what my predecessor have said.
I think in building on what I've said this morning, what we have seen in the draft is very similar to what we are accustomed of, taking into consideration both model.
Now here it departs and departs in an odd way because there might be a very specific example where excise duty is not an excise duty as most of the country understand it, but that's very unusual.
Listening to my Burkinaaso colleague, it seems that we have the same understanding of what is an excise duty.
So here we come and we mixed what is an indirect tax with what is a direct tax as a general definition, and I would say the same with digital service tax because in France, at least it's an indirect tax.
So we are saying here that if it has similar economic effects, and we don't really know what is a similar economic effects unless we go deeper into this question together, so it really blur is the text, where we really need the scope to be very clear because if you want this to override other treaty provision, we need to know to what extent.
So that's why we need to be careful on what wording we put in the draft.
And just to say similar economic effects, um, When I struggle to see where it is exactly and I struggle to see who will decide on what criteria.
That's something we really need to discuss further if you want to keep those words in the text.
Thank you.
Thank you, France.
Just to make this a bit more useful, if the intervention could actually tell us a little bit more if they do want to include what is normally called digital service taxes or not.
That would be very useful, I think, because we're moving around a little bit, giving a little bit the problem.
Because of course, it's the unusual thing that makes the difficulty and the uncertainty and what we are trying to do in the multilateral framework is to not or if we should talk positively, we're trying to make something work for many, many countries.
Therefore, it's important that we look and try to get certainty as much as possible.
First of all, if we can not use terminology that's used differently in domestic countries differently and we have examples of that.
If we can talk about what is the tax itself and what it does and what it applies to and the format, Um, and then of course, it would be useful to hear if we don't want certain, you know, taxes not to be included.
That can, of course, be done.
I had understood, at least up to now, that, people wanted or members wanted to solve the problem of international digital service taxes and wanted to include it in the scope of this protocol.
But if that's not the case, of course, that is a different ball game and that is probably more easy to solve than just to try and include all the taxes that are applicable to cross border services.
Spain, please go ahead.
Thank you, co lead and thank you for all of your hard work.
On Article 2, just before I get to that, I'd like to say that Spain is in favor of optionality, even though that doesn't necessarily mean that we support the last draft at the end of June, but we do think that this protocol should go in that direction.
On Article 2 on the issue of digital services taxes, the current wording may lead to some misinterpretation.
Regardless, as it may not encompass the legal framework in particular countries and that doesn't seem to be in line with countries sovereignty because it doesn't bear in mind the regime that a particular state may wish to adopt.
That is why we think that this wording is somewhat problematic.
We need to make sure that there is no double taxation and ultimately, this convention is supposed to be complementary to other conventions and we believe that the scope should be aligned with other conventions.
We believe that we had thought that the issues that we're dealing with here had perhaps been resolved, but now we're hearing from other delegations that this is somewhat problematic.
We'd like to know about the equalization taxes related to services.
We'd like to know exactly what is meant by that and I think we need to have a clear definition about these other taxes that are referred to.
The taxes which are different from income taxes.
We're also concerned by the reference to other taxes imposed on behalf of a contracting state having a similar economic effect.
This is too generic and broad in our eyes, and it may lead to different interpretations by different contracting states.
We therefore are in favor of a clear scope of application, and we think that the inclusion of concepts such as these may lead to a blurring of the ground and different interpretations from different states, which is not helpful.
Yeah.
United Kingdom.
Thank you.
I'll echo a lot of what my French colleague said.
The UK recognizes that Article 2 may be intended to support greater stability and certainty in the international tax system by extending protocol disciplines beyond traditional taxes covered by tax treaties.
However, if this is the intended objective, we would welcome further explanation of why such a significant departure from established treaty practice is necessary and how its benefits have been assessed against the potential risk.
In particular, the inclusion of digital services taxes, equalization taxes, and excise type taxes, and other measures with a similar economic effect appears to extend the protocol well beyond its stated purpose of addressing limitations on source taxation of services income under existing tax treaties.
The UK would welcome greater clarity regarding the problem being addressed, the rationale for this broader scope, and how the proposed approach would operate in practice.
We would also welcome a clearer evidence base for the approach taken in this article.
Traditional taxes covered provisions are generally grounded in legal characterization, whereas Article 2 appears to move towards an economic effects test.
That is a significant conceptual shift.
Before members can assess whether that shift is appropriate, it would be helpful to understand more clearly the basis upon which the current drafting has been judged to be the most appropriate response to the policy concerns identified.
What evidence supports that approach and how states and taxpayers will determine whether a particular domestic measure has a sufficiently similar economic effect.
The UK supports technically robust and administrative international tax rules.
We are concerned that Article 2 as currently drafted may create uncertainty by bringing into scope measures that are not normally regarded as taxes on income in treaty practice.
We therefore welcome further clarification on the intended legal characterization of the taxes covered and how the protocol is intended to interact with measures that sit outside existing DTA frameworks.
Thank you.
Perhaps I can help you a little bit.
Perhaps you have not been taking part in the intersessional meetings, but the idea that we had in the discussions was that we wanted to understand and we wanted to include taxes that affects automated digital services.
We also realized that there were taxes that are not called income taxes, but they act in the same way.
So the scope here is trying to be as certain as possible, and the object of the discussion here today is to hear from you how we can clarify it more than what it is now.
So there are several layers of this, of course, is that you have to try and present if you think something needs to be clarified, but then also clarify to us if you don't want that scope.
I mean, that's what we're here for.
The thing is these things have been discussed for over two years now and that has been the idea up until now.
To have the digital service taxes included and whatever form or name they had, not form perhaps, but the name they had.
That was the intention and that was what we have tried to do.
Now, if that's not clear and we need to clarify that, that's up to you.
You need to give us that help.
And then the second or if you don't want it, then that's also a solution that we have.
I hope that's clarifying United Kingdom because it's not us here clarifying, all of you has to come up with the points here.
I think it's really important to hear what you think on this because, of course, the taxes covered, the scope of the taxes here is really important.
Be grateful if you could actually tell us what you want instead of ask for clarifications.
Brazil, please go ahead.
We generally sorry.
We generally support the um The inclusion of excise taxes, as I've just made a simple Google search and there are excise taxes on services in different jurisdictions.
They are far less common than on goods, of course, but they do exist.
For instance, in telecommunications, Internet data services, electronic communications, mobile payment services, financial service fees, insurance premiums, air transport, television broadcasting, online advertising, indoor taing, uh, wagering gaming services, tourism, departure services, and so on.
Most of these several of these examples are actually domestic, not only domestically applicable, that's also true.
But there are some of these cases that are applicable cross border.
You referred to one example that is for insurance premiums.
There is one more country that also has a similar approach.
Um, I tend to agree with the comment that just the expression having a similar economic effect, it's ambiguous.
We will have to deal with it.
I have one idea how to solve it, but last time that I proposed an idea to have a common agreement, it created a monster.
Would it save it for the future, if someone comes with a better idea, Chita knows a bit about it.
What we wanted to solve, we are also in a position with the words that you mentioned, There is a provision in the double tax treaty saying that taxes that are identical or substantially similar should be part of the double tax Agreement as amended.
The question here is, we have seen a proliferation of taxes or whatever they are being called on DSTs or ADS.
Some countries also change the name called this DSDs, for instance, the question is, now that we are addressing services, should be part of the taxation of services as a as a whole because in the end, some countries are circumventing apparently circumventing their treaty obligations.
They would say that they are not and they are defensible points of view in both directions.
But the fact is there are a lot of other scholars or other countries that will see as a treaty override or circumventing the treaty.
The question is, we include the DSTs in general? We are in the position that it should be part of the protocol? Regardless of the name, even if you call them excise tax.
If you design an excise tax on online advertising, it should be part of the scope.
We could also ask whether there should be at least some situations that should be carved out from an excise tax on service.
For instance, we might come to the conclusion that gambling online gambling bet platforms, wagering platforms should be still excluded and, A higher withholding or taxation should be allowed on that specific situation because it has other deleterious effects are connected to other activities that we don't want to behaviors that we do not want to foster.
That is a more nuanced and a second debate to be held.
Maybe we can exclude some excise taxes on services on specific situations.
I can only think of the main one would be, again, the gambling.
I think that was all.
Thank you.
Thank you.
That was helpful and another way to deal with this is to try perhaps to define what is not included so that we define what are indirect taxes and what are consumption taxes that we don't want if that is what we don't want to include.
I think I heard a couple of meetings back that people were quite clear and there was there was a consensus of what are those type of taxes.
That perhaps could be a way forward.
I don't know, to include all taxes on cross border services except those that are indirect and then clearly define what is indirect.
But I would be interesting to hear what you think about that.
I have Nigeria.
Please go ahead, can there.
Thank you, Madam Chair.
Madam Colleagues.
I will be speaking on behalf of the 54 African countries.
The African group wishes to thank the colleagues for the draft of Article 2 concerning the taxes covered.
The African group notes the inclusion.
Of clear provisions on the scope of taxation as essential to ensuring certainty and consistency in the application of the protocol.
However, I wish to raise a specific concern regarding the scope of covered income in the proposed Article 2.
We are of the view that the scope of covered taxes should be limited to taxes on income and those with functional equivalent to income tax.
We are therefore concerned with the inclusion of excise taxes within the scope of the protocol in the current draft.
From our understanding, SI is not a tax on income, rather, it is generally levied on production, sale, or consumption, and it is generally recoverable from consumers of the product or service.
In many jurisdictions, SI taxes are treated as indirect taxes, distinct from income taxation and are not typically included within the scope of income taxes.
For this reason, we propose the removal of the reference to excise from Article 2 so as to maintain technical accuracy and alignment with the established treaty practice.
However, with respect to digital service taxes, taxes imposed pursuant to significant economic presence rules, equalization levies and other taxes with similar character, the African group welcome their inclusion as long as those taxes have functional equivalent to taxes on income.
As you described it, similar economic effect, irrespective of the names they are called.
It is not important to us the name they are called, but the function not equivalent to income taxes or whether they have similar economic effect as income taxes.
We also wish to emphasize the scope of this protocol should be limited to income in relation to cross border services and not all services.
Additionally, Madame Collies, we believe that the drafting of Article 2 can be improved upon, and we will be suggesting a drafting in our written comments to particularly, we think the having it as just one paragraph, make it to somehow convoluted.
So we try as much as possible to break it down to paragraph and sub paragraphs so that it makes it easy for reading and comprehension.
Thanks to Madame Coles.
Thank you, Nigeria, speaking on behalf of the African group, just to make sure that I understood that correctly.
You are in favor of including taxes on cross border automated digital services.
Because I think that is a bit fundamental at this point.
As far I understood you and I'd be grateful if you can confirm that.
Yes, Madam Chair.
Whether it's called the SCP or whatever name.
Thank you.
Yeah.
Thank you, Khindi.
Thank you, the African group.
I think if we are going to include digital services, automatic digital services and cross border digital services, we do need to make sure that whatever they are called, they are included in covered taxes.
I suppose I read the proposal slightly differently than some of you have.
I think I said it already, but I can say it again.
I think it's basically when it says including, and it gives a lot of names, but then it says having a similar.
We could say including XXXX, whatever they are called, having a similar economic effect with respect to income from services.
With that, It doesn't matter what it's called, and that was the intention.
If we can clarify that even better, we don't need to say any of that.
We can say including any tax on services, having a similar economic effect with respect to income tax from services.
Then countries can call them whatever they want to.
It doesn't matter if they call them excise taxes or whatever.
But I think it's fundamental that we understand if the automated digital services taxes and the services are going to be included because then we need to challenge and we need to make sure that we make certainty here because I think also the problem we have today, and I think Brazil mentioned it, is the problem with our double tax treaty today.
Are digital service taxes included or not? That's the problem today.
Some thinks they are, some countries think they are, some countries don't think they are because they have drafted them in the way that they look like in VAT or consumption taxes.
We need to clarify, we need to draw that line to be helpful and first decide if that type of Tax should be included and I understand from our African group friends that they should.
Some other members have also said the same.
The question then is how we go about that? We need your help with that.
I'm looking forward very much to the draft from the Africa group.
If anyone else, of course, feels like also providing us with input for this, that is very welcome.
I have Senegal, please go ahead, Senegal.
Thank you very much, Madam co lead.
I would like to say that we support what Nigeria said on behalf of the African group, notably when it comes to the inclusion of taxes related to significant economic presence and also digital services.
Madam said what I was going to say really because I was going to say that Each state should be able in line with their tax system should be able to categorize whether or not a tax is to be categorized as an income tax or an other tax, and that should allow states to act accordingly.
That means that it should be possible to define criteria on what is an income tax and what is not.
This means that it should be possible to distinguish between these different kind of taxes because when it's a consumption tax, the consumer will be concerned by it and other taxes can be categorized accordingly.
I think another criterion can be, is it a tax that is already covered by a tax convention? That means that states can act accordingly to prevent double taxation.
So I think in sum, it's important for us to be very clear with the notes that are going to be attached to these articles to be very clear on what the relevant criteria are to be established so that each state can act in line with the system they have and see whether or not the tax is applied to the criteria or not.
Thank you.
Thank you, Senate.
I think this is one of the articles where we really need explanatory notes in order to create certainty.
Thank you very much for that.
We are approaching 6:00 where we're going to stop, but are going to take Singapore and Kenya and I got the United Arab Emirates as well.
If you can keep it short, we'll take the three of you.
But it's a challenge because we do have to stop at 6:00 precise.
Please go ahead, Singapore.
Thank you, Madam Colleague.
I'll keep this short.
I echo the previous comments and concerns about the need to distinguish between income and consumption or transaction based taxes.
We thank the colleague's clarification that the intention is to take a functional approach.
Offhand, perhaps one possible lens is to cover those taxes that are kin to taxes on profits or net income rather than taxes imposed on gross revenue, transactions or consumption regardless of how they are characterized in domestic law.
We're happy to this is just a very prelim off the cuff suggestion.
This brings us to a related note on the term similar economic effect, which although it's intended to give effect to that, um, functional approach, could still create some uncertainty and ambiguity.
For instance, it's unclear what economic effect we are trying to measure.
Is it the incidence of the tax base or the underlying economic activity being taxed, and how similar this effect must be and what other factors, if any, should be taken into account.
Consequently, there could be quite varied interpretations and conclusions.
So we should give some consideration to perhaps including criteria or illustrative examples or explanatory notes as you mentioned earlier.
Thank you.
Thank you very much, Singapore, and I think we'll go forward in that sense because also I think mentioned and I would like to highlight that Brazil has already mentioned about the models we have today where they refer to similar or substantial additional taxes should be applicable.
That's the problem we have today and that's why we have to try and solve this in a better way than what the models we have give us as instruments.
Kenya, please go ahead.
We have a couple of minutes left.
Thank you, colleague, for your indulgence.
We align with the statement read by Nigeria on behalf of the African group.
This is what I wanted to say on a national capacity, that as per the draft that has been presented by the College, the intention of the protocol is to ensure or the article is to ensure that a comprehensive solution for the taxation of gross border services is achieved.
This is where it covers income tax by name in the strict sense and ensures that all income is taxed howsoever styled, especially where the intent is to circumvent the protocol through naming and questioning of taxes on income that would have otherwise been covered within the protocol.
Um If we were living in a closet society with less differences, this draft would have stopped at domestic law without even introducing including.
The purpose of including and also giving examples is just to see how well this can be captured.
Then further by introducing and maintaining the phrase, other taxes imposed having a similar economic effect, it gives it a more defining element to that.
Then we can see that the article itself further expressly bars the taxation of vat GST.
Which are in strict sense consumption taxes.
So it's very clear.
Colleague, what we're saying is this particular article can be redrafted for purposes of clarity so that it captures taxes on incomes and covers the ones that are excluded.
Then finally, for purposes of consistency, as it has been said, we propose to use the word of cross border services or the fresh cross border services and also ensure that the same is defined.
Um, we look at the current position and we can see that it does not include specific rules, and we are proposing to have these rules developed, which will help us in identifying existing taxes by help of state parties that will subscribe to that particular protocol and ensure that whatever is captured is within scope.
Then the second one would be we develop a mechanism that will deal with the future taxes adopted by the state parties that are substantially similar to what we are talking about, the covered taxes.
Thank you.
Thank you very much, Kenya, for that technical clarification.
That was very helpful.
I think we have to stop there.
We have to be very punctual in this building.
I have to requests for the floor tomorrow morning, we will start with the United Arab Emirates at 10:00.
Have a nice evening and I hope the courtship carries on, Marlene.
I.
Okay.
I
GA
General Assembly
(12th 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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