(13th meeting) - Fifth Session of the Intergovernmental Negotiating Committee on the UN Framework Convention on International Tax Cooperation (INC Tax) - 3 to 13 August 2026

Good morning, everyone.
I hope you had a nice evening.
Hope you had good conversations with colleagues and that you have exchanged views and fresh ideas that could be included in our discussions today.
I still had some countries asking for the floor yesterday before we finished on Article 2.
On taxes covered.
I think it was the United Arab Emirates, but perhaps you asked for the floor.
I opened the floor to finish that discussion because we had some who had asked for the floor and I now have Ghana, please go ahead, Ghana.
Chair, thank you.
Ghana Agns with African group.
And speak on Article 2, taxes covered.
First, check on the process.
The law is clear.
It says, one of the early protocols should address taxation of income derived from the provision of cross border services in an increasingly digitalized economy.
This draft is exactly what the law mandates.
Second, in substance, we support Article 2 as drafted.
This protocol applies to income taxes on services, irrespective of how it is named in domestic law.
That's why digital services taxes and equalization taxes are included.
This text also rightly excludes vat and other consumption taxes because they are already at destination and exports are zero rated and in line with the African Group alternative draft, This is about service income.
That is why interest and royalties are excluded.
They are passive income.
Finally, Chair, Article 2 applies to income within Article 5 to nine.
Those articles introduce the new exhaust principle, including The significant economic presence.
Without a new exhaus, Article 2 would have nothing to attach to.
You cannot tax income from services if you have no rule to say where it arises.
So we support Article 2.
It is faithful to the tour.
It covers services income including digital, and it excludes consumption and passive income.
We look forward to discussing Article 5 to nine and the significant economy presence next.
Thank you, Chair.
Thank you very much, Ghana, for that input.
I now have United Arab Emirates.
Please go ahead.
Thank you, Madam Cole, and good morning to everyone.
I think we would just like to echo the comments that France and Singapore made yesterday regarding Article 2.
We do not support the inclusion of excise taxes solely on the basis that it may be applied by some jurisdictions in a manner that departs from the general norm of such taxes.
Specifically, given that it's unclear on how the terminology similar economic effect will be interpreted, we think just broadly including excise taxes here would just result in lack of clarity in scope.
Thank you.
Thank you very much, United Arab Emirates.
Let me just recap a little bit of what I think we have agreed.
We have agreed that the scope of taxes covered should be broad.
It should include taxes that applies to digital services.
Our um Definition should be as precise as possible to avoid uncertainties.
It could be reference to taxes on income with a similar economic effect or I can't remember the really now.
I didn't take note of the African group proposal.
I think it had functional, but I suppose you can have a look functional effect, I think.
Something that actually ties it into it works.
Exactly.
That's it.
Functional equivalent of such taxes.
Those will be the idea to go forward.
We will be as precise as possible.
Now, taxes that are the functional equivalent of such taxes, it will therefore depend on how those taxes are signed and it will not be reflected on what they are called in domestic law because I think that is where we need to get to a certainty here and we are doing a multilateral agreement whereby we should not be affected by what the domestic law calls a tax.
We should look at the functional equivalent or what we have here in the draft having a similar economic effect on those taxes.
With that, unless I have any other ones, we will move on to discuss Article 3.
Katie, if we can get the slides up we had prepared some questions for you.
I think we had it on Article 3.
Yeah, general definitions.
So If you've got it up.
Here, the protocol does not cover royalties, so the definition this article is to allow it to be excluded.
Calls for having an expanded definition of royalties could reduce the scope of the protocol and create gaps if any relevant bilateral tax treaty did not have a similar definition.
Accordingly, the provision defaults to the definition in any applicable tax agreement and then provides a definition that would apply in the absence of a bilateral treaty that is similar to the most common definitions in other agreements.
Similarly, there is a definition of international traffic to allow it to be excluded on the scope of the protocol.
Those are the considerations that we prepared for the discussion on Article 3, which is the general definitions.
Of course, all of this is very important, but the definitions are particularly important.
I open the floor for your comments.
Thank you, Mauritius, for breaking the ice.
Please go ahead.
A very good morning to all of you.
Since this is the first time I'm taking the floor here, Madam Colleague, let me start by commending you and the Secretariat for coming up with this draft protocol, which is a very good start.
We are all fully conscious that it is not an easy task to bring consensus, especially after we have had so many diverging views expressed yesterday.
And insofar as Mauritius is concerned, from a country perspective, we strongly believe that there should be certainty both in the interpretation and application of the protocol for tax administrators as well as for investors.
This fits within the agreed principle of fairness that guides the work of this forum.
We would like here to recall the Resolution 77 stroke 244 of December 2022, which amongst others stipulates as follows.
We have to acknowledge the increasing legitimacy, stability, resilience, and fairness of the international tax rules.
As such, we believe that it is very important to clarify several issues concerning this protocol in order to prevent disputes at a later stage.
In this way, we welcome the inclusion in the protocol of an article 0N general definitions.
As we progress in our work, there are more terms that will require clarity.
In particular, we have in mind the following.
Regarding Article 1, how are we to interpret the term income? Because each country at its own level has its own definitions.
Should it be gross income, total income, net of related expenses, and here we will need to define what are related expenses, and then what would be really the way we would identify these related expenses? Regarding income, should it be accounting income, taxable income as defined under the current local laws, chargeable income.
So we would welcome clarification.
Another point is the term statutory tax rate.
We believe there should be clarity.
Let me just take the example of Mauritius itself.
In Mauritius, companies are subjected to statutory rate, what we call statutory rate is 15%.
But in addition, we have implemented corporate social responsibility tax, which is equivalent to 2% now.
We also have implemented corporate climate responsibility taxes.
So should it be 15% or should it be that 15 basic 15% added where we would add the corporate, the CSR and the CCR? Madam Colleague, as we are all aware, Developing countries at this stage require massive investments into strategic sectors.
If these countries eventually provide tax incentives to attract investments, would these be considered special exemptions under the provisions of Article 1, paragraph three B two.
To address all these issues that I mentioned, it is essential that we either have very clear definitions as wide as possible to prevent ambiguity or alternatively that guidance be provided as to their actual meaning in the form of explanatory notes or guidelines.
Thank you.
Thank you very much, Mauritius and thank you for raising those issues.
I think it's really important that we take note on those issues and to have proper explanations in our explanatory notes.
I think this is going to be very useful and helpful and necessary in order for this multilateral agreement to be effective and understandable and not create uncertainty.
Thank you for raising those issues and we take note of the things that we can provide explanatory notes on.
Thank you.
I don't have any other proposals for requests for speaking.
Remember that this draft is presented as my draft, but after this meeting is going to be your draft.
We need you to tell us what you want in it.
Otherwise it will just be your draft with no changes from what I did.
Now, I got Nigeria.
Thank you, Nigeria.
Thank you.
Thank you, Madam Coles, and good morning, everyone.
I will be speaking on behalf of the 54 African countries.
And the 54 African countries supports some of the definitions as presented in the draft, but have observations on some of them.
The AG wish to make the following observations.
For the definition of person, we observed that the definition stops includes an individual, a company and any other body of persons.
But it is our understanding that body of persons can be a transparent partnership.
And body of person can be a transparent CIV.
So in that instance, we have the view that we should include that is treated as an entity for tax purpose so that if that body of person is an opaque partnership, for instance, it will be a person under this protocol.
But if it is a transparent partnership, it should not be considered it may not be considered as a person under this protocol.
So we suggest the equation of that phrase that is treated as an entity for tax purpose.
Then irrespect of other areas, we think there are many definitions that have not been provided.
For instance, we have not seen the definition of person, I mean, sorry, business in this document, and we know business is used in many places, particularly business profit is used business activities is used in Article 9.
Then definition of consumer, we think to ensure clarity and certainty, view that consumer as used in Article 5 and Article 5 and Article 6, they need to be defined.
Then income.
We also think income should be clearly indicated or defined as well relating to cross border services.
Then international traffic.
We need clarity on the scope of international traffic.
I international traffic is it limited to carriage of goods and passengers, and it doesn't include a wider scope as we have in the existing models.
So we need clarity on that definition to provide clarity on the scope.
That is income from that international traffic.
What is the scope of the income? From international traffic.
And now, I'll go to capacity, my capacity as the representative of Nigeria.
We now make this comment on behalf of Nigeria.
We also need clarity on the use of payer because we are of the view that the word payer needs to be clarified.
For instance, if a parent company make payments in respect of its subsidiaries, a in respect of expense for subsidiaries, and they are later reimbursed or they are set to through their current accounts among each other.
With the experience company construed the peer, so we need clarification for that purpose, we need a definition so that the word peer is clearly identified.
Thank you.
Thank you, Nigeria.
I couldn't catch that.
Which word was that? The peer? That's.
Thank you.
Thank you.
Sorry.
Thank you, Nigeri on behalf of the African group, just to you mentioned some terms that you think should be added here.
I'm just thinking I was looking at the proposal from the African group.
For instance, when you suggested that income be included here, you would use the word or the definition that you have.
Ghima Okay.
And I'm asking you a question.
Sorry, Lisa.
What was the question? I realized you were not paying attention.
Just to clarify.
When you suggested business, consumer income and payer, you actually didn't say the draft that you wanted to include, but I would just then understand your comment from the proposal of the African group so that when you refer to consumer, we can just pick up what is in the African group proposal.
Yeah.
Yes.
For African group, we'll be making be submitting comments and we'll provide those definitions.
For instance, for business, we'll be providing definition as we have it in the 2025 UM model and the other areas we want defined, we'll be submitting our comments.
Thank you.
Okay.
And just so that we understand the proposals, the way that you deal with issues, and I think I understand where you're coming from, you want to think out of the scope, and On the fiscally transparent issue that you thought would be a good idea to include in the general definitions, as you'll probably be aware, in Article 1, paragraph two, we do deal with the transparent entities.
It's just a question of how you deal with it in the best way.
I suppose we can have that discussion later on in an intersessional meeting.
There are different ways of doing it and we can discuss which one is the best? Yes, please.
Thanks.
Thank you.
I now have Malaysia.
Please go ahead.
Thank you, Madam Cole and thank you for the presentation earlier.
I noticed in the presentation was mentioned on royalties, but just to ask the question as well, we seek clarification on the circumstances in which the definition of royalties under a member states domestic law differs from that set out in the draft protocol, particularly where there is no applicable tax instrument and how the draft protocol accommodates such differences.
I'm sorry if the presentation has already explained this, but if we could get clarification on this.
Thank you so much, Madam Cole.
I think what we said about royalties is that we have included it in order to exclude it.
We have included a definition to exclude it.
Is that helpful or do you because if it's domestically defined differently, I don't think that is relevant.
All right.
That's helpful.
Thank you, Madam Co.
You very much.
I now have Kenya.
Please go ahead.
Thank you.
Colleague, Secretariat, and distinguished members states greetings.
We are aligned with the statement read by the distinguished delegate from Nigeria on behalf of the Africa Group.
I just want to add onto what my colleague from Nigeria has put across on a question of royalties.
For the purposes of the protocol, we do believe that the protocol does not grant source rights.
I think a colleague you just mentioned that it's an exclusion of definition.
Rights on services only on services related to cross border.
We are in this particular case, we are looking at services rather than looking at royalties.
It is imperative that when we are having a definition, then the definition should not contravene or contain things that contravene the objects and the principles of the what we are trying to achieve within the protocol.
That definitely would make us gravitate towards a narrow definition that will not encompass services that would ordinarily be taxable under the articles that we are looking at.
Then to add on to that, I would wish also to speak to international traffic.
On the international traffic definition, we align with what the AG proposal is, which basically defines by exclusion where ships or aircraft is operated solely between places in a state party with reference to a non resident enterprise.
Then further, there is Article 32.
This one is on the co lead presentation.
Draft.
We believe 32 is a good way of solving impasses, and as an interpretation rule, it has been tried and tested and it is very clear.
But we want to indicate that the wordings of that article as reduced in writing in the UN model Convention, that is Article 253 is ordinarily used in bilateral tax treaties for undefined terms.
A which is used to define unclear terms.
The interpretation of these terms has to rely on the domestic law meaning in the country that applies the treaty unless the context requires otherwise.
And we do know that the position is effectuated by competent authorities.
We opine that if the context does require otherwise, as mentioned above, what I've just put across, and, for instance, the case, if the meaning of the term is different under the domestic law of the other party, that is a country, Other rules of interpretation will have to be followed.
For instance, the general rules of prescribed under the Vienna law.
Be that as it may, the situation we are faced with is a different one.
One that is multilateral in nature, or one of a kind.
We therefore posed that such a clause should not be included in the protocol and subsequently propose to have a rule to resolve difficulties of interpretation and application of the protocol, especially where it's a multilateral one, which for our case, we'd say it can be accelerated maybe to the meeting of parties and all that because we run a danger of developing precedents between two entities if we run with that clause, which would be used multilaterally, I submit.
Thank you.
Thank you, Kenia.
Just to recap what you proposed, you proposed that what is in the draft of the 20th July, paragraph two of Article 3 should not be included.
Yes.
It should be rewarded.
Reward be rewarded to cover to cover because it's a multilateral situation here we are looking at, not a bilateral.
Okay.
But here what we're saying is we are pushing it to the bilateral parties.
So that's how we are looking at it.
Yeah.
I'm just trying to understand how that would be changed, but perhaps my mind needs a little bit more of relaxing time to be able to comprehend well how we could change that.
But the point is taken.
Thank you very much, Kenya.
I now have Honduras orf.
Thank you very much, Madam Colad.
We believe that this discussion illustrates why Article 3 is not merely a definitional provision.
The characterization of terms such as payer, consumer income or royalties may ultimately determine whether a particular transaction falls within one substantive article 0F the protocol or another, and consequently, which state is entitled to exercise taxing rights.
For this reason, Honduras would suggest distinguishing between two categories of terms.
First, where a term is essential to determining the scope, nexus, characterization of income, or allocation of taxing rights under the protocol, we believe that an autonomous definition at the protocol level should be preferred.
Second, of terms and that do not materially affect the allocation of taxing rights, the reference to domestic law under paragraph two can appropriately operate as a residual interpretive rule.
We believe the distinction could provide a useful criteria for deciding which additional definition should be included in Article 3.
The discussion on payer provides a good example.
In modern business structures, particularly within multinational groups, the entity making and recording a payment may not necessarily be the entity receiving the service or bearing its economic cost.
If the entity or location of the payer has consequences under the substantive provisions of the protocol, the concept should therefore be sufficiently precise to avoid different outcomes based slightly on accounting arrangements or domestic characterization.
Similarly, regarding royalties, we agree that definition should provide a clear boundary between income that falls within the services provisions of this protocol and income that is properly characterized as royalties under the applicable framework.
This is important to minimize characterization conflicts and overlapping taxing claims.
Accordingly, Honduras would encourage the development of autonomous definitions where characterization directs affects taxing rights while preserving paragraph two as a genuinely residural rule.
We believe this approach would strengthen consistency, legal certainty, and the practical administration of the protocol across different tax systems.
Thank you, Madame Colad.
I I think from my and I would just like to check that I've understood.
You basically agree with the idea of including those specific terms that the African group proposed as definitions in order to be more certain and provide a multilateral agreement to those terms.
That's how I understood your intervention, is that correct? Honduras.
There we are.
Yes, indeed.
Madam Cole.
Okay.
Thank you very much.
Much.
I now have Ikrit.
Please go ahead.
Thank you, Madam Colleague.
Yes.
Just a few from grit.
My name is Peroni Crandona and I speak on behalf of grit.
I had a few questions or comments actually or requests for clarification maybe on Article 3 and definitions.
First of all, I'm not completely maybe understanding whether there is a the concept of maybe significant economic presence should be defined somewhere because in subsequent articles afterwards, there's situation in which there's no physical economic presence, and there will be some there's definitions in terms of taxation around them.
So the other point unrelated to that is also the definition of physical presence.
The concept of physical presence is central to the protocol's architecture, particularly in Article 9, Article 91 states that if an enterprise carries on business in another state through employees or agents that are physically present in such states, the profits may be taxed there, but this is also, the case on Article 55, where the nexus seems to be defined in the first order by physical presence, yet the protocol does not tell us what constitutes physical presence.
Does physical presence require a minimum period of time? Does it include a single day of activity? Does it encompass remote work by an employee? Those are things that we think should be considered.
On the questions that you had in relation to or rather question the slide that you had on the definition of royalty, We understand that as you were saying, this is included to be excluded, but there's treaties in which royalties is included, there's treaties in which royalties are understood to include software, but there's many other treaties in which software is not the taxation of software is limited by the treaties.
So We wonder whether actually this protocol shouldn't address those cases in which there's limitation to taxation of silver.
Thank you very much.
Thank you very much, Ed.
We will take note of the suggestions.
I think the way that I understand it and perhaps is good so we can see if anyone else thinks the same or if I'm incorrect, we are defining royalties, and then we take away that scope that we have defined from the treaty.
A treaty, for instance, a bilateral tax treaty that defines royalties including services, will not take away the services from that bilateral treaty.
You will only take away the part of the royalties that is defined in this multilateral treaty.
I just think that that is the way it works.
So I think that answers the question, Veronica.
I hope so.
But thank you for those proposals and we definitely consider that.
Now we have ECB SYF.
Please advise us who you are and please take the floor.
Thank you, Madam Colleague.
My name is Bezwit Branna Meskel speaking on behalf of ECB Sustainable Youth Foundation.
We welcome the inclusion of a definition of royalties in paragraph one H.
We understand the intention to rely first on the definition contained in an applicable tax instrument and to provide a common definition where no such instrument exists.
However, we would encourage consideration of whether this approach could result in divergent application of the protocol across states, particularly where existing bilateral agreements contain substantially different definitions of royalties that may not reflect evolving economic and technological realities.
This may be especially relevant as economies become increasingly digitized and the characterization of payments for services, intellectual property, software, and access to technology becomes increasingly complex.
We therefore suggest considering language that would clarify how the protocol's definition should interact with definitions contained in existing tax agreements with a view to ensure greater consistency and certainty while ensuring that reliance on existing tax agreements does not unintentionally narrow the scope of income covered by the protocol.
This would help reduce interpretive uncertainty and ensure that countries, particularly developing countries with more limited administrative and technical capacity can apply the protocol consistently.
Thank you.
Thank you very much and that links a little bit to part of your intervention, at least to what grid and Veronica has just mentioned and thank you for those comments.
I have now DMUN Foundation.
Please present yourself.
Thank you.
I'm taking the floor.
Thank you for the floor.
I'm delivering this intervention on behalf of the financing for Development constituency for Children youth of the Unit Nations Major Group for Children Youth and DMU ON Foundation.
The definition of person should expressly address partnerships, trusts, estates, physically transparent entities, and other legal arrangements, while remaining consistent with Article 1.
Inclusion as a person should not automatically determine residence or entitlement to benefits.
Definitions of enterprise and enterprise of a state party should clarify the meaning of business, including the treatment of professional services, transparent arrangements, and joint enterprises.
We also request clarification of international traffic, particularly regarding domestic stops, charter and leasing arrangement partnerships and whether transport by railroad or inland waterways is intentionally excluded.
The definition of applicable tax instrument should specify that the instrument must be enforced and effective between relevant state parties for the relevant taxable period.
Coordination rule is also needed where multiple instruments apply or contain inconsistent definitions.
Regarding royalties, the protocol should distinguish payments for intellectual property from payments for services, standardized software, cloud computing, digital platform access, and the purchase of copyrighted products.
Payments for industrial, commercial, or scientific equipment should also be reviewed as state practices differ on whether they constitute royalties, lease income, or business profits.
We support listing component authorities in an annex and recommend a simplified notification procedure for updating that AAS without formally amending the protocol.
Paragraph two should preserve the protocol's autonomous meaning and an undefined term may refer to domestic tax law, but only where that meaning is consistent with the context, object, and purpose of the protocol.
Subsequent changes in domestic law should not unilaterally alter the agreed allocation of taxing rights.
Where interpretations differ, competent authorities should consult to prevent double taxation, double non taxation, or inconsistent application.
Finally, we recommend defining other central terms used in the substantive provisions, including income from services, payment, beneficial owner, connected persons, digital means, and gross amount.
The document reference and date appearing within paragraph two should also be um and move far from the operative text.
These revisions would respect different national systems while improving certainty for tax administrations and taxpayers.
Clear definitions are essential to fair domestic resource mobilization and to protecting fiscal space for investments in children, young people, and sustainable development.
We thank you.
Thank you very much for that technical input and as already mentioned, some of those definitions are drafted in the way they are because they are actually excluding that type of activity or income.
The discussion is if it should be broader or narrower and I take your intervention in that sense.
Thank you.
I now have Tamu please present yourself and take the floor.
Thank you.
Howdy, I'm William Burns from Texas A&M.
Thank you for allowing academia to participate.
Now, I want to talk about the term services.
We recommend the states discuss and include a definition of the term services because the protocol concerns obviously services.
Interestingly, Article 2 states that this protocol applies, and this is a keyword, irrespective of the domestic definition of services, which begs the question, what is the definition for purposes of this protocol? Within the protocol, services appears 43 times, is used in the context of fee for services, and of course, digital services, which has specific good examples of types of services such as the supply of user data.
Services is not defined in the OECD or the UN model.
I'm not aware of any treaties actually where the term is defined, and it's not in the US model where I hail from.
I'm not even looking at the US tax system, which I know pretty well.
You find again descriptions of types of services, but the term service itself is not, and this is the reason I bring it up and why it might be relevant.
Generally speaking, services is defined as a service, performance of labor work, et cetera, not maybe royalties, not this, not that.
For consideration for a payment of something.
In the context of this protocol, digital services, such as the supply of user data, if that is the definition, that creates challenges that one of the reasons this protocol is being brought up is to tax digital services when those digital services may not have a specific consideration applied for, by example, as we all know, is Gmail free or the advertising and so forth.
Thus, and I'll conclude, I think that the parties should discuss whether a definition of services should be under the definitions article because that definition might want to consider saying that it doesn't require consideration or compensation for it to be a service for purposes of this protocol.
With that, I end.
Thank you very kindly.
Thank you for raising that issue.
I think some of us in this room have been involved in the discussions and definition of services for many years and so far we haven't come up with anything useful.
But I invite you all to propose draft text for it.
That would be interesting to consider.
So far, my experience that we haven't reached a possibility of doing it, but one should never give up.
Thank you.
IDS, please present yourself and take the floor.
Thank you very much, Frederick Hat Miller from International Center for Tex and Development based at the Institute of Development Studies.
First, I wanted to pick up again the point raised by Cricht and also by my colleague from Texas A&M University just now.
I think with respect to software, The fact that royalties is used to exclude from the scope of the protocol doesn't perhaps solve the issue entirely because as far as I'm aware, there are debates between this can certain payments for software be considered as royalty or a service, but also sometimes as good and the UN model, which then the new UN model, which includes software.
In the royalties article, that issue doesn't arise so much anymore, but I think this protocol doesn't really clarify when software is considered as a service, there can still be debates as to whether when it falls under the scope of the protocol or when it might be considered as good and then be only taxable in a restrictive way under existing tax treaties usually.
Okay.
Um, one point and two small observations.
Currently, the draft protocol still contains the term permanent establishment in Article 7.
I'm not sure if it's really the intention that it will stay there given the idea to avoid traditional terms, but if it stays there should probably also be defined in the definition.
Finally, on the definition in 0.1 C, which refers to enterprise, where I think it reproduces the definition from the OECD model convention.
Which I think is a little bit uncertain because there's some circularity here.
It's defined as enterprise applies to carrying on of any business, but as it's used now in Article 9, the enterprise can then carry on any business.
So there is this uncertainty whether the enterprise is actually an entity like a person or a resident or if it's an activity, something else.
This is the same as in the model conventions, I think, but I'm not sure if it's totally certain there.
And given right now, I think the term enterprise is only used in Article 9 mainly in a few other articles as well, but uh, it could be considered if the term can perhaps also be avoided entirely and so that this uncertainty is not reproduced.
Thank you very much for that input and we will certainly take note of them and we will look into the effect and potential changes that we can consider in order to make the text more clear on this issue.
Thank you.
I have stakeholder one now, and that is the independent expert on foreign debt.
Oh, sorry, I got Nigeria Stakeholder one, you have to wait a little bit.
I've got Nigeria.
Nigeria, please go ahead.
Thank you, Madam Chair for allowing me to come back.
Stakeholder one, I apologize for taking your slots.
I quickly need to come back and speak for Nigeria.
For royalties, Nigeria notes the lack of clarity of the scope of royalties that will result from different definitions according to existing instruments.
Nigeria therefore seeks consistency of definition amongst the parties and therefore, request for the definition that is currently in the 2025 UN model.
Also, NAR knows that some element of interest may constitute service such as debt, I mean, management fee, arrangement fee, processing fee, et cetera, which may be charged by the lender.
As such, in order to provide clarity, NAR requests for the carve out of interest from the scope of this at this protocol.
As such, Nigeria requests that the definition of interest should be provided as interest means income from debt claims of every kind, whether or not secured by mortgage and whether or not carrying a right to participate in debtors profits, and in particular, income from government securities and income from bonds or debentures, including premiums and prices attaching to such security bonds or debentures.
Thank you, Madam Chair.
Thank you very much, Nigeria.
Note taken.
I I will now give the floor to stakeholder one, independent expert on foreign debt.
Please go ahead and present yourself, sir.
Thank you for the floor.
It was a pleasure to cede a few minutes to Nigeria as always.
My name is Atia Wars.
I'm the UN independent expert on foreign debt and international financial obligations.
I want to make brief comments.
In watching the debate around the protocol so far since yesterday, I get the impression that there's almost a presumption of issues in the room.
And if we are not careful and we keep moving in the direction of presumptions, then we are likely to fall into the trap of business as usual, which it is not.
It is unusual and we are trying to make changes.
Now, as we hook this protocol onto the convention, there has been discussions around which article it hooks onto.
I think that there is a need to clarify which ones it hooks onto so that we know what it is trying to address.
At the end of the day, the protocol cannot work if it is not clearly linked to the convention.
The second point I would like to make is around the definition of the word tax.
I'm minded that we need to move more towards its characteristics.
There are examples around the world where countries, for example, will actually put into place royalties instead of income tax, and that will also lead me to the other point, which is, if we are all using different characteristics and identifiers on what we are taxing around the world, then suddenly a definition at a global level becomes less about how each country understands the word tax or the word excise because I've heard the debate around it, but rather what it involves or what is included in it.
I think that the argument about what we should exclude from it will be as useful as what we include.
But we can always still use legal phrases that allow us to have a catch all to address it.
My third point is the issue around what we are solving through this particular protocol.
I'm minded Article 2 of the Convention issues around inequality.
I am struggling currently to see what inequality we are resolving for which countries or which type of countries.
I think that this is something that does need to have some focus.
But my final point is If the debate ends today and that means that the position the draft takes is the one that is adopted, then I think that there needs to be a debate still in the room as to whether or not this is going to be the draft you want to adopt or not.
Because I think there's a lot of issues in it that seem to be still not in agreement with member states.
I thank you for the time.
Back to you, Madame Colit.
Thank you very much for that.
Stakeholder one.
Just to remind you that it takes two to tango.
So we need the debate to get going.
We have BCAS requesting the floor.
Please identify yourself and take the floor.
Thank you, colleague.
My name is Rad Kish Raval and I'm representing BCS here.
I'm a Mumbai based chartered accountant.
My comments on the definitions are as follows.
The term agent Article 9 needs to be defined or clarified.
Are we referring to the concept of agent as it appears in the AgenCP definition, or are we talking of some different definition or different concept? I would personally believe that the words other personnel is a better term to use here as against the agent because this term is settled in Article 53B, which gives a definition of service P.
The terms end users user data using Article 6 also need to be defined.
These are new concepts in the tax treaty and require more consideration.
The term services can have a negative definition, if at all, we intend to define it.
Currently, there's a definition of fee for services, and the solution was to define the term services as well.
That's a difficult task, which is already recognized, but the approach could be to define it negatively to exclude certain activities not qualifying as services.
Uh, a very good intervention was made by my colleague Frederick on that term enterprise.
I fully support it.
The term creates a lot of confusion when we really try to look at it.
Do we really mean a business entity or a unit or a person, you know, when we use the word enterprise? Now, some of these issues should ideally be discussed when we discuss Article 9 or six, but I'm just going with the flow of the current discussion.
I hope we will have enough time to discuss the core articles, five, nine and others.
Thank you.
Thank you very much, Raval.
I have Af, please go ahead.
Thank you very much, colleagues.
And as this is my first intervention in this meeting, I want to take this opportunity to congratulate you colleagues and also the chair for progress in this very important project.
I also want to sustain the calls that were made yesterday that all parties work together to resolve difficult areas to progress these very important discussions.
Just coming into the discussion today for the definition that Article 3 as presented, maybe two or three points.
One is on the definition of service.
I mean, colleague you just mentioned, that is very problematic to have a common understanding of what service would be.
And in our view, we should have a definition that is more operational that definitely looks at services that we are looking at.
And in this essence is cross border services in which the service provider and the consumer and the payer, all the payer are in different jurisdiction so that we look at it from an operational perspective as opposed to more nuanced parameters or characteristics of the type of services we want to cover.
We can present definitely a proposal working together with the Africa group that made an intervention earlier.
The other important point is about the definition of consumer.
This has been reflected in several articles in this protocol, and so having a very broad definition, it's very important and that should not only look at the purchaser of the services, but also the person that enjoys the services, and therefore, that should bring the aspect of users.
That's going to be very important in particular when we start talking about ADS, because in that part of the articles, we will have situations where you need to look through the payer and look at the person who ultimately engages with the platform.
And so bringing the aspect of users will be an important part of that definition.
And then on definition of person, having the body corporates included, I think it needs to be put context into it because you have situations where some body corporates are not treated the taxable entities in some jurisdictions.
And so given that context that body corporates are persons to the extent they are treated as taxable persons in jurisdictions, that will provide very useful clarification.
Uh, we also agree with the intervention just made now by Nigeria about consistency in definition of royalty, and we also support the idea of using the UN model Tax Convention 2025, the broader definition for that purpose, uh.
And lastly, uh, So I think I've covered most of my points.
Thank you, Asamit.
Thank you very much, Aa and you just ran out of time.
So that was very well timed.
Thank you very much.
Thank you to all of you for your input.
Of course, we have taken note and we will thoroughly go through those technical comments that you have made.
It's been very useful.
I don't have any other on the list for taking the floor, so I suggest we have a coffee break.
Half an hour, ten to 12, please.
Come back.
Thank you.
Thank you so much.
We've been waiting No.
I Yeah.
I'll go We I didn't expect you to very long We I a The Court.
I Welcome back after coffee.
I hope we can now carry on and here your views I thought I wanted to suggest article 5 fees for services.
If we can get the slide up, Katie, If I find my glasses as well.
I can't see anything.
Sorry, I seem to have lost my glasses, but I'm safe now.
Welcome back.
And we're going to look at Article 5.
And we had posed some questions here.
And So first of all, do you think the ordering rules are the appropriate ones? Given the difficulties some member states have identified in auditing transfer pricing in the case of services, are the special relationship provisions the appropriate ones? And how would they be enforced? Those are the things that we have identified as issues that we can talk about, and of course, you're welcome to discuss anything else that you want to raise on Article 5.
I remember.
So anyone wants to break the ice? No one by breaking the ice.
No, thank you, Trudea.
Please go ahead.
Thank you, Madam Colleague, and good morning to everybody.
This is the first time we break the ice, so there's a first for everything.
We have a few points on this paragraph and I will also speak to the points that you have suggested for this discussion.
Just reflecting on the discussion we had just now on the definitions.
We think we need to continue to discuss to what extent we should rely on existing definitions in existing treaties and where it's appropriate to replace those for the purposes of this protocol.
Given that, uh, Definitions may vary significantly in treaties, and amending definitions here could have implications for the treaty as a whole and introduce significant complexities.
There was one point on Article 4 that I would specifically erase, and that is the residence provisions for companies in what I believe is paragraph three.
Um although that provision is based on something that we use in our model when we negotiate tax treaties and it is our preferred residence model.
We have a large treaty network like many other member states, and there are residence provisions for companies that deviate.
If we substitute that provision for this provision, it would mean that for a company could be considered resident for the purpose of one income and not the other.
This is the complexity is increased by the fact that services are often bundled with goods and IP and other things that would make it a very complex, exercise to apply this protocol.
Maybe we could continue to discuss whether or not we should rely on existing definitions here.
We welcome very much that you confirm that we will have explanatory statements on the interactions here.
Now turning to an Article 5 Like I said, services are often bundled.
It makes it a very complex exercise to apply this protocol.
We have earlier expressed our concern with broad based gross taxation and the implications this may have on trade and investment.
I will not repeat them here, but our concerns remain.
We would recommend limiting the scope of the protocol to transactions between companies as supplying this to services consumed by individuals will effectively make individuals withholding agents, and this is a very complex administrative exercise.
Now, speaking to your first point on the ordering rules, whether or not they are appropriate.
We think that impression is that the intention is to create a hierarchy between physical presence, consumer residences, and payer residences or deductibility.
That might work in a bilateral setting, but it seems not to sufficiently consider the implications in a multilateral setting.
As paragraph five does not provide for a tie breaker rule between the sourcing alternatives, several states can each claim source status under different tiers of the same payment, even in a bilateral situation.
With no globally mutually exclusive nexus rule and no clearing mechanism to determine one source for one type of income.
This applies to the sourcing rules proposed in Article 6 and seven as well.
The result is a real risk of overlapping claims across several states, which the credit method in Article 10 cannot fully relieve, and therefore introducing a risk of double or multiple taxation and eroding the tax revenues of resident states.
We think that nexus should rest or sourcing rules should rest on real and meaningful economic engagement, not on the location on consumption alone, as the presence of a payer or a consumer does not in itself evidence value creation or economic activity, and we should rely on additional elements here.
That's all we have for now.
Thank you.
Thank you very much, Norway and thank you for highlighting the issue on the residency and of course, we take note of that and we'll consider that.
On your comment on paragraph five and that it could have some difficulties to implement.
You also said that this would be the same problem for Article 6, I think.
If that's possible, I would appreciate very much if the next step we could have an example because for me at least that works much easier and I understand where the problems are.
But we have time for that on the intersectional meeting, but that would be great.
Norway if you can provide us with that.
Thank you very much.
Norway.
Malaysia, please go ahead.
Thank you, Chloe, for letting me take the floor again.
This would be some questions for Article 5.
We would appreciate some guidance on the administrative procedures proposed to be established by member states as mentioned under subparagraph four B and what that would entail.
And if you would allow me to also read a comment for Article 6, or would that be discussed later? All right.
For Article 6 on income from automated Digital Services, Malasia notes that the practical application of the terms end users in the state and user data generated from the state remains unclear, especially in situations where payments cannot be traced to the jurisdiction in which the users reside or the data originates.
In the absence of clear thresholds and effective coordination rules, the provision may give rise to overlapping taxing claims and an increased risk of double or multiple taxation.
That's all for now.
Thank you, CVD.
Thank you very much.
Well, we will come back to Article 6, perhaps we can hear you might need to repeat that again.
On your comment on Paragraph four, I think my understanding is that under administrative procedures established by such state party, that would be administrative procedures under domestic law that they will implement in order to comply with the international agreement.
Just to try and be helpful there.
That's how I understand it.
If anyone else has any other views, I think it is quite clear.
Switzerland, please go ahead.
Thank you, Madam Colt.
Good morning, distinguished colleagues.
This is mainly to support the intervention made by Norway.
We share their views, and we also are concerned with the ordering rule.
The ordering rule, it was requested during the intersessional virtual meetings, mainly with the view to prevent multiple taxation, to prevent that fees for service arise in several states and accordingly are taxed there.
Um The rule itself is fine in our view.
It gives preference to the state where physical presence takes place.
This is a long established principle of international taxation and a good reason to pay tax in a state because you are physically there and you benefit from the infrastructure of that state.
Um, the goal to prevent multiple taxation is, however, not met, since I assume that each state can run through that test, and if he finds one of the conditions to be fulfilled in his state, then fees are considered to arise there.
So the ordering rules should, in our view be complemented by a rule that states that fees arise only in one state, um, and then it will then fulfill, meet the goal to prevent multiple taxation.
And Madam Colleague, you asked for an example.
I could come up with one, assume a Swiss enterprise is, let's say, furnishing engineering services.
They have engineers in another state.
The client is again in another state and the one that finally pays the bill is in a third state, then you would have at least three states that could claim that fees arise in their country according to the proposed rule.
Thank you.
Sorry, but thank you, Switzerland.
I'm not sure I follow that.
What B says if the conditions of A are not met, the consumer of the service is a resident of that state.
So if you are physically present, then that am I correct or what is your view? Please go ahead.
Basically, you don't get into B if A is met.
I understand that the test, every state can go through it and if he finds one of these three conditions to be fulfilled in his country, he couldn't claim under that wording that fees arise in his state.
Just wondering if you can be physically present in two places, but perhaps you can.
You can be physically present in one place.
You can have a consumer in another state and you could finally have someone that is the payer in a third state and still the fees would be considered to arise in all of these three states, don't they? I think A says the services are performed physically in that state.
If I perform them physically in one state, I think I can't do the physical performance in another state.
Yeah.
You're right.
But isn't the goal of that order of priority to make sure that fees arise only in one state and they are only taxed in one state? Isn't that the goal of it? I'm not too sure.
It depends, I suppose.
Yeah.
I'm just trying to understand it better.
But I think at least B says if the conditions of A are not met and you can only physically perform as service in one state.
Let's think about it.
I'm trying to understand it better.
Thank you, Switzerland.
I have Spain.
Please go ahead.
A very good morning everyone.
Thank you, Chair.
I just wanted to echo what Norway and Switzerland just said on paragraph five.
We the efforts made to identify different criteria that enable us to determine the status in which the income from services come from.
However, we consider that the current drafting does not sufficiently clearly establish a hierarchy between these different criteria.
In this regard, we observed that the analysis of the different nexuses seems to come from the individual perspective of each state and not jointly.
This could give rise to several states simultaneously considering the conditions complied with.
For their taxation.
Just another example, just imagine an entity and state A provides a service like a market study or something like that, and a client resident in state C, that is the consumer of the service, the service is carried out by a worker in state B that engages in their activities remotely, working remotely from state B.
In this example, state B could consider that the royalties, the income from the service come from their territory in line with letter A, while the services provided physically in that state.
However, state C could also consider that they have the right to tax that income in line with letter B.
From their perspective, the condition provided for in letter A isn't complied with.
Because the service isn't provided physically in their territory.
However, the consumer is resident in their state.
Both state B and state C could legitimately reach the conclusion that the services provided in their jurisdiction in line with paragraph five.
This test doesn't seem to adequately resolve cases where there are several different sources, and this could give rise to multiple taxation and issues over double taxation.
This, in our view, does not um We would be grateful for some clarification from the drafters or review that clearly establishes a common hierarchy between the different levels so that this can be properly dealt with.
Thank you.
Thank you very much, Spain as the chair.
I agree with the examples that we have.
We'll try and clarify them and look at being able to have a bit more clearer and precise drafting to ensure that a state the state that is decided to be the source of that income, those royalties.
Thank you.
India, please.
Thank you, Madam Colite.
On the structural part of Article 5, we would like to draw attention to the provision that allows the taxpayer to elect for taxation on a net basis where gross basis taxation may not be appropriate or may not reflect the actual income arising from the services.
While we appreciate the inclusion of such an option, we have certain concerns regarding the manner in which the election is proposed to operate.
The draft provides that the election would be exercised in accordance with administrative procedures established under domestic legislation.
This creates a certain degree of dependence on the domestic legislative and administrative framework of that particular state.
There could be situations where notwithstanding the availability of a net basis option in the protocol, the domestic framework does not provide an equally effective or accessible mechanism for exercising the option.
From an administrative perspective, gross basis taxation, particularly through withholding, is generally simpler to administer.
This could create an inherent preference on the part of the source states towards the gross basis mechanism, even in circumstances where net basis taxation may be more appropriate from the perspective of the taxpayer's actual income.
We would therefore suggest that the availability of the net basis option should not be left entirely contingent upon domestic administrative procedures.
Appropriate safeguards should be built into the framework to ensure that the option is meaningful and effective in practice rather than merely an option in principle.
At the same time, we could consider identifying objective factors for determining or apportioning the net basis of taxation.
For instance, the revenue generated in a particular state as proposed to be a relevant factor under Article 9, could provide one possible basis for determining the appropriate share of income attributable to that state.
I would also take this opportunity to raise a broader issue concerning the optionality under the protocol as there were certain interventions on this aspect yesterday.
In our view, the concept of optionality needs to be clearly defined and appropriately circumscribed.
An option that effectively permits a state to disapply substantive provisions in a manner that undermines the very objective of the protocol may not be consistent with the purpose of the establishing a common multilateral framework.
The purpose of this protocol is to establish a common framework for the taxation of cross border services and to provide a balanced allocation of taxing rights among participating states.
Excessive opt in and opt out mechanisms could result in a situation where states adopt only those provisions that are convenient to them, leading to undue cherry picking and potentially divergent standards across participating jurisdictions.
This could in turn undermine the predictability and coherence that a multilateral framework is intended to provide.
We would particularly caution against optionality that makes the exercise of a state's taxing rights contingent upon a separate bilateral agreement or upon the consent of another state where such an arrangement could effectively enable one state to prevent another state from exercising taxing rights otherwise allocated to it under the protocol.
At the same time, We fully recognize that tax sovereignty remains fundamental.
However, where states voluntarily agreed to common rules through a multilateral instrument, the exercise of that sovereignty is reflected in the decision to join and accept the agreed framework.
But once such agreement is reached, the substantive allocation of taxing rights should, in our views, operate on the basis of common rules rather than being made contingent upon subsequent bilateral consent.
Thank you, colleague.
Thank you, India.
You overstepped with more than 1 minute, but I was patient there.
But don't let this happen again because we are short on time.
Now, on the last comment of the optionality, I think we had a discussion on that and in fact, this proposal refers, if you look at Article 20, a I had put their provision to come based on discussions of Article 21 on the Framework Convention.
We are anticipating a discussion which I had hoped that the Framework Convention would discuss and we could try to pick on and move forward in this group.
But we had that discussion yesterday and we definitely understand the different views.
Let me just say that I The draft text as we have by a majority Africa group is not contemplating optionality and India has supported that view and we have others in the group that supports some optionality.
I think we need to keep this door open and discuss this further in order to have something that could be useful for the whole or as many as possible of this group and try to reach some consensus.
I do have it on a slide, but I think we've had that discussion now and I think with that, I'll postpone that discussion to the future.
Now, we have the comments of India from Article 5, let me see.
I take the point and I think there are things that works domestically and the things that needs to be in the protocol itself.
We take the point, we take note of it and see what we can make sure that the protocol has a robust form of election of net taxation.
Having said that, I hope that with that, those of you who have postponed or suggested that we should not have growth based taxation, we have net based taxation as optional and optional for the taxpayer.
With that, some of you from the private sector mentioned yesterday and I asked them to confirm that if there is a net based taxation in the treaty, that should then be sufficient in order for them to be um, happy with the draft that we have.
I hope that is the case.
We have net taxation in paragraph four of Article 5, and for those taxpayers who wants it, it's there.
Thank you, Nindia for your notes on making sure that these provisions are robust enough to be implemented.
With that, I give the floor to Nigeria.
Please go ahead.
Thank you, Madam Chair.
I will be speaking on behalf of the 54 countries of the African group.
The African group commends the colleagues for the work undertaken in providing the current draft article.
However, permit me to remind you of the earlier proposal that we submitted by the AG submitted, which proposed a different drafting structure for the income articles of the protocol, particularly that Article 5 provides for exhaust rule.
We have the view that our submitted draft present a good representation of the discussions we had at the first session and a good basis for negotiating the provisions of this protocol.
Nowistanding this, the African group is willing to continue negotiations on the basis of the College draft presented here on this article for consideration.
While we support many of the paragraphs as currently drafted, we wish to draw attention to the following matter of concern.
In paragraph five B, there is no definition for the word consumer, which will impede clarity and certainty.
We there request that there should be a clear definition for consumer.
In paragraph six, the text makes use of the term special relationship.
In our view, this terminology requires further clarification.
The protocol as presently drafted, does not include an equivalent of Article 9 of the United Nations and OECD model Conventions on associated enterprises.
Without such a provision, it is unclear how the term special relationship will be interpreted or applied in practice.
We therefore suggest that either the protocol should incorporate a clear definition of special relationship consistent with treaty practice or the drafting should be adjusted to avoid ambiguity.
This will ensure that the article is applied with certainty and consistency and that its provision remain aligned with established principle of international tax law.
In addition, the African group is concerned with the effect of the election option as is provided in paragraph four B.
This is because it creates the problem we are here to solve, because taxation under Article 9 is based on attribution of profits as is referred to, carries on business.
For example, If there is if five engineers are assigned onto a job and four of the engineers work online and only one engineer is physically present, then how would this be interpreted? Will amount attributed to that duration be limited to because the word use carries on business? Will it be attributed to only the engineer that is physically present or it will relate to all the engineers that work on that project? If we are looking at a different rule that is going to attribute based on that five engineers, our suggestion is that there should be a separate paragraph to provide clarification and not just make reference to Article 9.
Thank you.
Thank you very much, Nigeria, on behalf of the African group.
We will certainly take note of those suggestions.
Thank you.
We do have all of us the proposed texts from the Africa group, so we all can look at those proposals.
Thank you.
We now have United Kingdom.
Please go ahead.
Thank you, Madam Cole, for giving me the floor.
The UK supports the interventions from Norway, Switzerland, and Spain.
The UK remains concerned that Article 5 represents a significant departure from the principle that taxing rights over business profits should be allocated to jurisdictions based on where businesses act and create value.
The UK believes that the increasing digitalization of the economy raises important questions about existing nexus and profit allocation rules, remain appropriate for all business models and believes that aspects of the international tax framework may need updating in response.
However, we do not believe that modernization of the international framework should result in that degree of source state taxation contemplated by the current draft.
We echo the concerns of others regarding the proposed income sourcing rules in Article 55.
The current approach appears capable of attributing the same payment to multiple jurisdictions by reference to different connecting factors, including place of performance, consumer location, and payer location as set out by the distinguished delegates from Switzerland and from Spain.
Without a clearer hierarchy or allocation rule, it may be possible for multiple jurisdictions to assert taxing rights over the same payment simultaneously.
And we would welcome your confirmation, Cole, that this will be reviewed.
Thank you.
Thank you, United Kingdom.
Just one slight question.
It seems to me and just in order to be able to clarify when you say you agree with Norway and Spain.
Because Norway and Spain and I stand to be corrected, asked for clarification and make one source rule in five.
You seem to have been suggesting something different, or am I misunderstanding? Having one source rule.
Sorry.
To clarify, we agree with having one sourcing rule as set out by Norway and by Spain.
Okay.
Thank you.
I have Germany.
Please go ahead, Germany.
Thank you, Madam Colleague.
Germany appreciates the intention to modernize nexus rules for cross border services.
In our view, however, for purposes of income taxation, nexus based solely on the residence of the consumer or the payer or on the deductibility of the payment may not always establish a sufficiently close economic connection to justify the allocation of taxing rights.
Like other delegation, we are concerned that in practice, these criteria may result in multiple jurisdictions asserting taxing rights over the same income.
We therefore encourage further consideration of the ordering and interaction of the nexus rules in paragraph five, as well as a more precise articulation of the required economic connection between the service and the taxing jurisdiction.
Such clarification would enhance in our view of legal certainty and reduce the risk of overlapping taxing wides while preserving the protocol's underlying objective.
We recognize that states may require flexibility in designing domestic implementation mechanisms.
Nevertheless, we would encourage further reflection on the potential implications of approaches that are based primarily on gross basis taxation.
Such approaches may not adequately reflect the profitability of the underlying activities and may in certain circumstances result in taxation that is not aligned with the general principle that direct taxation should reflect, at least in our view, net economic income.
Thank you.
Thank you, Germany.
If I could just clarify and seek your clarification from you on paragraph five, did you say that you prefer another ordering in that, or are you on what Norway and Spain and the UK wants to sort of final of the precision of the ordering or do you want another order.
I didn't follow that properly.
Well, we see that it's not only about the ordering world but also the interaction with the nexus.
So we would rather start there and indeed further clarification on when actually the tuxing rights can be asserted in the interaction with the ordering world.
That is something where we see room for improvement to clarify the product.
You get it? Perhaps it would be even better if you could draft something and I'll get it properly.
Otherwise, you have my number, and you have mine.
Very welcome.
I have now, sorry, Malta first and then France.
Malta, please go ahead.
Thank you very much, Madam Colleague and also thank you to the Secretariat.
Malta also has a very brief comment on the optionality discussion as we consider that this would be raised today under Article 20, referring to Article 21 of the Framework Convention as you mentioned.
If you allow, I would make this very short statement now as the topic has been just raised by India or alternatively under Article 20 as intended, please let me know.
Thank you very much.
I would be grateful if we can hold on with that because we do have an interesting interaction now on technical issues of Article 5.
So if you could hold on, I would be grateful.
Thank you.
Thank you.
France, please.
Thank you, Madam Colleague.
Thank you very much.
I'm going to make my intermission pretty brief.
I just want to echo what my UK colleague, German colleague and Spanish colleague have said.
In a nutshell, we are concerned about the gross basis taxation, but I've said that yesterday already and we don't really see how the different criteria in paragraph five fulfill the new nexus that have been discussed.
Last week on the Framework Convention.
How could we are certain that those new nexus do comply with the fair taxation that we are trying to find? I'm doubtful that do comply with that.
Just to reply to the African group, anyway, the election method is something that is very important to keep within this article.
I and not to repeat myself, but I think it's something that is of paramount importance if we don't want to kill the whole business with the growth succession.
Thank you.
Thank you very much, France, United Arab Emirates, please go ahead.
Thank you, Madam Cole.
Before we make our technical interventions, we would just like to clarify that we still do not support the notion of raws based taxation.
In terms of the language for Article 5, we are of the strong view that in addition to the exclusion made for employment income, there should also be exclusions for educational institutions as well as services provided for individual's personal use.
Not making these exclusions, we believe will result in significant tax burdens for individuals and will also negatively impact the accessibility to cross border educational services.
On the option to elect for net based taxation, while we welcome this optionality, I think it's important to ensure that countries do not introduce administrative requirements that make this option of net based taxation practically impossible for foreign taxpayers.
I think it will be important for us to understand how this will be administered in practice.
Finally, we also support having one sourcing rule as the current rule order may lead to ambiguity in several practical instances.
Thank you.
Thank you, United Arab Emirates and for my clarification, when you say that you do not support gross based taxation, does that mean that you want to oblige the taxpayer to pay on a net basis? This was mainly regarding our initial general remarks that we just do not support draw based taxation as a default for services.
Okay.
Because, you know, what we discussed is that you have growth based taxation, but if the taxpayer opts out, he could be taxed under Article 9.
So when members say that they don't support growth based taxation, I really, you know, it's a little bit difficult to understand what you want.
If you want to oblige, because I think what we have mentioned in this meeting is that experience from some of us in this room is that the taxpayers prefer growth based taxation and they want to be the ones that decide to be taxed on a net basis.
So when members here say that we don't support growth based taxation, you know, you have to be a little bit more specific because, you know, I would personally be concerned that We are obliging taxpayers to be taxed on a net basis and for some of them, that is actually more burdensome and they don't want it, especially if the gross withholding is at a lower rate.
When you do say that, if you could be a little bit more specific, it would be appreciated to understand the point made.
Thank you.
I have Asel Bayan, please go ahead.
Madam Colit, we would like to rise several points regarding Article 5.
First, definition of fee for service is very broad as it covers payments for any service.
Furs clarification may be needed regarding mixed contracts, reimbursement and payment that include post goods and services.
Second paragraph five, introduce several sourcing rules based on the place of performance residence of customers and its.
We think that term consumer services should be clearly defined to ensure consistent application and to avoid overlapping taxing rights.
Paragraph six related to paragraph six refers to special relationship, but this term is not defined.
Existence of such relationship alone should not be sufficient to apply this provision.
We would also appreciate clarification on the necessity of paragraph six where services are provided between associated enterprises and remuneration does not reflect arm's length conditions, relevant transfer pricing rules would already apply to determine appropriate amount of service fee.
Therefore, it's not clear what additional purpose paragraph six serves.
Inclusion maybe duplicate duplicate existing transfer pricing rules and may also create uncertainty if the concept of special relationship is interpreted differently from concept of associated enterprise and transfer pricing legislation.
Thank you.
Thank you, Azerbajan.
Yes, special relationship.
I think the African group has already you support that view.
Thank you for that intervention.
Now, I have no more member states requesting the floor.
I give the floor to BCAS.
Please take the floor and present yourself.
Thank you, Cold.
My name is Ra Kishan Raval and I represent BCS here.
I'm a chartered accountant based out of Mumbai.
I have a few technical comments.
The first one is on the ordering rule issue.
Now, I'm not sure what was contemplated by the drafters of the ordering rule, but I think it may be working perfectly well without creating multiple taxation.
Because we are contemplating a multilateral convention, a protocol signed by several countries, we have to remove the hat of reading a bilateral tax treaty and use the hat of reading a multilateral tax treaty.
That probably give Article 55A different interpretation.
Let's consider a situation where there is one country of residence and three other countries having some nexus, and these three countries are competing to become a source country.
All four countries have signed the multilateral protocol.
That tax resident is a resident of country R, he earns the income.
Services are performed in state A.
Consumer for tax resident is in state B, and resident of state C claims the deduction for expenses.
Now, when we apply this, when we apply Article 55 to this fact situation and applying the elimination rules in Article 55, there will not be any multiple taxation.
It will automatically give a situation that there are only two states left, country R, which is a state of residence, and one of A, B, C will become a country of source.
So there's a solution, which is probably working very well.
Assuming that this solution doesn't work, triangle situations are not new to the tax treaties, and we do have some guidance from OECD on triangular situations.
Some other comments, Article 54.
The opening sentence ensures that Article 9 overrides paragraph one and two of Article 5.
Now, Article 9 does not give taxing rights to the country of residence.
It gives taxing rights only to the country of source.
Ideally, reference to paragraph one should be removed from the opening sentence of Article 54.
Article 54 para A, that does not make a reference to employees or agent.
Whereas Article 9 is applicable only when the business is performed through employees or agents.
Now, if we continue with the current draft, the source country will not have any taxing rights in a situation where the business is carried on without involving employees or agent.
Lastly, the net visit of taxation contained in Article 12 of the UN model is a better solution.
Thank you.
Thank you, Raval.
I needed that example to understand the point.
That was very helpful and also thank you for, I think 12 AA and 12 B and 12 C are actually very good.
Thank you.
Now, I have a few countries asking for the floor again.
We come back to member states.
Kenya please go ahead.
Thank you, colleague.
On Article 5, we align and support the statement read by Nigeria on behalf of AG.
Article 5 deals with fees for services and its definition within the article is envisaged to be broad and wide to capture the anticipated services that are to be charged.
Further to that, colleague, we wish to point out a few fundamental issues within the article for consideration.
If you look at Article 51, It carries a dual nature of execution where there is fees for services arising in a state and then paid to a resident of another state.
If you look at five, it captures what would be envisaged as services arising.
Then it leaves us with the other condition of paid for you to be able to tax as a state, that is.
That is something that we need to put into consideration and maybe see how we can define what paid would mean because it's not within the definition of definition article.
Then F three, again, it carries the word payment for it to actually confirm or have it be part of fees for services within the definition.
We welcome all encompassing definition of fees for services, which has a paragraph, any consideration for any service, which is a good thing, which basically means that unless a type of service expressly covered in another protocol provision, the requirements of this provision apply.
And as I mentioned before, This can only be achieved by clearly designated an omnibus definition of payment to cover any anticipated loopholes.
Then 454 on election, we align with what the age group put across.
However, it must have an attendant rule and administrative procedures as mentioned in that particular article, pursuant to the laws of the state party, which for this instance, giving examples would include filing of returns, documentation, adherence to the laydown requirements either on provision and exchange of information, which is key.
Then finally, on paragraph six which has been mentioned severally, I think we It is on special relation provisions addressing related party transactions.
This paragraph basically refers to associated enterprises.
There's a need to clarify as to how the pricing between these two or related parties would be established and confirmed taking cognizant of the fact that we have existing instruments and mechanism addressing this issue, albeit the reservations held by various state parties.
Thank you, I submit.
Thank you very much, Kenya, for that input.
I now have Singapore and I'm going to give the floor off towards Singapore to Japan as being the first intervention, and then I'll come back to those who are asking for the second intervention.
First, Singapore and then Japan.
Please go ahead.
Thank you, Madam Coley.
So I just want to echo some comments earlier on the ordering rule in paragraph five.
I think that the challenge here is that it's unclear whose perspective determines whether the condition is met, as some have mentioned earlier.
So if this paragraph is to be retained largely unchanged, perhaps a surgical edit to clarify that the fees for services shall be deemed to only arise in one state party and the criteria in subparagraphs A, B, C, apply sequentially and are mutually exclusive.
But that being said, I think our greater concern still remains that Article 5 applies to a diverse scope of services, very different in economic risk and economic and risk profiles.
So our view is that the protocol should remain anchored.
In the established permanent establishment framework with additional nexus rules introduced only where necessary and to specific types of services to identify and then apply these rules to those problem statements.
This would be more aligned with the objective of the protocol, which is to address gaps in the taxation of cross border services where existing rules may be insufficient while preserving coherence with established tax principles.
Um.
In the sale of goods context, the customer jurisdiction is not generally accorded taxing rights over foreign sellers business profits.
Merely because it earns gross revenue from customers in that state or receives payments from that state.
Our view is that consumption taxes are more appropriate if the intent is to levy a tax on markets.
On gross versus net, although we recognize the protocol allows service providers to elect for net based taxation, our view is that this may not be sufficient on its own.
In practice, the election would likely require service providers, including those with no business presence in the customer state to register with tax administration and file tax returns there.
Such obligations may be disproportional or impractical, particularly for small businesses and those operating on low margins or incurring losses.
In that regard, we may want to consider appropriate carve outs and thresholds to ensure that the compliance obligations remain proportionate to the level of tax risk and the rules are administrable.
Thank you.
Thank you very much in Singapore.
That was very helpful to clarify the issue on what is the problem with gross withholding and that taxation.
That was very helpful.
Thank you very much.
Japan, please go ahead.
Thank you, colleague.
Japan also has several concerns regarding this article, mainly about gross taxation.
We understand that there is an option for net based taxation, but our concern is that the draft appears to place primarily emphasis on gross basis taxation for services in general, for all services.
We are concerned that a uniform gross basis taxation approach, which does not take into account the nature of the services provided or the cost incurred, could in some cases lead to an excessive tax burden relative to actual profits.
This in turn could discolage cross border trade and investment and impede innovation, economic growth, and the development of emerging industries.
Even if a relatively low tax rate were adopted, a single rate will not necessarily produce fair outcomes across different business models.
Depending on the circumstances, it could result either in under taxation or excessive taxation.
We therefore question whether such an approach is consistent with the principle of fairness or the ability to pay principal and whether it would ensure a level playing field among enterprises.
We are also concerned that the introduction of multiple nexus rules could increase the risk of double or multiple taxation, as mentioned by many other colleagues.
In our view, any new approach should build on the existing physical presence based taxation.
Therefore, we would like to echo what had been said lately by Singapore and Switzerland, Spain, UK, France, and UAE regarding the ordering rule.
Thank you.
Thank you very much, Japan.
I have Italy.
Please go ahead, Italy.
Thank you very much, Madam Chair.
I will be brief because essentially my comments were very much aligned with the comments made by distinguished delegy by Norway, Switzerland, Spain, the United Kingdom, Germany and France.
Maybe an additional point on the net basis taxation.
Because in our view, this should be the primary mechanism for the collection of taxes according to the protocol and I the rule for net based taxation should be clarified also in procedural terms in order to avoid application in an inconsistent manner.
We have a substantial concern about leaving it to the state the definition of procedural mechanism that could result in a fragmented approach and potential inconsistencies.
Thanks.
Thank you very much.
Italy also clarifying the view on the growth basis taxation.
I will now go to Nigeria for their second intervention.
Please go ahead, Nigeria.
Thank you, Madam Chair.
This will be the first intervention from Nigeria because I will be speaking in my national capacity.
Thank you, Madam Chair.
In its national capacity, Nigeria wishes to call our attention to the ambiguity in the text of paragraphs 4 A and five A.
Nigeria notes that paragraph four A is intended to be similar, two, and perform similar function as the throwback rule in paragraph 12 AE of the UN Modest Convention, paragraph five is intended to constitute the sourcing rule under Article 5 of this protocol.
Our understanding is that sourcing rules are meant to specify income that is classified as taxable under an article.
We are therefore unclear on the inclusion of a physical performance of a service in paragraph five E as a sourcing rule for fees for technical services, when such income will not be taxable under that article.
Our understanding is that fiscal performance of a service should consute sourcing rule under Article 9 and not Article 5.
As income derived from fiscal performance of a service, as we have written it here, will not consute fee for services under Article 5, but business profits under Article 9.
Nigeria do not also understand the need for the election option in paragraph four B, which allow taxpayer to elect under administrative procedure established by so state party without changing the general principle thereof to be taxed on so under the rules of Article 9.
Why Nigeria is not adverse to net basis taxation.
In fact, we have element of net basis taxation in our domestic law.
However, we are of the view that this duplicates paragraph two, which allows for taxation in accordance with domestic law.
We wish to emphasize that our view is that paragraph two does not provide for gross basis taxation.
What paragraph two provides for is taxation based on domestic law.
This accommodates countries that taxes on net basis, gross basis or a mixture of both like Nigeria.
If the only basis of taxation by a country for both resident and non resident is gross basis, are we there saying that such country should tax its resident on gross basis and non resident on net basis? Which domestic law will be used to implement such taxation? We did not create discriminatory issue for domestic countries if they are taxed on gross basis, but non resident are tax on net basis.
The emphasis should be our view is that we should rather emphasize on non discrimination, which is already contained in paragraph two of Article 9.
If a country is taxing on debt, it should tax both resident and non resident based on its domestic law.
And if it's taxing on gross based on its domestic law, both should apply to resident and non resident.
Thank you.
Thank you very much, Nigeria.
There was a lot of technical issues there that we of course have taken note of and we need to consider further.
Thank you very much for that.
Donna, please go ahead.
Thank you.
Thank you, Madam Colleague and in making the presentation, we align with what Nigeria presented on behalf of the AFC group.
A, we want to state the obvious.
One, we all agree that business models have changed.
Technology has evolved.
There are new things that have cropped up.
Previously, we had the auttization because it was just two states.
Right now, nature of services decided that there are multiple states involved.
We do have to come out with new nexus and sourcing rules to address these things.
I believe that is what we need and that is why for the AFC group, we decided to deviate a bit from the structure.
And suggest that maybe we need to have the Nets rules, sourcing rules, how to coordinate these rules, and then the tazation and profit attribution aspects.
In that we would have addressed each of them in some structured way.
Not that this is not structured, but then in another structured way, let me put it that way.
That is the general idea we have that there will be multiple taxation.
Just as we have double tazation rules, right now, we need multiple taxation rules to allow the investors to get the relief where they need to get them.
Thank you.
Thank you, Ghana, for reminding us why we're here and also thinking out of the box, which might be necessary and it might be necessary to marry the two.
Thank you.
I don't have any other member states now, so I'll give the floor to CFS.
Please go ahead and present yourself.
Thank you so much, Madam Cold.
My name is Lee Latyf representing the Committee on Fiscal Studies from the University of Nairobi and on Article 5, I have two points to share.
The first point regards to paragraph five, this paragraph in itself gives us three tests in order for deciding where the fees arise.
We've got where the services performed, where the consumer is, and also where the payer is.
Now each country applies these tests in my reading.
To its own facts and the paragraph then does not say what happens when you've got two countries that answer yes to the ordering of the tests that have been listed out under Article 5 paragraph five as well.
A service performed partly in one country and partly in another would then satisfy the first test in both of those countries.
Both may then tax the full amount correctly at the same time and this protocol then gives us no way out because Article 10, if we go back to it would oblige only the residents countries, not one source country against another.
So we're proposing an insertion to the paragraph to state that where two countries rely on different tests, the country relying on the test that comes first in the list has the taxing right.
Where two countries rely on the same test, the fees are divided between them in proportion according to where the services were performed, where they were consumed, or where the payments were born, depending on which test applies.
The second point that I have is on paragraph four.
This paragraph, it contains two doors out of gross taxation and into net taxation under Article 9.
So one opens automatically under four A.
Whenever the taxpayer carries on business in the source country, the other opens by the taxpayer's own choice under four B, and we accept both in principle.
Net taxation is sometimes the fairer answer for a business that has real costs, but we are proposing three safeguards.
First, the choice under four B must be made before the tax year begins.
It must hold for at least three years, and it must come with audited accounts filed in the source country.
Otherwise, it will be exercised with hindsight in whichever years it saves money.
Second and most importantly, Moving to net taxation should change how the tax is then calculated, not how it is collected.
Withholding at source should continue in every case as an advance payment credited against the final net liability with any access refunded on assessment.
Now, without this, the source country is then left to enforce a self assessed debt against a person with no assets in its territory.
Then finally, which is the third point, is the automatic door in for A.
It should require that the business activities in the source country be substantial so that a token presence cannot be used to escape the gross regime without meeting the conditions of the election.
Madam Colleague, we've got more comments to make on Article 5, but we will be sharing them in our written submissions.
Thank you very much.
Thank you very much and thank you particularly for suggesting drafts.
That's also very helpful.
Of course, we take note of that and look forward to your proposed drafts.
I now have Aaf and I think that we'll see if we can make another one before lunch, but for now, Aaf, please go ahead.
Thank you very much, colleague.
I'll make just a few interventions and my colleague will support one or two.
First and foremost, we align our intervention with the comments made earlier by Nigeria on behalf of Africa group.
We broadly are in support of the text as reflected in Article 5.
In particular, the rule order, I want just to emphasize what a G I just mentioned, it is true physical presence has been an important test of giving taxing rights, but long a gone the days where all services will have to be rendered having a physical presence.
New business model support remote access to a jurisdiction and having multiple sourcing rules as reflected currently in paragraph five, that's something would support because it takes into account those possibilities of remote access.
Moving on to the other point In terms of paragraph six, I think to scan that mentioned the special relationship rule that is reflected there.
First and foremost, we support the idea of having that paragraph because it provides very useful advantages of limiting the benefits.
But certainly there is need to elaborate further, what special relationship would be and secondly, how would you determine the amount that will qualify for the benefits and of course, the amount that do not enjoy the benefits envisioned.
That will apply in the other articles that you have a similar provision.
My colleague will elaborate further on the issue of gross and net taxation because this is an important point that we also want to support.
The primary rule, of course, having gross taxation.
We've said this consistently is an important parameter about providing at least for businesses a net taxation on elective basis or a direct rule as provided in paragraph four a, it's something we can support.
So I submit trying to look for my colleagues to add in comments on interaction between paragraph four and Article 9, but you can make that submission later.
Thank you.
Thank you very much, Af.
I think that's fine.
We can come back to that after lunch because I think it's just 1:00 now, so we break for lunch for 2 hours.
We come back at 3:00.
Thank you so much for all your intervention and particularly those who have suggested and will send us some draft comments that will be more helpful in order to evaluate them.
Thank you and have a good lunch.