Key UN international tax committee elects leaders, sets new agenda

by Davide Anghileri

The UN Committee of Experts on International Cooperation in Tax Matters, at its fifteenth session, held in Geneva 17– 20 October, elected new committee co-chairs and set subcommittee assignments, including assignments for a new subcommittee on the digitization of the economy.

The influential committee, responsible for key UN international tax and transfer pricing work, replaces its entire 25-person membership with new members and sets a new agenda once every four years. The most recent membership change was announced in August. The UN Committee of Experts is a subsidiary body of the UN Economic and Social Council.

The new committee elected as co-chairs Carmel Peters, a New Zealand Inland Revenue policy manager, and Eric Nil Yarboi Mensah, Ghana Revenue Authority’s assistant commissioner in charge of legal affairs and international taxation agreements.

Digital economy

The committee agreed to create a subcommittee to study issues related to the digitalization of the economy.

In particular, the subcommittee will analyse technical, economic, and other relevant issues; describe difficulties and opportunities, especially of interest to the various affected agencies of developing countries; monitor international developments; and describe possible ways forward.

The subcommittee will also suggest measures and draft provisions related to the digitalization of the economy, with regard to income taxes, double tax treaty issues, and VAT, as well as other indirect taxes and tax administration issues.

UN transfer pricing manual

The committee agreed on the formation of a new subcommittee on Article 9 (Associated Enterprises): Transfer Pricing, to continue work in this field under the coordination of Ingela Willfors, director of the Tax and Customs Department of the Swedish Ministry of Finance, and Stig Sollund, who is a former coordinator of the subcommittee and director-general and deputy head of the Norwegian Ministry of Finance Tax Law Department.

The Committee of Experts mandated that the subcommittee review and update the United Nations Practical Manual on Transfer Pricing for Developing Countries, providing a final updated draft for discussion and adoption no later than 2021, preferably by 2020.

The new transfer pricing manual should reflect article 9 of the United Nations Model Double Taxation Convention between Developed and Developing Countries (UN model tax convention) and arm’s length pricing embodied therein, be consistent with relevant commentaries of the UN model tax convention and reflect the realities and needs of developing countries, the committee said.

The subcommittee should also give consideration to the outcome of the OECD/G20 base erosion profit shifting (BEPS) project as concerns transfer pricing, the committee said.

A hard copy of second edition of the UN transfer pricing manual was distributed and presented to the new committee. The second edition of the manual was released in electronic form in April during the ECOSOC Special Meeting on International Cooperation in Tax Matters, in New York.

Extractive industry taxation

Eric Mensah, coordinator of the previous subcommittee on extractive industry taxation issues, was confirmed as coordinator of a new extractives subcommittee. Mensah gave a presentation and a description of the UN Extractive Industries Handbook, specifying that work on the paper is already finalised, except for minor edits.

The committee agreed the new subcommittee would conduct further work on the update of the Extractive Industries Handbook to identify and consider the most pressing issues for developing countries.

The subcommittee will initially report to the committee on these matters in 2018; will provide draft guidance on these issues as approved by the Committee at its sessions; and will propose other updates and improvements to the handbook for approval.

Dispute avoidance and resolution

The committee agreed also on the creation of a subcommittee on dispute avoidance and resolution.

Cezary Krysiak, deputy director of the Tax System Department at the Polish Ministry of Finance, and George Obell, chief manager of the International Tax Division of the Kenyan Revenue Authority, were appointed coordinators of the subcommittee.

The subcommittee’s mandate is to produce a draft UN handbook on dispute resolution and avoidance, a draft updated text of the UN’s Guide to the Mutual Agreement Procedure under Tax Treaties, and drafts of possible changes to the UN model convention and/or commentaries.

In particular, the subcommittee should focus on issues affecting developing economies and solve them in a practical manner and ways to built confidence in dealing with them.

Moreover, the subcommittee, in its mandate, should pay attention to mechanisms to avoid and resolve disputes arising at the domestic level, to ways to ensure the effectiveness of the mutual agreement procedure (MAP) under article 25 of the UN model convention, and to issues related to arbitration clauses to supplement MAP under the UN model.

Environmental taxation

The committee proposed a mandate for the subcommittee on environmental taxation to consider, report on, and propose guidance on environmental tax issues and opportunities for developing countries.

In particular, the subcommittee should identify and consider the most pressing issues where guidance from the committee may most usefully assist developing countries in this area and initially report to the committee in the next session, the committee said.

The subcommittee, in its work, should pay attention to the application of carbon taxes, and report on current country practices, policy considerations and administrative issues, and provide draft guidance on such issues once approved by the committee.

The mandate provides that the subcommittee should report on its work at each session and should consult broadly and seek to engage with others active in the field.

UN model tax convention

A new subcommittee tasked with updating the UN model tax convention was also created.

In particular, the subcommittee must consider, make recommendations, and provide proposed drafting for the next update of the UN Model, focusing on issues most relevant to developing countries.

Tax treaty negotiation

The committee agreed on the creation of a subcommittee with the mandate to update the Manual for the Negotiation of Bilateral Tax Treaties, reflecting the current version of the UN model and relevant commentaries; paying special attention to the experience of developing countries and drawing upon other work, especially the work done on the toolkit on tax treaty negotiation.

Advisory group on capacity development

The advisory group on capacity development presented the second edition of the UN Handbook on Selected Issues in Protecting the Tax Base of Developing Countries.

The handbook is intended to addresses several issues which are of particular importance and relevance to developing countries in protecting and broadening their tax base, with a view to strengthening their capacity to increase tax revenue.

This second edition updates all the chapters to take into account the final outputs of the OECD project on BEPS, as well as the latest developments in the work of the United Nations Committee of Experts in the area of tax base protection for developing countries. It also includes two new chapters, which deal with base-eroding payments of rent and royalties and general anti-avoidance rules (GAARs).

Moreover, the committee gave the mandate to the advisory group to propose tools to be developed to address the needs of developing countries, especially the less developed ones, and fill the existing gaps, and, at the same time, to assess existing tools and resources to not duplicate, but effectively complement, existing tools and resources at the disposal of developing countries.

Tax committee practices and procedure

Stephanie Smith senior chief of the Tax Treaties and the Tax Policy Branch at the Canadian Ministry of Finance, was elected coordinator of the subcommittee on UN tax committee practices and procedures.

This group was mandated to review the practices and procedures of the committee with a view to improving the Committee’s ability to meet its mandate whilst preserving sufficient flexibility.

The subcommittee was asked to report at the next committee meeting on practices and procedures relating to the formation and operation of subcommittees, the expression of minority opinion, and voting procedures.

The following documents were released at or in advance of the UN meeting:

• Overview of Digital Economy Tax Issues – Agenda Item 5(c) (ix) (E/C.18/2017/CRP.21)
• Tax Challenges in the Digitalized Economy – Agenda item 5(c)(ix) (E/C.18/2017/CRP.22)
• Information Note on Blockchains – provided by Institute for Austrian and International Tax Law of Vienna University of Business and Economics
• Fees for Technical, Managerial and Consultancy Services – Agenda Item 5(c) (ix) (E/C.18/2017/CRP.23)

• Taxation of Development projects – Agenda Item 5(c)(x) (E/C.18/2017/CRP.24)
• Software Royalties – Agenda Item 5(b) (ii) (E/C.18/2017/CRP.25)
• Mutual Agreement Procedure – Agenda Item 5(c) (v) (E/C.18/2017/CRP.26)
• Procedural Issues – Agenda Item 5 (a) (E/C.18/2017/CRP.27)
• Treaty Rules to Hybrid Entities – Agenda item 5(c)(vi) (E/C.18/2017/CRP.28)
• Possible update of the Extractive Industries Handbook – Agenda item 5(c)(ii) (E/C.18/2017/CRP.29)
• UN GMAP Flowchart —.Resolving Cross-Border Controversies Step By Step – Agenda  Item 5 (c) (v) (E/C.18/2017/CRP.30)