By Julie Martin, MNE Tax
History made today! The UN Tax Committee has approved insertion of Article 12B and its Commentary into the 2021 United Nations Model Tax Convention. Look forward to its adoption in tax treaties for taxation of digital economies in a simple and fair manner.
— RajatBansalIRS (@IrsRajat) April 20, 2021
The proposal for the new UN model article was first advanced by Bansal, a member of Indian Revenue, who later became a member of a 13-person drafting group charged with refining the UN digital tax proposal.
The Committee of Experts agreed at its 21st session, held November 9, 2020, to add such a provision to the UN Model Double Taxation Convention between Developed and Developing Countries. The exact text was not agreed to at that time, though.
The new article is seen as an alternative to the OECD-led work on Pillar One. Unlike Pillar One, the taxing right is not conditioned on revenue thresholds. Unlike the US’s preferred version of Pillar One, it only applies to companies engaged in the digital economy.
The new taxing right would apply to income from automated services, namely, income received with little human involvement from the service provider. It would apply to income derived from online advertising services, the supply of user data, online search engines, online intermediation platform services, social media platforms, digital content services, online gaming, cloud computing services, or standardized online teaching services.
The model treaty provisions allow source countries to apply a withholding tax on gross payments made in exchange for the specified automated digital service. Alternatively, companies can elect for the withheld amount to be based on profits earned in the source country from the automated digital service.
Julie Martin
Julie Martin is the founder of MNE Tax. She edits the publication and regularly contributes articles on new developments in cross-border business taxation.
Julie has worked as a tax journalist and editor for more than 13 years. Prior to that, she worked as an in-house tax attorney in New York. She also holds an LLM in taxation from New York University School of Law.
Julie can be reached at [email protected].
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- Leaked copy of US proposal for Pillar One and Two multinational group tax reforms available - April 12, 2021
- US offers new “Pillar One” compromise plan for taxing large multinationals - April 8, 2021
- UN tax committee releases updated model treaty language on automated digital services - April 7, 2021
What does little human involvement mean? Likely more disputes, litigation and uncertainty.
It is welcome move but this will only be applicable in tax treaties between developing countries themselves. No OECD country can agree to have this article in their treaty with a developing country because it will not be in their interest
The developing countries can unilaterally adapt the provisions of the Modal in their domestic tax laws while maintaining the principles of international and personal Equity respectively