Taxing digital companies: UN tax panel working on new set of rules

What is the News?

The United Nations(UN’s) tax committee is developing a set of rules to tax digital services in a way that is distinct from global tax deals for large multinationals including Google, Facebook, Netflix and Microsoft.

Note: India is also a part of this UN Tax committee.

What are the rules the UN is developing to tax digital services?

The UN Tax Committee has approved a final draft to add Article 12B in the UN model tax convention in order to include the taxation of “automated digital services(ADS)”.

Article 12B does not require any particular threshold, such as a permanent establishment, a fixed base, or a minimum period of presence in a contracting state as a condition for taxing income from automated digital services.

It allows market jurisdictions to levy a withholding tax on the gross amount of digital services income. This means that it gives additional taxing rights to countries where an automated digital service provider’s customers are located.

It includes articles that 1) prevent certain forms of tax discrimination, 2) provide for the exchange of tax information and assistance in tax collection between the treaty partners, 3) allow the treaty partners to consult together through the Mutual Agreement Procedure, 4) to resolve disputes or address doubts concerning the treaty and 5) address certain types of treaty abuse.

How are these UN Tax rules different from the OECD Global Tax deal?

Firstly, it allows taxing small to mid-sized firms, regardless of their business size and threshold.

Secondly, it is comparatively simple and can be applied to MNCs not covered by Pillar one of OECD. This will result in fair distribution of taxing rights and countries will be more comfortable giving up unilateral measures like equalization levy.

Source: The post is based on the article “Taxing digital companies: UN tax panel working on new set of rules” published in Business Standard on 10th May 2022