4th meeting, 33rd Session of the Committee of Experts on International Cooperation in Tax Matters

Good afternoon, colleagues. I will take our seats. And Sylvia, we, yeah, thank you. All right. So we, we are back. My co-coordinator is there. And she's going to pick up from where she stopped. before we left for lunch. I'm so pleased from Wanda. Go ahead.

Thank you, Chair. So just coming back where we end up, we are putting forward different options, as mentioned, for further work. And I think I mentioned already the first one on implementation guide. The second one, the clarify the role of AOA. Just wanted also to make a clarification because I say that that's this rejection by the UN seats in some discussion and minutes. But there are also some warning that Ilka has corrected me as well on the treaty. But we want to make this, I think there is, we consider that there is value in having this clarification on the role of the AOA for implemented the UN model in Article 7. Then we talk about the Article 7.4 and 7.5. Is there a need to expand or reduce the role of profit apportionment formula? What type of guidance are needed or provision within the commentary, for example, or clarification there? Also, in the document, you have seen that we have mentioned that the-- and what has been a practice from the committee has been to make references to or quote some of the OECD commentary. And then I think that some work will need to also be done to kind of uh, clean, you know, uh, some of those, or, or see where those are, uh, those reference are still needed, so that's also part of, of what will be, uh, we can be looking here as well. And then we have option D, domestic law guidance. I mentioned some of the challenges that was common issue identified by developing country as well during the work and is on the domestic law. And then the option D, the intention it will be to provide guidance on domestic rules that best support profit attribution, including of permanent establishment accounts. And then option E is on the full assessment, which are options where taxpayer do not meet the owners of proof, drawing on country experiences. So these are a last item, or the two last item will look into helping countries on the implementation, in term of legal basis, but as well on practical. Can we, so those are the, the, the question, um, that we have put in, uh, or the areas, uh, that we put forward and we have some question, uh, later on, on those, uh, on, on the way forward on that. Um, can we please move to the next one? So there are, as part of the mandate, there are works on the revision of the UN manual, and it was identified the need on revision on chapter nine on financial transaction. What the annex proposed is a work plan on the main tax that can be covered in the update of chapter 9 of the UN manual. The first task is on the nature of financial transaction, in particular, the, uh, the, um, or restructure of the chapter in term of accurately delineation of the transaction, including recognition, uh, as well, um, uh, the discussion on equity and whether it can be, uh, can be re-qualified as debt. and also providing some relevant information and practical examples to assist developing country in the implementation of that. Then the second task is to look into a new session on cash pooling. So cash pooling are kind of risk transaction and pose important risk to developing country. There is an increased use of cash pooling as well within multinational in developing country. And then the intention is to incorporate a new section on that that can discuss on the types and relevant characteristic, how to accurately delineate a transaction, a cash pooling transaction, and also selecting and applying the method with examples. On the third task are consequential updates to the throughout the chapter for readability, flow, and links to other chapter, a structure for guidance on loans and guarantee, and links to centralized services. And another area of work that has been identified is in term of hedging, in particular on commodity prices, foreign exchange, interest rate and risk. And so if time allowed, the intention will be to provide, to extend the chapter to address the work on hedging. There are, if you see, we have already also proposed a timeline for this work that we can see with the name to finalize and approve by the 37 section, okay. Can we please move to the next one? Yeah, so as I mentioned before, in the term of cash pooling, basically, the idea will be to address or to provide guidance, especially in extractive industry and large infrastructure projects. And basically what the idea is go through those arrangement or agreement, no? And to try to provide tax authority and tax administration on how they can be, those can be, the cash pooling can be examined. For the purpose of delivering the work, We will, or the subcommittee will rely on external input from industrial experts that will be invited to comment on cash pooling and also on hedges. We also recognize and will coordinate to the extent possible and as needed with other work stream of the subcommittee and the committee. And the outline has also identified risk and mitigation as well for this work. Can we please move to the next one? Okay, thank you. So the Another annex that has been presented and included in the work is related to intangible chapter six of the UN manual of the intangible. So in this work, the plan is to do some refinement work, the first task, in order to follow the sequence of a transfer pricing analysis, and we have proposed structure, there is a proposed structure in an appendix. The second one is to develop the revised chapter, organizing by transaction type, consolidate method guidance, and add to the extent, and as it is identified as needed, the impact of AI, tax knowledge, bundles, intangible, as well as discussion on services and intangible. And the third task is to improve fact finding and provide practical tools to assist tax authority on conducting a review and an audit of intangibles, including fact-finding workflow, document request checklist, and questionnaire related to the AMP. We have also put forward an indicative timeline where we are aiming for an approval as well in spring 2028. Can we please move to the next slide? Thank you. So this is the proposed structure that has been put forward in the annex. So changes, if you see in red, will be into the addition of section 6.2 in the role in business models and supply chain. And then in 6.3 to incorporate the element that has been already mentioned, like data and AI, intangibles versus tax knowledge. bundle IP services versus intangible, and as well issues on passive association, group synergy, and goodwill. And in section 6.4 is including more tools for tax authority and workflow document checklist and the MP questionnaire. So this is basically where changes are proposed in the work plan on this work. Can you please move to the next one? Sorry. So another area of work is simplification measures, where the subcommittee has several discussion on this area and how it can look like. And Through that discussion, we have identified, this committee has identified some gaps. For example, the UN TIP Manual mentions safe harbor only incidentally in separate technical chapter, but there is no structure or a comprehensive chapter or part that address simplification. So, in response to that, what has been agreed within the subcommittee and what we are putting forward is to propose an organised overview as a first step, or a guide, that will incorporate First, measures that country has adopted, drawing from the experiences in some work, for example, the work on the OECD that has been mapping safe harbor implemented through in a number of jurisdiction. and then try to categorize in country practice. I think a good work that we've seen coming from the discussion is to try the characterization of different mechanism of safe harbor. And then we will try to put that together for countries as a way to, I know, to find in a place the elements that are needed or that the discussion that are needed when they are considering implementing safe harbor. That's what will be covered in second and the bullet point two that we have here. We also consider or the outline is considering as well incorporating some discussion and benefits and disadvantages of simplification measure as well. And the four last items that it is intended to be covered is underlying law and regulation, reference to implementing provision where possible. So this is kind of the what it is aimed to be covered in this work on simplification. Can we then please move to the next one? So this slide is just looking into the timeline and the next step of all the work stream. So there are the timeline, if you see, is a sequence. So we will be working throughout those period, try to deliver on those outcome. And what we see here is with our intention to finalize some of this work on the fall 2028 and also in the 38th session in 2029. I think this is the point I wanted to make in term of the work plan and the discussion and the progress on the discussion and the task that has been mandated to the subcommittee. So finally, if we can move, please, to the next step, to the next slide, sorry. What we see here is the invitation to the committee and everyone here in the room into discussion of, and decision on the four, on the item that has been put forward, Annex A and profit attribution to PE, any comment on the report, decide on the option to push through either the five options that we have put forward or if there is one of these options should be prioritized among others. And also, we would like also that you note as well on the implication for the work plans and timelines. So on Annex B, on Chapter 9 and financial transaction, as well as for Annex 6 on Chapter 6 and intangible, we would like to listen on your comment and guidance on the outline of the proposed work line. And the same for the simplification measure to provide comments and guidance on the scoping document. Thank you, Chair.

Thank you very much, Wanda. I know that That's a mouthful, but you have demonstrated that you are more than able. So thank you very much for doing that. And thanks, Ilka, because much of this hard lifting came from you. So thank you very much for the support to this subcommittee. Now, colleagues, we have two major decision points. One is to look at the report with respect to the attribution of profit to PE and the options that had been proposed for your consideration and for you to give steering to the subcommittee as to how to proceed. And the second part the other work streams with respect to the reviews of the transfer pricing manual in chapter 9 for financial transactions, chapter 6, intangibles, and issues around simplification. And so let me invite your comments and views on all of this. So the floor is open. Enrique.

Thank you, Matthew.

First of all, this is outstanding work. Congratulations to Wanda and her team. It is a very technical and complex presentation. Much of the collection, at least what is done in Mexico, depends on transfer pricing. I think that it is a power of work that you have carried out. I have two comments to make, one on annex A and the other on annex D. On annex A, I think that it is crucial. The first three annexes are maybe a little less important, but they still carry weight. The first three annexes are the most important, and I agree with the approach that has been adopted in relation to article 7 and the plan of work. implementation guide of article 7 of the model that is illustrative in its implementation would have a lot of advantages. But my comment refers to a document that I've been reviewing addressing a number of country cases who already have in force rules on transfer pricing. and to see what benefit they have drawn from implementation. It can be difficult to integrate such stuff into legislation in the first place. There are African and Latin American cases. It has taken them two decades with the general rules on transfer pricing. When they review the impact of implementation, you discover that, over two decades, not a single hearing has been held and nothing has been collected. I understand that the manual on prices cites the problems that are inherent to the practical implementation of transfer pricing, but many of those circumstances have a lot to do with exterior issues, not so much in the domestic policy of a country. In those documents that I was looking at that speak of implementation and the problems, they concern issues that are linked to decisions. I would not say that they are inherent to a country, whether consciously or unconsciously, but I would mention, for example, that there can exist long-standing practices that have been implemented for many years in developing countries, which on occasions may run counter to those principles approved in law. However, the custom prevails, so the practices do not get implemented. Another of the assumptions mentioned is the possible lack of co-ordination between the that introduces into its internal legislation those provisions, and the authority responsible for implementation, the enforcement authority. There is a lack of co-ordination, and therefore those decisions never really see the light of day. A third factor that I recall being mentioned is the possibility of simulated implementation of certain international standards. through commitments that are implemented by those countries, without there actually being genuine implementation of those standards, as can happen with the transfer pricing guidelines. It is important to take into consideration those elements and to add them to annex A. Obviously, the development of the guide needs to be accessible. or should enumerate those problems that developing countries might face. In so doing, we can allow ourselves to implement those international standards on transfer pricing effectively and simply. That is my comment on annex A. I will make a very brief comment on annex D, the simplification measures. I think that the manual, when it tackles those measures, dates to 2021, but you know the date better than me. However, reviewing the case of Mexico, we see that Mexico introduced reforms in 2022 that eliminated the option of safe harbours. If I may, I can send you more information on that to update the case of Mexico. I was also reviewing some cases that could be illustrative in annex D. The cases of Brazil and Israel, with 5 per cent of the mark-up in lower agricultural value mark-ups. The US also has specific rules for borrowing that are implemented between intragroup companies. There are specific rules for safe harbours, for example, 10 per cent of the transaction on agricultural products. Maybe we could you know, that's how I think we could beef up maybe Annex D, although we already, there are a lot of cases already in Annex D, but again, maybe we could beef it up a little bit more. Thank you.

Okay, for that. And I'm sure that the, we will be glad to have those examples you alluded to, they will greatly assist the subcommittee. Okay, Sierra Leone.

Thank you so much, Chair. Firstly, I want to commend the work of the subcommittee for their tireless efforts being put into this report. Firstly, I want to welcome the subcommittee's progress and its focus on practical guidance, especially for developing countries. So, drawing from experience from Sierra Leone, a key priority is ensuring that profits attributable to economic activities within our country are appropriately taxed. And also, this is particularly relevant to sectors such as mining, where related party financing, management charges, and other cross-border transactions can present transfer pricing risk. Furthermore, I will therefore encourage the subcommittee to prioritize practical examples on profit attributions to local branches and the assessment of related party loans, interest, payment, and service charges. Also, guidance on intangible assets should also help administrations identify when royalties payments are justified and how to assess them. Thirdly, for administrations with limited specialist capacity and access to comparable data, clear rules need to be supported by simple audit tools, realistic documentation requirements, and targeted timing. Simplified approaches should reduce administrative burdens while protecting the domestic tax base. Lastly, our main recommendation, especially from Sierra Leone, is that the guidance should help developing countries identify their highest risk and apply their available resources effectively. I thank you.

Thank you very much, Sierra Leone. Pascal.

Thank you, co-chair. I would congratulate the subcommittee, though I am a member myself of the subcommittee. But when I saw the work that has been laid down, I became quite breathless, wondering that we've laid out so much work for ourselves. I'll begin with some comments on Annex A and these options that are there before us. So before we get into what is possible, maybe a couple of quick comments on what we need not do. Now one of the options is clarify the role of the authorized OECD approach. I don't think the UN tax committee should clarify the role of the authorized OECD approach. That is best left to them. Now the option is we want to create an implementation guide to Article 5. But then if option C says that we need to review Article 7, 4 and 7, 5, then an implementation guide of Article 7 is still some distance away. So I'll jump to the option C. article review of article 74 and 75, which is probably where the meat of the matter exists. I think that eventually any design of profit attribution has to be decided by a country, which is getting down to that business. What the manual can do is to provide a certain guide as to how that profit attribution design can be made and what is possible. Now, if we get down to a review of 74 and 75, what we have to do definitively, in my opinion, is that we have to get rid of the shackles of transfer pricing for profit attribution. And I believe that some part of that problem exists in the way 72 reads even today, because even today 7.2 reads that it is the profit that it might be expected to make if it were a distinct and separate enterprise engaged in same or similar activity. So while we do not specifically mention function asset risk matrix, we are harkening back to that structure of what an entity which is part of a related party existence what profit it would make. So, we are still there in that realm of transfer pricing and arms length price determination. So, I think when we get down to the review of 7.4 and 7.5, we have to rescue the process of profit attribution from the shackles of transfer pricing completely. Right now, I don't have any specific suggestion, but I believe that going forward, this is what we will have to do when we review 7.4 and 7.5. Now, whether that means the language of when we say customary or when we talk about the principles of this article, whether the detail lies in that language, that is something that the subcommittee will have to decide. Because eventually, going back to what I said, that the profit attribution design has to be left to each country because the contours of location savings are different for each country. What constitutes location saving for country A may not constitute location saving for country B. If we are going to say that market is going to be a factor in deciding profit attribution and not just supply side factors. So this is something that we need to keep in mind when we get into the review of 7.4 and 7.5. And I believe that that is where, that is the option that we need to focus on. Once we have done that, domestic law guidance, et cetera, that is a secondary problem. So I would weigh in on option C. And a quick comment on the other annexes, B, C, and D. I completely support that. On option on Annex T, when we talk of safe harbours, one thing that there is oftentimes an attraction to make safe harbour a kind of a go-to solution for all types of industries which create problems in transfer pricing assessments. I think that is something that we should guard against. That is the experience that I can say. Because safe harbors are best applied to those industry segments which are simple. Any industry segment which presents any sort of complexity is not a suitable segment for a safe harbor. So that is one thing that the subcommittee can keep into account. And while safe harbor is a good idea, but it is best limited to only certain segments where it will actually work. Thank you.

Thank you very much. Azerbaijan.

Thank you, Mr. Chair. I thank you, co-coordinator, for this complex and technical presentation. And also thanks to subcommittee for this report. I think that report raises an important question. Should we first make existing rules easier to apply or also consider changing the rules themselves? This is particularly relevant to permanent establishment. The report describes different view on AEOI approach can apply under the UN model. Both approach use a separate entity enterprise principle, but UN model retains specific limits on national internal payments under Article 7. Against this background, I would prioritize option A, D, and E. supported by targeted clarification under option B. Option A could provide work at example showing the full process, analyzing PE activities, examining accounts, allocating actual head office expenses, and calculating taxable profits. This example should distinguish actual expenses from national internal charges and explain relevant exception. Option D would help countries establish the domestic legal and documentation requirements needed to apply these rules. And option E would provide practical methods where reliable accounts or information are unavailable while allowing taxpayer to demonstrate more accurate results. And option B, we suggest clarifying which elements of AEOI may assist the analysis and where Article 7 sets limit. Also, option C, concerning a broader and or narrower rule for profit allocation formula should be considered separately as a policy choices. On financial transaction, I welcome plan at work on debt and equity. I suggest adding simple examples on cash pooling and this should explain when money left in the pool for a long time should be treated as a long-term loan and what return company providing that money should receive. On intangibles, also I support the proposed DMPA questionnaires and checklist. Examples should cover mixed software and service contracts, identify actual contributions and risk control. and show how key valuation assumptions affect the outcome. Final simplification, I suggest comparing each measure through a common template covering eligibility, documentation, benefits, limitations and double taxation risks. Pricing simplification should also be clearly distinguished from audit risk assessment tools. Thank you very much.

Thank you very much, Hasib. India.

Thank you, Chair. Please permit me a couple of minutes to get my thoughts together. India appreciates the work of the Subcommittee in -- I think this is a great step forward to talk about transfer pricing and profit attribution in the same conversation. Usually, transfer pricing and profit attribution are dealt with as separate approaches and to finally talk about them together is a great step forward. Regarding our approach to profit attribution, I would like to state one technical understanding of ours from a reading of the Annex A. It appears that the UN model does not agree with the authorized OECD approach. This has been India's consistent stand. But in doing so, our major disagreement in the UN model appears to be the allowance of deductions or not, or notional payments made to the head office. Apart from that, we still seem to think that we should follow a single entity approach. If you're doing a single entity approach and then stopping that a FAR determination or an ALP determination for profits, it is a very limited sort of approach to determining profits in the market jurisdiction. In trying to talk about a single entity approach, in trying to talk about ALP, we should not forget what para 7.2 says, that the profits that the enterprise is expected to make in same or similar conditions, dealing wholly independently with the enterprise. So the independent activities of the permanent establishment in the source country cannot be ignored vis-a-vis the market it operates in, in determining the profits of the source country. While we say that we disagree with the AOA, we still seem to come back to the ALP determination purely on the basis of FAR to see how much profits the PE should Vis-a-vis that, there is one word that I personally liked in page 5 of annex A, where you say that, apart from the far, let us look at the substance. It would be very interesting to see how the sub-committee expands on this particular aspect of the substance of the permanent establishment's activities in the source country, because the substance will involve its functioning as an independent enterprise in the market it operates in and how much it would demand as revenue from that market on account of it being the market-facing entity. Regarding this, it is incumbent on the subcommittee, I think, to immediately sort of expand the role of 7.4 and 7.5. I think there was a question as to whether we should expand it or limit it. It definitely should be expanded because limiting it would again go back to the FAR approach of profit determination. While we say we do not agree with the AOA approach, if we still come back to only FAR to determine profits, in essence, our disagreement does not carry much weight. Then the only disagreement that remains is that, okay, we will not allow notional payments. But beyond notional payments, in determining the profits, if FAR or ALP is the only final conclusion, then we may be missing the realities on the ground. Regarding Article 9 and Article 7 having sort of a consonance with each other, it's a great approach forward, but Article 7 should also be looked at from the perspective of Article 7, which says that, again, profits that it was going to independently make wherever it was functioning. This is our main focus is regarding Annex A, which is the theme of profit attribution, because it has been our very, very long standing approach that we cannot just think about far. We cannot just disagree with AOA and limit our disagreement to deductions of notional payments. The disagreement should be more fundamental in the sense that we should look at it as an independent enterprise. I believe that the other annexes And the approach that you're taking to intangibles as well should be able to recognize the source country's contribution to the development of the market as well as technical intangibles owned by the legal owner in the group. That's it. Thank you.

Thank you very much, India, because you have brought in a flavor. talking about fundamental change. And so if I follow your argument, the problem actually is not 74 or 75, but 72, because 72 is the one that imposed the separate entity concept into this discussion. So probably maybe let's listen to colleagues because is, what I, the sense I get here is treating issue of notional deductions is actually not uprooting the problem. But looking at this issue of separate entity concept coming out from 72. Okay, good. Good, good discussion. Eamon, please. May.

I respond if that's okay? May I respond to?

Okay, okay, yeah, just in 30 seconds.

Yeah, yeah, Chair, what I'm trying to say is that disallowance of notional payments is absolutely necessary. It's no way India's suggestion that we should allow notional payments. We absolutely want that. We just want the expansion to also include the flavor of what 7.2 is actually trying to say. Thank you.

Thank you very much. Hemanth, please.

Thank you very much, co-chair. Much of what I wanted to say has been, I suppose, partly said already. I congratulate the sub-committee on the very ambitious programme of work. I immediately clarify that my focus is solely on Annex A, profit attribution to PEs, and that's because of the potential interaction of Annex A and profit attribution to PEs with other ongoing work, I suppose, notably in the UN Model Tax Convention subcommittee, where a work stream has been earmarked to follow on from the report in annex A. I also want to refer to the work of the sub-committee on digitalising and globalising the economy, because I think that the work of each of the three sub-committees interacts to some extent. When I look at the slide above. I see two options that offer the possibility of change. I also look at the decision factors underneath. I am not immediately seeing the tie-in in relation to the annex A report and the discussion that we had this morning about the need to investigate or explore the possibility of a UN SCP. There is no prejudgment about what the result of that consideration might be, but nevertheless there would appear to be an openness to potentially breaking new ground in relation to the basis for source country taxation in relation to business profits. When I look at option B, I have to agree with Vass Kar that I wonder why we need to consider the extent to which a particular approach adopted by the OECD is reflected in our existing article 7. I am particularly conscious of the fact that, as is well documented in the annex, the The additional words included in the OECD model simply have not been added to the OECD model, and they are in particular the words in relation to functions performed, assets used and risks assumed, and also the words in relation to dealings with other parts of the enterprise, in other words, internal dealings. In addition to that, I'm kind of surprised that two sentences of the long-standing UN Article 7, paragraph 3, the two sentences that prohibit notional deductions on the one hand and on the other hand prohibit notional receipts, get so little attention in our existing commentary on article 7. In fact, that commentary is taken from the commentary on the pre-2008 OECD model, which did not include those two sentences. The commentary has one sentence on the prohibition of notional deductions and has, as far as I can identify, no sentences on the UN prohibition on notional receipts. So we don't have what was added in the most recent version of the OECD report. We do have sentences that for many, many, for decades, have not been part of the OECD article. So Of course, we can consider how close the interpretation of those articles should be, but I do think we are talking about different articles. I think that may be useful and I think it may be useful work to produce for ongoing purposes where you have an OECD-oriented country involved in, say, a a mutual agreement procedure or whatever with a country following a UN approach. In terms of where we started from in this 2025 to 2029 committee, I had expected that the report might identify more scope for innovation in the context of what is being considered in the DGE sub-committee and also what appears to have been envisaged from a UNMTC point of view. So I would agree that option C in a very broad way may present that opportunity and I don't think it necessarily means simply a reworking of 7.4 or 7.5, it may need to go further. But I doubt very much whether commentary alone can really bridge the gap between the differences in underlying article text that I have sought to identify. If we are serious about exploring the possibility of significant economic prejudice, or some version of that, it will be an entirely inadequate examination if it does not also grapple with how profit attribution will be worked in that potential new context. Essentially, you cannot have one without the other, and I am not seeing a signal here that there is an openness to grappling with the profit attribution issues that will go with exploring SEP. So I think this is all potentially fine work in relation to what we have currently, but I don't see, it's not immediately apparent to me that there's an openness here that links in with proposals in the DGE subcommittee or the UN MTC taking on some of that work. So apologies for going on to some length, but I do think it's an issue that the committee should devote time to do before Friday evening and not to address the issue at the last minute. If we are to take on this work, it has been identified this morning that it will be a challenging task to take on within the lifetime of the committee. Deployment of resources and calling on the great expertise that we have available to us in the TP sub-committee, which is producing such fine work, to call that into support of new developments, or how we might need to call that into support of new developments, I think that is an issue that we should give some significant time to before the week is out. Thank you very much, co-chair.

Thank you very much, Imon, for that. I think that, for members of the committee, is food for thought. If we marry India's intervention with him on state intervention. There are quite a lot of things there for the committee to chew as we progress with this 33rd session, but I'm sure with the secretariat will see how to organize the closed meetings to ensure that we devote enough time to look at this issue. I will invite Netherlands, please.

Chair, and also thanks a lot to the subcommittee and all the work that has been done. I think a lot of good work has been done on all the different topics. Like the previous speakers, I will focus this intervention on the attribution of profits to permanent establishments, but maybe a very brief comment on the cash pooling as well, because I think that was a really good paragraph on the need for the accurate delineation of the cash pool transactions and the short term or long term positions. But on the profit attributions to be ease in the Netherlands, we applied a authorized OECD approach. We think that the AOA aims to align the treatment of permanent establishments to entities and therefore aligns as much as possible to Article 9. But having said that, we think that also the AOA does not fully succeed in that alignment, for example, looking at the treatment of withholding taxes on dealings versus withholding taxes on transactions. But more importantly, that the AOA is not commonly applied. This leads to tax uncertainty or double taxation or cases of double non-taxations. And we think that that is an issue. So Yeah, maybe to the main message of us is that we really support this work. We think that further harmonization or further alignment on the treatment of profit attributions to PEs within countries is really important. So, yeah, a compliment to the committee for the work done and, yeah. If helpful, we, of course, are willing to keep contributing with examples or whatsoever. Thank you.

Thank you very much, Lene Lenz. I will invite Wang Jiru.

Thank you, Co-Chair, and thank you to the co-coordinators, the Secretariat, and the drafter as well for the presentation and the report, and also for fulfilling the mandate to submit the report within this session. I also appreciate each subcommittee taking us back to the mandate that they have been given, which includes a principle to pay special attention to the experience of developing countries and reflecting their realities and priorities. I'll also focus my brief comments on the report. on attribution of profits to PEs, which is contained in Annex A, and I'd also like to largely support the comments made by Bhaskar. Some major concerns that have continuously been raised by developing countries in profit attribution to PEs includes, but are not limited to, lack of recognition of market-related factors in the current rules. as well as the restrictive application and interpretation of Article 7 of the UN. And this goes across various paragraphs. Regarding option B on clarifying the role of the AOA, I don't see this as an area of priority for developing countries, as it will not directly address some of these major concerns that have been raised. I believe focus should be on Article 7 of the UN model, not the OECD model, and the challenges that are faced in its implementation and interpretation. So in my view, priority should be on reviewing Article 7, and as Bhaskar very adequately put it, not to just restrict this to paragraph 4 and 5, but also to include a review of paragraph 2, as has also been raised by India. and I think this review should include an analysis of the practical challenges that are being raised by developing countries and then providing solutions which are going to support fair allocation of profits between the resident state and the source jurisdiction. I also agree that option A is very relevant, but it should not be based on the existing provisions which have inherent challenges that have been raised, but that this can come after those challenges have already been addressed. So the practical guide would help, but focus should be on addressing and reviewing the existing Article 7. Thank you, co-chair.

Thank you very much. Let's invite Philip Baker, please.

Thank you very much indeed, Matthew. I would also like to address two comments, if I may, on the question of profit attribution. The first one relates to option B. I was really rather surprised to read any suggestion that the AOA has anything to do with the UN model, article 7. I have been attending this committee for more than 20 years since it was an ad hoc committee. I remember very clearly the discussion in the early 2000s about whether the UN should adopt the AOA. There was a very definite decision at that time not to do so. My recollection is that the charge was led by Robin Oliver, who was a member of the expert committee from New Zealand. Robin sussed out very early on that the AOA was potentially very damaging for branch economies and developing economies. Put very simply, you had to recognise the deduction of notional rent, royalties, interest, but you couldn't impose a withholding tax on them because they were not actual payments. The committee agreed with him and it rejected the AOA. By the way, I shall be seeing Robin next week. There is an international conference in New Zealand, and I hope that he will be there. Members of the committee should not be surprised if they get emails from a former member of the committee in the next couple of weeks saying that they should not go down the AOA route. I agree very much with Basavaraj Gowswami and Wanjukya Riar that option B, which is not a topic, should not be considered. My second comment is a more positive one, and it is on a potential way in which this sub-committee could go ahead. I do not know whether it comes under option A, C or D. Businesses need to know whether branches are profitable or not, and they do that through management accounts. They may or may not be branch accounts that are reliable. If we go back to the 1930s, to the original work by Mitchell Carroll, who was mainly interested in the attribution of profits to branches, we see that he starts with accurate branch accounts. and only if there are no accurate accounts does he then think about transfer pricing or formulaic apportionment. So why don't we look at the question of accuracy of branch accounts? There are management account principles, there are courses, there are books on the subject, but there are no generally recognised principles for management accounting. I think that's a great gap. I suggest that the sub-committee considers that as a possible way ahead. It is an alternative to transfer pricing or former apportionment. If we can get agreed principles for accurate branch accounts, the other issues go away. That is a suggestion of a possible way ahead. Thank you, Matthew, for letting me speak on this.

Just a quick um uh feedback from Wanda.

Thank you chair um I just want to because I think uh there are some of of or the intervention has been uh raising the option B saying like you know there's no space for AOA on un I think or no, I think the proposal here, and I am happy that you mentioned Oliver Robin, because he's been working with us on this. And actually, option B, what we are trying to say is just to clarify the role of the AOA, not to change the role of the AOA. The UN does not endorse the AOA. This has been clear. But is there a need to make it more clear in the commentary or on the model? So that's the intention of this. It's not endorsing or adopting or changing what has been already provided. So that's the only comment I would like to make and the only clarification I would like to make to continue the discussion, because that's not what has been proposed in the document in the Annex A that has been put forward for discussion.

Thank you very much. Let's invite Antony.

So I will speak in French.

First of all, thank you for the very good report and the options provided. Today, I just wanted to make a comment runs against the grain of some of the comments that have been made. When we speak about the UN model and the OECD model, I think that there is a common principle in the two cases. It is the principle of competition, which is formulated differently but is very much in the UN model, in article 7, paragraph 2. It is important to recall that aspect. I think that we need to keep that, because it is a universal principle. We talk about permanent establishments and branches, but we are talking about fiscal tax subjects and the taxation of profits. That is why the principle of full competition should be applied to PEs in its entirety. I have a bit of difficulty that, when we apply a principle of full competition, we need to bear in mind all the aspects of the branch of the subsidiary, not just its activity but also its functions. That is what we find in the OECD model. We speak of functions. For me, that is rather implicit. In paragraph 3 of article 7 of the UN model, I see an exception to the principle of full competition. I am not calling into question the principle; I do not interpret it like that. I see it as an exception. It is written in paragraph 2, because it says that it is subject to paragraph 3, which is a kind of waiver or dispensation. The big problem for developing economies is access to data. the accounts of PEs is a problem, and we should focus more of the work on how to access good data. We speak a lot about comparable data. That is when we talk about full competition. We need to be able to compare and audit what an independent company is doing, so comparables are very important. And with respect to paragraph four and five, there is a formula, a kind of distribution, but it's while respecting paragraph two, in other words, the principle of full competition. So I think it's important to clarify. So there are two aspects, I think. I think we need to all work on access to data for permanent establishments. There is a bit of work to be done here. We need clarification with regard to the authorised AOA. That is a good thing, because we speak of a common principle that is formulated differently. It is important to clarify that. If we intend to exclude the role of functions and draw on other criteria. I think that it is useful to do so, so I think that option B is good. Option C needs clarification, with paragraph 2, to have more precision. Otherwise, it is a bit vague for a reader of the model. Those are my comments. I thank you.

Thank you very much, Antooni. Angela.

Thank you, Co-Chair, and I thank the Subcommittee for the work done and appreciate the historical discussions and the interview with countries to understand practical challenges. I was contemplating for some time before I wanted to respond, and I appreciate the views of the larger community in weighing in so that us as a Committee can then decide on what are the options that we need to prioritise. If the option before us is how to prioritise and choose among the options, and hearing the different views, I would say I align myself best with the suggestion from the observer, Mr. Philip Baker. I am an accountant before I became a tax practitioner. And when I read the report, which is based on interviews, a lot of the practical challenges faced by countries relate to incomplete branch reports, inadequate documentation. And it looks to me that maybe dealing with the source issue of enabling branch reports will be key. And so I do, that was a question on my mind, and when he voiced it out, I would align with that suggestion. I think the questions that Eamon also raised about how some of the discussions that we are discussing on Article 7 could go beyond possibly even the mandate of the Transfer Pricing Subcommittee. It touches on discussions that we have started on in the DGE and possibly under the UN model. And perhaps as a committee, we do need to think about maybe sequencing. Would this conversation under profit allocation or transfer pricing implications be considered after we have addressed some of the earlier ones that we discussed under Article 7, under the DGE or under the UN model. So maybe that's something that we need to consider, and for that reason, I find it a bit hard to then commit to all the other options of Option A or Option C. Yeah, thank you.

Thank you very much. Maybe just a quick point as to who does what, in my view, may not be too critical as to what is to be done. So I still believe that it is good for us to know what we intend to do. We can then look at who is better placed or best placed to do it. I just give that as a rider. Agian, please.

Thank you, Mr. Co-Chair. I also listened with interest to the different comments and reaction. First of all, thank you very much for your presentation, for the report, for all the different, I guess here we're not calling them work streams, but the different parts of the annex, and it's very interesting. I also want to focus on the profit attribution, which is one of the big topics of the week, in my view. My first comment is, I'm struggling a little. I mean, I guess you do put which options to pursue, because it's clearly not exclusive options. You could choose a couple of those. But I'm having a hard time finding exactly -- if you go -- if you start with the different views, you have the view of a single -- the three views, single entity approach, you have a dual entity approach, and then you have the mixed view. And I'm struggling a little bit to see how that transcribes into the different options, because if you take option C, for instance, it could mean a whole bunch of different things. So I'm having a hard time saying, oh, I'm for option A, B, C, clearly. I would, I think in general, I would like to echo as the fundamental approach what Antoine from France, Antoine said, that yes, here we do have, as we do have Article 7, paragraph 2. So, and we have, we have the qualifications of the rest of the article. But it would seem to me very difficult to depart from some of the AOA without changing the article itself, and only by doing it by the commentary. And it would bring quite a lot of uncertainty as well for the existing articles as well, just from a business point of view, what to expect when this article is in place. I would say that I also welcome the I think this is an important topic that we should talk again. We should take some time to talk about later this week. Also, I'd be interested in having the views of Trudy, who's co-chair and who couldn't be here today. So I think that would be also a certain that would I would appreciate that we be able to pick this up and not finalize this today. Regarding, I think it is important, I mean, I still have the same concerns as this morning regarding our workload. I think it is important to also, I mean, if we decide to depart from the, to explore departing from the AOA and trying to find a different solution to Article 7, seems to me that this cannot be done by the transfer pricing committee. By definition, a transfer pricing committee is, takes care of arms length principle and transfer, the whole transfer pricing world. If we're departing from that, then I think it's work that has to be done by the UN model subcommittee and just I think it's an, you have, as we're deciding what to do, we also have to imagine how we're going to do it, and if we can do it. And we've, this morning, we were talking about all the different work streams of the model. So, it will be very, as we're deciding what to do, we have to decide how we're going to do it to make sure we have a realistic way forward.

I thank you very much, Jane. I think it's also important that we understand that most of the work of this committee stream from the model. And all the 25 members of this committee are qualified to work on any and every aspect of the model has been the golden product of this committee. And we also have history that aspects of the model have had to have been changed previous day, not by the model subcommittee. So I think it was important in my view is that let's focus on what is to be done. I believe every member of this committee is eminently qualified to work based on their respective expertise so that we don't begin to create a dichotomy within the committee. at the end of the day. But thanks very much, Jean, for your comments. I will invite Nigeria.

Thank you, Mr. Chair. And thank you, the subcommittee, for a job well done. We appreciate the work you have put in. Our observation, paragraph one. include the force of attraction rule in paragraph, sub-paragraph B and C. Why paragraph 2 provide for attribution of profit to the PE on the profit that it is expected to make if it were a distinct and separate enterprise, engage in same and similar condition and dealing wholly independently with the enterprise of which it's a PE. We have three quick issue that in dealing with option A and option B, we think the subcommittee should take on board and provide clarity. The first one is in respect of this force of attraction rule in sub paragraph B and C and the provision of paragraph two. We are of the view that clarity is needed. Because where we have this separate entity rule in paragraph 2, and we have force of attraction rule in B&C, how do we attribute or how should profit be attributed in that instance, looking at what paragraph 2 is saying? So we need the committee to reconcile the force of attraction principle in that paragraph of that paragraph 1 with the separate enterprise or entity concept of paragraph 2. Then the second issue is in paragraph 3, we have deduction issue. I mean, it says notional costs should be disallowed while notional income will also not be recognized. And in that aspect, we need to have alignment with paragraph 2 also, because in such instance, why one is saying treat as separate enterprise, the other one is saying even when you are treating as separate enterprise, disallow this. We need to reconcile those two or provide clarity or clarification in the commentary in respect of those, particularly if possible. Do we still need to have those reference to separate distinct entity in paragraph two. And if we need it, is there a way we can redraft that paragraph two so that it's clear that there should be a separate way of dealing or treating it as a separate entity because those are issues we usually have when we are negotiating. Then lastly, other issue we have in negotiation is issue of withholding tax. So we also need clarity where withholding tax has been deducted, what should be the treatment? We need clarity. We need to clarify the treatment of withholding tax deduction from payment from a PE to a headquarter in respect of notional costs. Where the cost is disallowed, should the withholding tax still be retained or should it, in this instance, be refunded? Thank you.

Thank you very much, Nigeria. I think some of the questions you have raised may also fall within the domestic rules, but thank you very much for that. Mr. Rawal and South Centre, please, if we can minimize the time, we appreciate. Thank you. Mr. Rawal first.

Thank you, Chair. There is very little guidance available in the commentary on force of attraction rule, despite the fact that this rule is there in the UN model for so many years. The reason behind this is that probably our broader approach is to start with what OECD does and then we try to distinguish ours because there is no force of attraction in OECD. There's very little guidance which is there on force of attraction, so we need to create that guidance. Second point, now Article 7 has six paragraphs and they follow a particular logic. Often what will be happening is that we mix up the paragraphs and we jump the gun. The way I see it, para 1 of Article 7 is the main paragraph which deals with attribution of profits. The words, only so much of them, as is attributable to that P are very important words. And these words give a lot of power to the source country. And, you know, this is to be determined as per the domestic law. In a cross-border business, when certain functions are performed in the P state and certain function in the HO state, it's a sovereign right of a country to determine what profits are attributable to the functions which are performed in the P. and that becomes the starting point. So this right needs to be, you know, kind of amplified, you know, needs to be elaborated and more guidance needs to be given as to how do we exercise these rights. Exercise of the right, you know, the amount which is arrived at after this right becomes the starting point and then follows is transfer pricing adjustments and then follows para 3. So probably we need to do more work on how do we implement para 1 of article 7. My last comment is on para 4 of article 7. Now, there is inherent contradiction in this paragraph. This paragraph allows the domestic law apportionment method, and at the same time it says that the outcome should be consistent with the approach in para 2. Now, if approach of para 2, which is arms length pricing is possible, then probably there's no need to go to a portionment method. So this is something that needs to be clarified and reference to para 2 should be removed. The word customary in para 4 is also creating a problem. Does it stop a country from introducing a new method for a new set of business activities? Or particular method in the domestic law should be followed for a certain number of years before it can be said to be a customary method. Thank you.

Thank you very much, Mr. Rawal. South Centre, please.

Thank you, Mr. Chair, and our comments will be brief. We align with the comments by Mr. Bhaskar and Banjiru, and also align ourselves with the statement by India. And we support the fact that the priority should be on reviewing Article 7, broadly speaking, including paragraph two, specifically with removing the separate entity approach so that profit attribution is not shackle by transfer pricing. And also, of course, to look at paragraph four specifically to look at the restrictions that may be placed by the phrase as may be customary and again, to remove the condition that the outcome should be in consonance with an outcome. So that should also be looked at for removal. We also note that the CRP does not mention the role of the market as the key problem in profit attribution under authorized OECD approach. It's only based on function that sets and risks, which only remunerates the supply side and not the demand side. This is an omission from the report, and this is something which could be looked at when the work is actually going on. And in terms of the sequencing, it may be helpful to first reform Article 7 and then look at the practical implementation guidance. Thank you.

All right. Thank you very much, colleagues. Let me turn to my co-coordinator and secretariat for five minutes feedback.

Thank you, Chair. We have take note of all the comments, all the relevant comments that has been that has been provided. I see a lot of support from the majority in the room on the work and the relevance of the work on profit attribution to PEs, in particular, and option C, but I take note of the comment that has been made, or we take note of the comment that has been made, and looking at these in a more comprehensive way. So I'll try to kind of englobe all the comments that we receive, one South Center and others saying that we need to look at well, the word need to look at well on 72 and be more comprehensive, so we take this into account. Also, we welcome the comment and any -- all the helps and that has been provided and that has been offered to us to continue the work. Enrique, I just put you on spot on this report that you mentioned, and as well, Netherland on providing inputs and other countries that has been also providing input. So, we welcome that, and, you know, you can continue to send inputs to the work we are doing. We took into account as well some of the comment that has been made by developing countries. Here, I want to outline the comments mentioned by Azerbaijan and also by Sierra Leone on the need of developing country in doing this work and the practical aspect, the issues on comparabilities and data that has been also identified. and as well on the support, on the practical tools that has been put forward in some of the work, like for example, the check list. So we thank you for all this useful comment that you have provided. Yes, so I won't go through all of them, but just to say that we have taken note of all of that. We also appreciate, me particularly, that no more comment has been made on the clarification. I think that has been clarified of what is the purpose of option B. So thank you very much, everyone, that has supported also this. this work. So, yes, we also know the point that we see that has been that that was raised by Nigeria. We take note of that on the force of attraction and also the intervention that was made after by. So we'll be also thank you for that. And we have been taken note of all of those all of those elements. So, I think kind of in a very briefly, those are the main issues that we have, we have identified, we are taking, we have many members of this committee here that are present and has been also taking note of that. But we also, we will get back to this committee. Sorry, Chair, before I just finish, I don't think I, I finished my five minutes. So just a small comment, sorry, on maybe LGN. Maybe it's just, I think they're, I'm not sure whether that's what you mean, but I guess you mentioned something that if we have to delink the 7.2 from the AOA, I guess you are meaning from the separate approach, because as we say, the UN reject the AOA. So that's not the same thing. And I think from an OECD member, you understand that there is difference on that. So just wanted to, yeah, so you are not it. So you mean that he clarified this point. But thank you very much. And again, thank you for everyone that has been contributing to this work and in particular to the secretariat, Ilka and the rest of the Caroline and the rest of the secretariat. And of course, the subcommittee member.

All right. Thank you very much for doing that. Ilka, anything from you? No. No. Okay. All right. So what is left for me is to quickly look at the summary of what we have discussed. The subcommittee has given us four annexes. annex A, this with issue of profit attribution and having listened to the floor, the preponderance of support is with option C, with a plus. The plus is not just to look at article 7.4 and 7.5, but to look at the whole of article 7. and particularly to look at the complexity that 7.2 has brought to the implementation of 7.1, 7.3, 7.4 by itself. So this is well noted. The co-coordinators have noted those comments and we'll take them back. One other thing to say in respect of Annex A is There have been very wonderful contributions from the floor, and we will implore all our colleagues who have made those interventions. to kindly reduce them to writing so that they are not, in case we have missed any point. I know we have very good secretariat, but in case we have not captured properly, we will be glad to have those written input, South Center, India, Nigeria. Please, everyone who had made an intervention, we'll be glad to have those written intervention to assist the subcommittee in its work. With respect to the other three annexes, there have been no disagreement with the proposal of the subcommittee, and so we take it that the committee has approved the work plan of the subcommittee with respect to annex B, C, and D. I think with that, we should have hand coffee, and so thank you very much. See you in 15 minutes. Thank you very much. Um we're going to move to the next agenda item. item number three J wealth taxation. Um we will find that in CRP twenty-one. and we are going to be having a feedback as respect to the work of the subcommittee and we have with those George, who is going to be leading us in the discussion. So without much ado, I give you the floor.

Thank you, co-chair. Let's have the presentation. So, yeah, so good afternoon, everybody. Here is the agenda for this point of the agenda, to remember the background and to check where we are right now. The purpose of today regarding this point of the agenda is to present to all of you the proposed structure of the handbook that we are preparing regarding the high net worth individuals taxation, which is the mandate that we have. And, well, we will finalize with a timeline and the next steps. So let's start with the first slide, please. So very quickly, the mandate developed further draft guidance on policy and administrative issues in the design and implementation of wealth taxation, including the taxation of high net worth individuals. And during the last session in New York, you may remember that the committee agreed with the proposed work plan which consists on producing a handbook on the taxation of high net worth individuals. So as you see in the plan for today, we have to present the handbook outline for feedback and guidance of the committee. Next slide, please. So What we've been doing during the last months since we had the last session of the Committee in New York is, first thing, we've been drafting the outline that we are presenting today. We have been finalizing the outline. We had already started the substantive discussions We, uh, are right now presenting different parts of the, of the book, of the handbook, uh, by the, uh, the draft leaders. the drafting leaders, and they are presenting what they intend to write or to draft regarding those different sections. So we already started during the last meetings of the subcommittee to present the different parts by the draft leaders. And also, we have analyzed with a short paper that was presented during a subcommittee meeting. The proposed changes regarding Article 22, taking into account that you may remember that during the last mandate of the committee, there was a draft or a sample drafting regarding capital taxation and it may affect to article 22 of the model and that's why we are analyzing if it's really needed or what are the suggested changes to article 22 of the model that we may suggest. So That is what we have been doing during the different meetings of the subcommittee. I have to remind all of you that the subcommittee participants are representatives of national tax authorities, also international organisations and academia, so we have a variety of backgrounds working on this. Next slide, please. So this is the proposed structure of the handbook. The main chapters you can see here. Why focus on high net worth individuals? That would be a first part, explaining the relevance of this topic. Chapter four would be an explanation of how are high net worth individuals taxed today. So it implies numbers, figures about how are these group of people taxed in the different jurisdictions and also in a global basis. Chapter 5, broadening the tax base, is more related on the different measures that could be taken on this respect, tax measures especially. Chapter six is regarding the more how to address avoidance and evasion regarding the different behaviors of these high net worth individuals. And chapter seven is more related to improving compliance, which means more tax administration issues related. So going into more details on those chapters, next slide, please. We have chapter Yeah, thank you. So you have chapter three, so more the rationale and the relevance on the topic. You see that we are going to try to define or to find thresholds regarding high net worth individuals and also trying to explain why these matters with different ideas that have been provided by the members of the And also in this chapter, we are going to focus on strategies that are used by high net worth individuals. And the chapter four is more related to the current taxation. And you can see that we are talking about the distribution and the context in the different regions and also trying to focus on developing countries, what happens with high net worth individuals there. And also to see what types of taxations or of the taxes affect on this group of people. And very important, how these high net worth individuals respond to the current measures regarding the behavioral responses. Following the slide, please. regarding the the so the these three and four chapters are more related to general content and five six and seven will go into more details as you can see so Chapter 5, as I said, is more talking about progressive, I mean, how you can do it through income taxes or through wealth taxes specifically, and some references to how tax wealth that has been earned offshore or cases where the wealth is really foreign owned. So specific cases of measures to tackle these. And also, and this is very important regarding, and it has been mentioned by members of the subcommittee, how to tackle with cases where it's the, there's political resistance, uh, within a, a jurisdiction to tackle or to adopt measures. So I think this is something that, uh, we will be dealing with. And chapter six, as I said, is more about how to counter the strategies that are described in chapter four. So what measures regarding anti-avoidance can be adopted by the different developing countries. And, uh, also an special chapter, an special part on this chapter related to track tax transparency and access to, uh, information. this is because you may remember that in the session where the subcommittee was adopted, there was an important call for tackling also these aspects of transparency and access to information. So we will be dealing here about that. And, uh, finally, um, chapter seven, as I said, as I said, is more related about how to organize within a tax administration, the units, um, and, um, I mean, you have to… differentiate and specialized unit to tackle with these issues. Cooperative compliance and a very important issue here also regarding the access to domestic information. It means registers and this kind of stuff that you need to implement within a jurisdiction to be able to adopt measures afterwards that are really applicable in practice. So this is the structure, and there will be also, and this is very important, and we are working on that in the subcommittee, examples of jurisdictions that will be an annex with country experiences, and this is also something that we are trying to cover. Next slide. So this is the timeline. You may see where we are. And for the following sessions, for April in New York, we will just update on the progress. But the following sessions, you see that are the ones where we will present part of the handbook for discussion and approval. So Just to conclude, regarding the following steps, well, for today, what we ask the committee and the participants is to provide feedback. We have been trying to incorporate into our work the comments that we received during the last session in New York, so we tried to cover all of that. And the other important issues that, to let you know that after the work regarding capital taxation, we will, regarding Article 22 that I mentioned, we will provide the subcommittee on the model with the paper, and we will prepare a presentation to the model subcommittee to inform about these suggested changes for their consideration. And next slide. So this is the presentation that, as I said, we have presented the outline for your guidance and your consideration. Thank you.

Thank you very much, George. I think that was very clear as to what the subcommittee is set to do, developing a handbook with practical guide as to the taxation of high net worth individuals. and we have seen the outline of the handbook with seven chapters. And so, sorry, Sylvia, do you want to take us to the outline of the book, the handbook, not this one? Yeah, from one. Yeah, exactly. Thank you very much. So, the subcommittee covets your inputs, suggestions as to the outline before it is approved. And then, of course, if there are drafting suggestions also that you want to give to guide the subcommittee, you are free to do so. So please, let's come up with our interventions. I will invite Enrique.

Thank you, Matthew.

I recall Jorge. I recognize he put in a great lot of work, and it's really yielded a lot of, paid a lot of dividends, the work he put into it. I think that the proposal sets the stage firmly for implementation I think that it is a job very well done. I have a small suggestion for a topic that I think is very important and would complement chapter 6 in the handbook, which is about evasion and avoidance. If we look at chapter 6, it talks about anti-abuse clauses or how to combat non-payment of tax. by HNWs, such as exit taxes and residency taxes. However, if we analyse practical evidence and data, we see that one of the issues that motivates people to try to move wealth away when a country decides to implement those kinds of taxes is the structural shortfalls in the normative design of laws. If we analyse what the cause of the most critical vulnerability that comes up in the design of a tax, we see that it has been granting broad tax exemptions in national legislation. That can sometimes run counter to the a justified policy where developing countries decide, with certain assets, to give certain tax exemptions to attract investment. At the same time, that granting is often used as a refuge for HNWIs who decide to invest in those assets to be exempt. those laws are not implemented to allow that investment. Given that reality or evidence, I propose the need to integrate specifically the theme that I have just outlined in chapter 6, adding that there are causes for tax avoidance and evasion provoked by the legislation itself when it comes to the exemptions that are granted, and that, in some way, could close the door to aggressive tax policies to try to cater to the HNWIs. Thank you.

Enrique? Shahnaz.

Thank you, Chair. I would like to commend the work of the Subcommittee. It is very exhaustive. I think it explores many of the technical issues concerned with wealth taxes. I note in the design and structure that you indicate that political support is necessary for successful reform. That is agreed. And it is undeniable that the taxation of high net worth individuals, like any significant tax reform, requires political will and sustained commitment. Now, Based on this, it may therefore be useful for the guidance to go beyond the technical and administrative considerations involved in the designing and implementing of wealth taxes, but also explore strategies to build the political support for the adoption in the region, particularly in developing countries. It might be that despite the technical authorities wanting to have these kinds of taxes, getting that political support, the way to get the political support may be something that they lack in terms of strategies. So it might be useful for the guidance to have some strategies or give some consideration to cultural, social, and economic realities of the different jurisdictions, as those factors are going to influence public perceptions of wealth taxation, political priorities, and quite frankly, the willingness to consider reform. And so if the guidance can incorporate approaches to build consensus, approaches to addressing some of these public concerns and demonstrate the potential benefits of wealth taxation, it could assist jurisdictions in creating the environment that enables the necessary introduction of these reforms beyond the technical issues. That's my suggestion.

Thank you very much. Giedre.

Good chair. First of all, I would like to thank the subcommittee for the great work which is done on this topic, which is, I think, as old as modern direct taxation, how could we tax very, very wealthy individuals and, you know, try to redistribute this surplus of wealth between the society according to the social contract in which, you know, we kind of believe. So again, congratulations on taking on this not easy subject. My question was a bit of about how you organize the work because I'm not a part of the subcommittee. So I see one big challenge because you would like to rightfully analyze the repartition of high network individuals. where they live, in which jurisdictions they stay, how many are there. And obviously, data is a huge problem here. I know that even if we wanted to analyze in one jurisdiction here in Switzerland, it would be very difficult to actually get information about that. So I saw that you work with a lot of stakeholders. I imagine you get their data from there, but comment on this point would be very interesting. Second point, I was thinking, obviously, the work is about wealth taxation, but will you specifically exclude inheritance and estate taxes or gift taxes, which are obviously not wealth taxes, but they are very closely connected to actually how high net worth individuals choose a place of residence and often to other regimes that there are. So again, thank you very much and Good luck with further work.

Thank you very much. Alvaro.

Thank you, Matthew. First of all, I want to thank and congratulate Jorge, Ilka, and Lorenzo for the outstanding hard work that they've carried out. and thanks to all the other members of the sub-committee. I think that one of the biggest challenges with this kind of taxation are the responses of the taxpayers. The taxpayers, through their profile and economic capacity, are these HNWIs. They are people They have the best possible advice available on keeping payments to a minimum, and their rational response will be to try to avoid payment of those taxes, one of the main strategies for which is mobility of the persons themselves. The dimension of paying the tax could be so relevant that it It could easily motivate a person to move from one jurisdiction to another so as not to have to pay. Given the risk of mobility, I think that there are a couple of questions that are worth taking into account. The list of themes that are proposed as indicators addresses that. There is a reference in paragraph 4D, which refers to the response in the conduct of the HNWs, and section 6, parts 1 and 2, which are about exit taxes. Those are strategies that we have to elaborate further as efficiently as possible to try to avoid to clamp down on attempts to evade taxes, the content and approach of the handbook should be very didactic, particularly given that developing countries that want to implement such measures need to be didactic. First of all, with respect to recommendations associated with domestic laws, because, for those to be effective, they depend in great part on having an appropriate design of domestic norms that governs those kinds of taxes. The recommendations also need to be sufficiently didactic, precise and effective in terms of suggestions of policy linked to treaties. We have to remember that, for example, with respect to the design of exit taxes, we all know that those kinds of taxes can be designed differently. Not always does the state that seeks to implement that kind of tax consistent with the model clause in the treaties, it does not always have the power to levy those taxes, so it needs to be sufficiently didactic to be able to establish with clarity exactly how to design and what precautions should be taken at the level of treaties to ensure that the state of origin of those persons retains the right to tax them, even if they happen to have left the state previously. So in conclusion, I just want to reiterate my congratulations to all those that were responsible for the work.

Thank you very much, Alvaro.

Thank you, Chair. Let me join colleagues by saying congratulations to the subcommittee for a very, I think, a very comprehensive work done on the outline. My intervention is brief, and it has to do with section 3, introduction, section 3A, defining what constitutes a high net worth individual. I'm sure the committee, if not, will take into consideration country context, country and domestic legislations. The best of my recollection is that the definition of who a high net worth individual is, is driven most times by country domestic legislation. So I'm wondering how, but I'm sure the subcommittee has come up with a clear guideline or will come up with a clear guideline as to what constitutes a hard network individual and bring into consideration country context. Because my perception is that there is no one definition of who a hard network individual is, but it's actually driven by what what the country defines a high net worth individual is. So once again, I want to thank the subcommittee, but just this caution to say, let's be guided by country context, domestic legislation of who or what defines a high net worth individual as we go about the drafting of this very important piece of work by the subcommittee. Thank you, co-chair.

Thank you very much. Bhaskar.

Thank you, co-chair, and thank you to the subcommittee for the excellent work that has been done here. This is actually a very, very important issue that tax administrations deal with almost on a daily basis. And I believe that what actually matters to us is what will work and what is the most important tool we have which is going to help us counter this kind of tax evasion. And I believe that Section 6 of this handbook is the one which is going to make all the difference. The experience that one has now is that the tool that is employed by this set of individuals as and when they get around to tax evasion is mobility, mobility and increasing speed of mobility. Another experience that comes from the tax administration is that the normal exchange of information mechanisms is not really keeping in pace with the kind of mobility that they have and the speed with which they work. Very often, we have this experience that we use the exchange of information channels and by the time you get to the bank account that you are looking for, there's nothing left in that bank account. The funds have already moved. The manner of tax evasion or tax planning has changed. So probably one suggestion that can be given is that when the subcommittee looks at section six of this handbook, maybe they can examine whether the current EOI mechanisms are working, whether there are, and I believe there are certain shortcomings of the current EOI mechanisms in terms of timelines within which the information should be supplied, the time till which the documents should be retained in the jurisdiction, whether these are working and whether any special measures are required when we are dealing with this class of individuals. Another tool that would be very important is assistance in collection of taxes under the mutual administrative assistance. because the existence of a tool, an effective tool itself can at times be a deterrent. So these are a couple of suggestions that I can think of. And thank you very much.

Thank you very much. Claudia.

Thank you.

I would like to express my support for the work of the subcommittee. The proposed handbook address an important and increasingly relevant topic for many countries, especially developing countries. The outline is comprehensive and practical, covering both policy and administration aspects, as well as tax transparency and international cooperation. I also welcome the focus on high net worth individuals and the inclusion of country experience and practical guidance. As a suggestion for consideration of the subcommittee, maybe the handbook could also consider including practical guidance on the use of data analytics third party information and digital tools to identify and monitor high net worth individuals as these issues are becoming increasingly important for effective tax administration. So I support the proposed work plans and look forward to the further development of this valuable guidance. Thank you.

Thank you very much, Claudia. Cyril Leung.

Good afternoon, Mr. Chair, and the members of the subcommittee. I just want to say thank you, and I want to applaud the subcommittee on wealth taxation for the progress so far towards developing this practical handbook on high-net-worth individuals. But yeah, we are talking, I think, I just want to add to what others are saying, especially when it comes to developing countries, for see how we can work with this. So however, I suggest that the subcommittee ensure that the handbook provides practical, affordable, and adaptable guidance that reflect legal, because yeah, when we talk, especially with developing countries, you need the legalities, legislations. So we reflect on the legal, institutional, and administrative capacities of developing countries. In particular, I recommend a flexible approach to identifying HNWIs based on both income and wealth indicators, rather than a single universal threshold. I also encourage the inclusion of simplified asset valuation methods and practical guidance on using existing property records, company ownership information, and other administrative data to identify and value assets accurately. And finally, I urge subcommittee to strengthen its guidance on addressing tax avoidance and evasion, improving beneficial ownership transparency, and promoting international cooperation. These measures would help developing countries strengthen tax compliance, project revenue base, and build a fairer and more sustainable tax systems. So I just want to say thank you and just say these are my own suggestions. Thank you, Mr. Chair.

Thank you very much. IBFD.

Thank you, Mr. Co-Chair. And I would also like to extend my appreciation to the subcommittee for the work that has been done concerning this work stream and the proposed outline. I have a few comments to make concerning the work. particularly in reference to chapter three, where we talk about the guiding principles. It's more of maybe consideration if it's not already included or a suggestion to make that there should be reference to the ability to pay principle, just to at least realign with the focus of evolution of theories that have guided progressive taxation. I would also like to make a suggestion concerning, I think it's chapter four, where we talk about the current modes of taxing. And I just wanted to ask if there is consideration being made for indirect taxes that have been put towards, for instance, luxury goods or certain property that is only acquired by said high net worth individuals. Then I would also want to know if there is proposed text that would be put for generalized regimes that are not necessarily labeled or separate regimes just targeted to high net worth individuals, but still come to the same conclusion. For instance, high progressive tax rates in a normal income tax system. And then lastly, I think if we are going to talk about the whole philosophy of taxing high net worth individuals, there should be some alignment with the concept of redistribution of wealth. which I like to believe should be the ultimate aim for it. And so if there is some form of text that is put to link those two, maybe that would be a little bit clear and helpful. Thank you.

Thank you very much. Mr. Rawal.

Thank you, Chair. My comments may look contradictory, some of them in favor of HNIs and some of them against. To begin with, possessing high wealth or becoming an HNI is not a crime. So when the committee thinks of cracking down or targeting HNIs, it should be done only when there's a tax evasion or avoidance involved. You can't just simply target someone because he has a good wealth. When it comes to the concept of redistribution of wealth, that's where the wealth tax comes in. I would personally believe that the HNI's or the industrialists are better placed to generate revenue, create job employments. When the same wealth goes to the governments, it may end up in some subsidies. Well, now talking the other side of argument, The risk of mobility has already been highlighted. So if one has to really, really tax HNIs, probably a coordinated approach amongst the countries may be required. I'm not sure if anyone is thinking of global minimum tax for HNIs on the lines of OECD pillar 2, wherein a UTPR kind of a provision would move the taxing right from one country to another country. Another point which one may want to discuss is that whether the scope of the committee is to also look at the capital gains taxation because a lot of income is on tax free by virtue of capital gains. And on the same lines, when the countries adopt STTR provision, subject to tax provisions, should capital gains be subjected to STTR? You know, when the country of residence doesn't levy tax on capital gains. Thank you.

I thank you. Gyan.

Thank you, Mr. Co-Chair. Thank you, Jorge and Ilka, for your work and the subcommittee on this outline. It is a current and much discussed topic. And I must say that I think it's a quite, I don't see any holes in your outline. I think it's quite complete. That's the word I was looking for. I would wanna echo maybe what Giedri said regarding the importance of estate, not to not underestimate or to mention somewhere the importance of estate taxation because It's true that I believe it's an important factor in the equation regarding high net worth individuals. It's an ambitious outline and so I wish you all the best luck in working on certain of the aspects that might be difficult. I think Giedri also mentioned, you know, the difficulty to assess how many high net worth individuals are in countries and that type of problem. I wanted to here to bring up maybe another issue that's not directly linked to here, but I think it's a good illustration to high net worth individual taxation. I mean, I think we're here to try to advance the cause of developing countries in particular, and to work in the most efficient manner as possible. And I find it somewhat frustrating or disappointing that there's not any synergy between the work we're doing and the work that's being done at the INC because this is, I mean, if you look what's being discussed here are some of the, like, the exchange of information and the different topics. It's very close to what we're discussing at the INC. So I've already brought up this point before and I've already, I know what the answer is. The answer is that it's two separate entities that are complementary, but I'm hopeful that at one point we will try to feed off each other in a certain way and not be each working separately in a bubble. So that's just my wish for the future.

Thank you very much again for your very good wish. You know, somebody said, if wishes were horses, everybody on the street will ride. Um, but your point is clear. Um, only that, we don't have a solution to that for now. Um, I think, that's all for, I want to thank all of us for Okay, Eamon. Okay, please.

Thank you, co-chair. I apologise for coming a little late. I congratulate you on the work and commend the very comprehensive approach to the subject. I have one inquiry. I note the topic of low effective tax rates for high-net-worth individuals. I think of in my own experience, where there would be entirely legitimate incentives given to wealthy individuals to invest in particular, say, start-up businesses or whatever it might be, urban regeneration. There could be reliefs for various things, such as pension investment or whatever. Is it intended that there will be some reference in the handbook to minimum effective rates, where the legitimacy of the incentives would be acknowledged but, nevertheless, it would still be an objective to ensure that all taxpayers pay a certain minimum level of effective tax? Thank you, co-chair.

Thank you very much, colleagues, for those very valuable inputs and comments. I will return to George for a very brief response and then we'll close.

Thank you, co-chair, and thank you to all of you who have intervened for your contributions and your support to the work. Just trying to pick some comments and make some clarifications. First, the comment about the political support that Sanis has made, I think that in some way is related to what Enrique also mentioned. And Alvaro also showed something on this respect. And I think that this is something, as you see, that we try to cover with this issue of the political support. And the commission about the exemptions that are provided, I think is in some way related. And we will try definitely to cover. There's also a mention about the need of being very didactic, so trying to be very practical for the developing countries to understand the subject and how to tackle it. So we will try to provide those explanations in the handbook. So that's really our purpose. That's why we'll try also to put specific examples and country experiences for others to take into account. Regarding, there's been some comments by GDR also about the state taxation. I think that Jan also mentioned. And we will, I mean, when we talk about the taxation in chapter five, the different possibilities, we are talking also globally on the taxation of high net worth individuals. And when we mentioned the progressivity is not only focused on a particular So, of course, we will mention the different possibilities, but definitely this is something to bear in mind. And also I mean, I mentioned to take into account, mentioned by Darlene about the domestic legislation and of course, regarding the definition of high net worth individuals. And of course, I mean, we will not, it's not possible to set up a clear definition. I think that the effort that we are going to make is to try to understand how this is analyzed by the domestic legislations and the different proposals that are on the table and trying to see the pros and cons on these. So we will definitely take that into account. I take note of Bhaskar's mention of assistance for collection of taxes. So this is something to take into account. And the use of that analytics that Claudia has mentioned. And, well, I think that also there have been some important mention about that. And I think this is going to be very clear in the handbook that we are talking about progressive taxation regarding high net worth individuals. It doesn't mean that just because they, they are, um, high net worth individuals, there, there need to be taxes, but it, it's more the sense of progressivity that we, we are trying to introduce in the, in the content. And I think that more or less I, I covered, I mean, I think that the comment by Iman is more or less related also to this political, support that we need and the CCO of the tax incentives is in some way related. So I think it will be covered in the same way. So I think try to cover the comments. I take note of all your suggestions. So thank you. Thank you very much for your contributions. I just want to finish by thanking all the members of the subcommittee for the work. asked about how we organize. We are right now with stakeholders from different backgrounds, as I said from the beginning. So that provides us the opportunity to get the different data from different perspectives. And so we are working on that. So thank you to all the members of the subcommittee for the hard work. We are right now, as I said, with the presentations of what each of them are going to cover, and we will start drafting soon. And also thank Ilkay and Lorenzo for the support to all the subcommittee and especially to me. So thank you, thank you very much. Thank you, co-chair.

Thank you. I thought you were going to forget that. Judge, a lot of thanks to you and your team. I think that was very brilliantly laid out work. Maybe one comment from me is also in doing this, let's also be mindful of culture because a lot of times if we develop things and we neglect the culture, adopting and implementing might become an issue. So we have listened and I'm sure George and his team had taken notes. And so I take it that you want us to approve this outline so that the subcommittee could go ahead subject to all the comments and input you have provided I see a lot of heads nodding so George congratulations your hotline is approved I want to before we close let me give the floor to Caroline I know that Thanks to the government and the people of Switzerland, we have a dinner. So let me give the honor to...

Thank you so much, Chair. Yes, we are delighted. This evening is the Swiss cocktail with thanks to Gian and his colleagues in the Swiss Federal Department of Finance. 15 in the delegates restaurant. You can access through door A13 across the parking lot and follow the signs to the elevators that will take you up to the delegates restaurant for the cocktail reception. Also a reminder to committee members, an early start for those of you who are able to join us tomorrow 00 AM to 9:45. We're having an informal exchange with university students. This is where the committee does some capacity building to encourage more to join the fields of international texts. That will take place in the Concordia room four, which is right next to the Concordia bar. So you can grab a coffee and a pastry and come join the chat with students tomorrow from 9:00 to 9:45. Thank you.

Um, thank you very much, um, Caroline and all the secretariat for, um, making, um, the meeting, uh, um, for making, um, the meeting, um, very effective, um, of course, we cannot, uh, but appreciate the wonderful work of our interpreters who have been behind us since yesterday and I know they are still with us tomorrow and Friday. Maybe we should just give them a midway applause.

And the interpreters.

Thank the chair. Thank you very much, sir.

Very much. We do appreciate you for what you are doing. We have a very wonderful evening ahead of us. We have this dinner hosted by the government of Switzerland. So you are all invited. See you tomorrow. Thank you. Good night.