Intergovernmental Negotiating Committee on the United Nations Framework Convention on International Tax Cooperation - Second Substantive Session 2025, 3rd meeting

So, dear Excellencies, dear colleagues, now we are starting the informal meeting for today in which we are going to continue our discussions for Workstream 2, Protocol 1 on taxation of services on cross-border transactions. So, without long introductions, Now I'm going to give the floor to the co-lead Lisa, who is co-leading this work stream to just start again initiating the discussion. This topic is a big topic and require a lot of deliberations. And I think that we need to dive a little bit deeply in the questions that Lisa is going to present more than just high level discussions. These meetings are meant to be technical meetings to discuss the technical side. That's why I think we would like to hear your... Okay. We will celebrate at the end, not now. So, okay, thank you for this good start, but... So so this is and I think we have here the best of the experts worldwide each country sent is the best experts to be here in the room and usually in our side talks I hear very good technical opinions and It's super technical diving in very in the very deep of the topics, but I don't hear it in the floor. So what we are looking for is to starting, I don't think that we are not in a situation in which we are just recording the situation or the position of any of the countries, but it's again, it's a super technical discussion. The discussions was very rich in the work streams. I was expecting here to be the same and I'm still expecting that we will turn to this level. Maybe yesterday it was the beginning of the work stream, so we were still discussing the high level, the strategic points. But today I wish that we are going more depth in the technical about the Nexus physical presence, about telling us some experience about some of the issues that happen or some, I like stories, so some stories about some situations in the business. that can also give us a background. So today, I think we are more toward a deep technical discussions. That's not to be surprised if you find Lisa is just trying to make the questions more deeply and go in the depths of these questions. This is meant to have this discussion because after that, Lisa will take some time with the workstream to start designing and drafting the solution. And the workstream needs to have a very solid technical understanding for how the countries, the member states see the topic so they can start looking at the technical solutions. Without having this feedback that they should receive from the plenary and keeping the discussion on just a high level, I don't think we are enabling LISA to do the work. She will do it anyway, but like with the work stream, of course, but like, I mean, we should put the enablers for the work stream to come with something back in the next session or session after with something that we are all expecting. We know from where she gets these solutions in order not to say from where you get this. So in order to enable this to happen, because she will work it out anyway. So if she didn't get sufficient technical opinions and feedbacks, so the work stream, which is also still the member states, will start to work something out from their experience. So it's better in this big scale that we have in this room to start going in the technical side more deeply. using and learning from the good experts that we have here in the room. So I will stop here and I'm going to hand the floor to Lisa to start. Thank you.

Thank you very much, Chair. And thank you all to you yesterday. I think we had quite a good technical discussion. I do realize that it's very difficult in a big room like this, you know, have a technical discussion, but, you know, this is the forum, and we're working with the forum in the way that corresponds working with this forum. So with that, I also think one can be provocative. I'm not going to be provocative yet. But, you know, we are going to produce texts, drafts, text, and I think we've got input yesterday for that. So I'm sort of not negative, but I do think it will be interesting to hear a little bit more and dig into a little bit more. And we do have the time. So please try and participate as much as you can today. So I'm going to make a couple of assumptions that I read into the meeting yesterday. So first of all, we heard from a number of members that they would like changes to be self-executing. Now, if we're going to have a treaty or some sort of agreement that's self-executing, that means that we need quite a detailed protocol. That will put quite a lot of pressure on the drafting and therefore we need a little bit of input on that. We also heard that we have a favourable, because of the scope of services being so big, we also heard that it could be different rules for different types of services. So that is also a conclusion we got from yesterday. And we also heard that the way in which services are taxed is a matter of domestic law. So that's separate from the issues on nexus. However, we'd like to unpack this a little today and we start with possible nexus rules, then the manner of taxation, ideas about how the results could be implemented in a protocol. So those are the things that I would like to throw out to you to kick off this discussion this morning and hopefully hear back from you and some possible issues that you want to raise and be in the way that we would move forward on this subject. So I don't know if I'll chair this, but I don't have, yeah, there's no flags up, so it's always difficult to break the ice. Usually we count on Michael, but now we have France, so please go ahead, France. Sorry. Sorry, sorry, France. Austria was first. I didn't have it, so sorry, but Austria, please go ahead.

Thank you, Madam Kohli. Good morning, everyone. I think this is really just a, every one of us just jumped in here, so it would be extremely helpful if you could put your points on screen so that we can see again what exactly you would like us to go through. I think you said something different than what is on the screen.

I'm not too sure. I think the points are there. It's the nexus rules. Yeah. So that's the first one. Because of the discussion yesterday, we had certain things that we read into that. So that was a multilateral agreement, self-executing. With that in mind, Would you come back on these issues here on the nexus? So it's like sort of building a little bit on the discussion yesterday, but the questions are still here. I mean, it's the nexus rules. First off, first of all, thank you. That's okay? Or you want to? Yeah, okay. Then we have France. Please go ahead.

Thank you. Good morning, everybody. Thank you, Madam Chair. Before responding to all of these questions, which are truly very interesting, I would appreciate if we could return a little bit back to my comments yesterday which pertained to other possibilities so that these aren't discarded from the get go. We yesterday discussed the possibility of taking a conventional approach to direct taxation but certain colleagues particularly I think Marlene from Jamaica proposed working on other avenue along other avenues such as indirect taxes France is a country with indirect taxation particularly on digital services or at least some digital services we can discuss which and here we might deem it that the current rules are no longer appropriate or adequate and they do not allow us to tax where value is actually created. So why indirect taxation? And why at the time did France in 2019 decide to take the route of indirect taxation? Well, the answer is quite simple. There were various international initiatives which had failed but there were discussions over the 2000s and 2010s which led to no results. In other international bodies including at European level these discussions took place so we took a unilateral approach. However, when you have a network of many conventions covering the vast majority of our trade, if you look at direct taxation, it's pretty much mission impossible. It simply wouldn't work, you wouldn't actually tax anything because international law doesn't allow it. So indirect taxation has allowed us to tax these services without breaking any international rules or laws or obligations. This is therefore a way, I think, of achieving our ends of having greater revenue on a greater number of targeted services, but here the nexus rules may no longer be relevant and this would not undermine the conventional network. We know that there are territorial questions about the allocation of profits and turnover, but that's something I can return to. This requires international coordination, of course, because if we all desire to tax the same turnover, we'll all end up trying to have shares of the same pie, but the pie will run out. But I don't think that opting for indirect taxation doesn't make it impossible or undesirable to have international cooperation. In fact, this is desirable and necessary because if we increase the forms of taxation on a cascading basis, we'll need to have new territorial rules. Like I said just there, this is about thinking out-of-the-box, looking at different possibilities compared to what's been done up to now, whether that's in the OECD or in the expert committee. So that's my first point. I think that we would be misguided were we to say that this way forward isn't practicable. I think it has many virtues. And to respond to your questions now, Possible new Nexus rules? Well, of course, we'll need to devise a new rule here to ensure that this works for every state. Looking at the French digital tax, for example, we take the IP address. Now, there are other proxies which may be used in lieu of IP addresses. We could discuss that, but this is what we decided to do at the time. If we work together, I'm sure we'll think of better solutions. So IP address, something which is new when it comes to the tax model we see today. Physical presence, I don't think that's necessary, but here we're concentrating on a certain limited number of services. Net and gross basis taxation, well, gross basis perforce required because and moving on possibility of different rules for different services that's something we can discuss amongst ourselves even among digital services there are some services which provide greater value add than others so we can take the rules which can be adapted to the various applicable services here I have spoken quite a lot just to break the ice here, but I did want to say that there are solutions out there. As far as I know, they have not been discussed in other international fora, and they might be interesting to consider here. We need, once again, to look at all possibilities and perhaps have a situation where if states wish to impose a digital service tax, they could be obliged to take a decision about the model that we may wish to develop within this body.

Thank you very much for that, Frans. I think that was extremely helpful. You broke the ice, and I hope people take up the challenge and comment, because I do think you raised extremely important points. And I do think, from my point of view, at least, if I don't have any other flags up yet, I'm just waiting for reactions, but if I may comment on your comments, I agree completely with you. There are issues that the system is broken. We know that we should try and help, at least from the way I see it, that this forum is the right forum to try and make an international agreement where we can actually sign up to it and then comply with our international agreements. And I think today with the DSTs, with the VATs, with whatever, you know, it's so complex in the sense that countries uses words that perhaps are not reflecting exactly what the tax is. And that is something that I think you raised very well. And I think therefore, I wouldn't say that we're talking about, we need to talk about other possibilities. I think we're still within what we are aiming to do. So, you know, I think, I take your comments very, it was very, very good to hear from you because you're raising issues like nexus for digital services, for instance. And I think that's exactly what we need to come and discuss now. Because indirect and direct taxes is words, but in the end of the day, it really is a tax. And the point is, if we have disagreements of the character of a tax, Why don't we try and agree here what we're dealing with? And then, you know, people can or countries can sign up to the solutions because I think, if I may be a little bit provocative, sorry, Chair, if, for instance, we think that in my country we could, we can have an interpretation that the DST is an income tax, then that would violate our counterparts that are applying it in our double tax treaties. And that is not the situation that we want to have. We don't want to raise that issue in our courts. We don't want to have that in international dispute resolutions, we want to sit here and try to come to an agreement on it. So I'm really very happy that you have raised these points because I think they are extremely important within the discussion of digital services. And I don't think it's -- as I said, I'm sort of repeating myself now, but I don't think we're talking other possibility. I think it was within our scope, you know, and your actually comment is raising the issue on you know, other nexus rules, because we are also mentioning that the services have different types of services. So, of course, a nexus rule on digital services, and you gave the example of IP. And I think we need to hear from countries who have introduced DSTs, who have VAT on digital services, for instance. In my country, We had originally a DST proposal, and I'm sort of, oh, we've got someone commenting. I've just finished that one. We had a proposal to do a DST, and we presented it at the OECD, and the OECD said, no way, that's not an indirect tax, so you have to change it. And we did. So we have sort of what we think and what the OECD apparently thinks is an indirect tax. But this is a very sort of, you know, it's not an easy discussion. So I'm a little bit provocative, but you know, you introduced it and I think it was very useful. So thank you for that, Frans. Ghana, please go ahead.

Thank you. And good morning, everybody. I want to talk on the coverage. And I think we should use it to guide our discussion. If we spread the coverage too much, we might have an issue. Now, I think the co-lead just mentioned that there is a VAT, we have a VAT on services provided by non-residents. So we register them and we deal on that basis when it comes to digital services and other services. And that tax is paid by the consumer, it's on the transaction. The protocol as we see it right now is on income from cross-border services. I think we should limit our discussion to that. If we want to have another protocol on indirect taxes, so be it, that's fair, but I think for this discussion, in order not to create too many complexities for ourselves, we should limit ourselves to income taxes or direct taxes, if you want to put it that way. Thank you.

Thank you. Ghana? Egypt.

The chair, not Egypt. Unfortunately, I don't have a button to raise my hands. But I'm getting back to France because I think you mentioned something about the IB address to be as an access for the DST, if I got you right. So, but a little bit I'm struggling to understand how the IB address is used as an access. I'm not understand there is a technology side for it. But how we are applying this, given that the IB address can, to my understanding, can be changed based where the servers are placed, and the VVN and many other factors that can change the IB address which you can use to know the next or the place or the location. So if you have a background about how this works in France, this will be good. France.

Thank you, Chair. of course I'm pleased to continue to explain the French digital service tax but this is only a model I'm not saying it's the model I'm explaining what we did at the time we had European thinking on this topic as well but when it comes to the IP address we ask operators to use this because this is a tax which is declared. Each operator is responsible for declaring the amount of their tax and they need to show that this tax is duly paid. So when we ask for the global turnover and taxed activity and we then look at the pro rata of the number of French users, i.e. the number of French IP addresses which have been used for the provision of this service, we then divide this by all of the IP addresses across the world used by the users. So it's actually a ratio of French IP addresses against the global IP addresses times by the global turnover, and then we take a percentage of this. So you're quite correct to say that IP addresses can be manipulated. We're not naive about that. But it's been said that overall it will be a small minority of people who go to the trouble of modifying their IP addresses, probably not for tax reasons. If I'm changing my IP address, from what I've heard, It's not for tax reasons. It's not going to be because you don't want the operator to be paying taxes in France. That's not why that you may wish to be appearing to be in another country for reasons of legislation or various other reasons which have nothing to do with tax, because the tax isn't being paid by you, it's being paid by the operator. You'll be paying the same price for the service at the end of the day. So all of this to say that the WTO has taken this matter up. We know also that there are IP addresses which can be disconnected from France, but we think that this is a very small proportion and for now at least we haven't seen this distorting the tax amounts being totally transparent, taxes increasing. because digital services are on the rise and we haven't seen a disconnect between the global turnover of operators and a drop in tax because of more consumers choosing to change their IP addresses.

Thank you, very informative. Thank you.

Sorry. Nigeria, please go ahead.

Thanks, co-leader. Good morning, colleagues. Thank you for setting us on the good path to commence this discussion today. On the floor, the discussions around DST and VAT, we think it is important that we start on a very good footing because these two taxes are not the same. They are actually different, even though there might be a kind of uniform or the same base in their application, as it were. But when you talk about DST, the person that you are taxing is the service provider. That is the multinational enterprise that has rendered service through digital means. But when you are looking at value added tax, it is the consumer that is paying that tax. And in most jurisdictions, that could be a domestic issue because You have the right to tax your taxpayer, even if you place the obligation on the service provider to collect that tax. Who is paying the tax is just your taxpayer, that is your residents or people who had consumed the services in your jurisdictions. So we think this protocol should be limited to income from services, not necessarily value-added tax, so that we don't commingle it and not necessarily confusing ourselves. Thanks, Chair.

Thank you, Nigeria. We have Morocco and then Brazil. Please go ahead.

Hello. Thank you, Chair, and thank you, Liz, a lot.

Just to tell you that we support the position of Ghana and Nigeria. and we prefer to focus on the direct taxes.

If we can have something in the fall for Nairobi to be great because it will be too much to deal with that indirect taxes in this protocol.

Thank you. Thank you, Morocco. Let me just add, the thing is, you know, when we use the words direct and indirect, we need to define those words. That's the problem, because if my indirect tax works exactly the same way as a direct tax from my counterpart, we have a problem. So that's why I was grateful to Frans for raising the point, because I think there is a definition problem. In the end of -- I don't know, I mean, there's so much going on in this area now, but there are, you know, very difficult international discussions now going on. In the end of the day, the indirect tax comes back to the taxing of the provider. I think Nigeria said that, and, you know, and then the end of the day, it's just It's just the cost is in between, you know, the withholding is done locally. But so, you know, just if, you know, we need to keep in mind that just using the words is not always, you know, helpful. We need to say what we're talking about because people understand or countries understand direct, indirect excise taxes differently. And even, you know, it's complicated translating them. We in Spanish, I don't know if my Spanish colleagues, Spanish speaking colleagues have a word for it. It's a special tax, but is it indirect? Is it direct? I don't know. You know, it's so, you know, I think raising the issue is, was very useful and I think we need more input from you on it. Yeah, I am.

I think if I, yes, I would like to come, yes, I would like to comment on this because I think you yesterday given an example between Chile and USA about excise tax. If you can repeat this example because I think this example is very good illustration for what exactly you are saying and that we need to have a definition, especially when the name is indirect tax while the tax is behaving like direct tax. So if you can repeat this example so it can just freshen minds and everyone understand what exactly you mean.

Okay. So in our treaty with the United States, we discussed the withholding taxes on insurance services, cross-border, of course. So When we discussed that with them, we realized that in our legislation, there is a withholding tax, an income tax on insurance premiums paid cross-border. The US do not have that type of tax. They have what they call an federal excise tax. And I'm sort of having an expert on my side here, but as far as for my negotiation with the US, at least that's what they said that they had. And it worked exactly in the same way as our income tax. It was withholding at source. So we said, well, you know, we either include in the definition of taxes covered by our treaty your excise tax, or we take away the service. And so we opted for actually including it. So if you see after the definition of taxes for our tax treaty with the United States, it says income taxes and the excise tax on insurance premiums, because it was actually working in the same way as an income. So, you know, this is the background why I'm concerned when we just say we're going to include direct taxes and then, you know, well, you know, some countries use other taxes and they work exactly in the same way. And then, you know, we can sort of, you know, we can talk about different things. And that's why I think, you know, definitions are very important at this point. I don't know. Thank you.

Can I come in?

Yeah, sure.

Thank you, Lisa Lott.

And so I think to build a little bit on what Lisa Lott was saying, she cut through the sort of drafting of the excise tax.

But it also shows why it's so important to sort of.

Agree on what we want to cover and then figure out how to define it.

Because technically.

The federal excise tax is on the policy when it's issued by a non-US insurance company, but the tax is a percentage of the premium that is paid. So technically it's an excise tax on the policy, but as Lise-Lotte said, functionally it is a withholding tax. And so in treaties, it's covered by specifically referring to it. And I think that is-- it's in a lot of US treaties, and it is appropriate for the reasons that Lisa and Lotte described. But it also shows how getting caught up in the legalities or the titles could lead to asymmetries.

Which, you know, Lisa Lott has identified.

And I think it's important to focus on what we want to achieve and then figure.

Out how to define the taxes that are covered.

Thank you.

So, yes, I see less than the floor, but I think what Lisa, the questions that Lisa opened will open a big technical discussion right now to understand it because even here in the podium, I think we have different points. And when we are talking about the taxes which is named as a direct or indirect, but behaving in a different way, So this will let me go back to France when we are talking about the DST and whether the DST you are applying is a withholding tax. So the operator or financial institution are deducting from the payments going out from France to the MNE or you are collecting tax from the income earned by the users inside or how it's behaving. So I think I see France raising hand, but so we'll go through the floor one by one, but we will reach France and please just take a note of this question because we need to understand it better when we get to your turn. Okay, if you can explain to give a full reference to clarify it so everyone is coming on this topic just can put his comments. So France.

We, yes, chair. I was about to make some other comments, but I will save those for later when you give me the floor once again. To answer your question, it's a tax that is indirect, as I said, and I explained why, but it is declared by the taxpayer. It is not deducted at the time the transaction takes place. If the operator It's the operator themselves that annually must declare to the French tax administration, declare their revenues and the tax is then paid to France based on the principles that I mentioned earlier. I can go into those in more details if you wish. So that is a tax that is declared by the operator. So it is not withheld at source on any kind of outgoing or incoming payment. It is declared by the taxpayer in France. by the operator in France. And if often these are non established operators, but they do pay the tax in France.

So France again. So here you are saying that this tax which is paid by the taxpayer in France, is it right?

Exactly.

Yes, that's exactly right. If you provide the service, which is a digital service, there is a number of categories of these digital services that we have characterized as part of this system. So there are two thresholds. There is a global revenue number and a revenue figure that is attached to France. So that revenue, French revenue, So you take the global revenue and you take the ratio of French IP addresses to global IP addresses, and if that exceeds a certain threshold of X euros, then that revenue is then related to France and is taxable. And that is the number on which you pay a tax of 3%, which is the French tax rate, and that is something that the operator declares, submits a declaration to the French tax authorities and pays that tax.

Okay, so another, when you are saying operator, okay, maybe it's because of the interpretation, but like the word operator here you mean the operator, the telecommunication company, or you mean the operator, it's like the technology company which is, can be like Google, Facebook, whatever. So what do you mean by operator?

Okay, so I can just keep to English for this part.

I don't know if I'm allowed, but let's do it.

So basically, it's the enterprise actually rendered the service, right?

So I'm not going to name any company that is within scope.

You can imagine which ones are in the scope, but I'm not allowed to do and go that far.

So basically, who's paying the tax is the enterprise that is rendering the services that is within scope?

It makes an amount of turnover that is above a certain threshold worldwide and above a certain threshold in France.

Basically, who's bearing the tax economically at the end of the day?

I don't know. I guess it's like corporate income tax is not paid by the company that is paying. Obviously, it's an expense and basically that's how they.

Determine their prices, right.

So basically it's like paying another tax.

It's not like VAT where basically, legally speaking, it's the consumer that's paying, but I guess that.

The company that are paying the digital service tax are not bearing the tax.

Thank you. It's now clear and maybe you raised another point that personally I agree that sometimes all type of taxes, even income tax, for me, it's my personal opinion, it looks like it's an indirect tax, with the meaning of, because at the end, as I used to a little bit work in financial modeling, so again, all the companies at the end, as you said, it's expense and it's deposit during their pricing to the customer. So whether it's corporate tax or whether it's indirect tax. So again, it go because the company is targeting like a margin and the rich margin, then this impacts the pricing. In the pricing, there's a lot of other factors also that can control and change doing this. But as you said, you don't know who pays the taxes because they pass it through the pricing. You are right in this. Corporate tax sometimes, not sometimes, all the time is like this because it go to the customer. But Okay, that's good that we understood this example. I hope everyone also got it. So now we're going to move with the floor. So back to Lisa.

Thank you very much. And we have quite a lot of interventions now, so I'm very happy about this. Brazil, please go ahead.

Thank you, Madam Co-Lead. Although I think that it's maybe this forum could explore the DST as proposed by France. I don't think that it really addressed the concern of many countries here, especially developing countries, that I think that the recognize that the traditional system of taxing service which relies in physical presence is obsolete. I think that that's the main problem. So I think that although it could be considered by this forum, I don't think that it's enough. So you're starting with the definition of digital service. So at least in our understanding, it's really not enough. I think that that's why I really understand the position of Ghana, Nigeria and Morocco to also to explore to concentrate in income tax. So thank you.

Thank you, Brazil. I have Senegal and then Cameroon.

Merci, Madame.

Thank you, Madam Chair.

Saudi Arabia or Senegal? Because you opened my mic.

I'm sorry, but we don't actually have Saudi Arabia. I don't know why. Oh, now you came up. But I agree, you were on before, but then it disappeared. But let's take Senegal first, and then I saw that you were there, Saudi Arabia, so you can go after Senegal. Please go ahead, Senegal.

Thank you, Madam Chair. I think you've already formulated the problem. The first problem is a conceptual one. Are we talking about revenue tax or indirect tax? And I think as Morocco, Nigeria, Ghana, and Brazil pointed out, our first issue, our first problem is how do we tax profits that were made by multinational enterprises that are not physically present in our countries? and that cannot be taxed according to current rules. And that is an issue of revenue taxation. It's not an indirect tax or VAT issue. What France described also exists in Senegal. We have that mechanism, and that is what we call the VAT on digital services, where the actual taxpayer, which is the platform that is required to register electronically in Senegal and will have a tax identification number on the basis of which it will be required to declare its revenue and pay taxes in Senegal. This issue is not a problem in our country. Intermediary services, publicity services provided to consumers in Senegal by providers outside of Senegal are being reflected and taxed in Senegal, I think that issue we've already addressed. What we need to, in my view, explore is that if we are to talk about a tax on digital services that will work like a revenue tax, at that point we are open to provisions of this nature But in a way that the multinational enterprise would be taxed on its profits made in Senegal compared to its global revenues. So it will be taxed on the revenue that is made in Senegal. And we would continue applying our digital services tax, which works as VAT and which is indirect. So these are two completely different Let us do our best to avoid confusion and focus on revenue taxation if we really want to address the issue of, uh, this inability to tax certain services that are provided in Senegal, thank you.

So to Senegal, I think you mentioned in your intervention now that you have something similar to France. And I think what you mentioned is a VAT on non-resident, which we understand, of course, and yes, it's applicable and applied in many countries, while France, they was describing the DST is different from the VAT on non-residents. So they are not similar, just not to get the floor confused with like the one you have is VAT on non-residents, which in which the platform is like registered in your country for the purpose of collecting the VAT from the users and just pay it to your local authorities. What France is saying, I think, if I understand, it's different from this simplified registration that takes place for non-residents in many countries. Just as it's committed from my side for clarification, but again to your point that we need to differentiate between the domestic taxes we are collecting from our consumers, which is VAT or GST or whatever, is different from what we are talking about that It is the portion of each country in the profit that the MNEs are generating by having the remote hands inside our countries in which they create the economic value through the users, through whatever, in which the value is created. Then these profits need to be taxed and apportioned to different countries based on the value created. So this is, yes, there are different topics. that we are referring to here. I think for the one related to the VAT and how the countries can collect the VAT from their people and the platforms can contribute in this, I think to a large extent this is well established and there is rules for it and many countries are applying it. So here when we are talking about whether to go for indirect tax or direct tax in our protocol, I think the indirect tax, there is some well established rules that is already working now, so we don't have gap in the rules in which we are applying. Maybe some countries need like sort of capacity building and how to apply it or some technology or whatever, but again the rules is At least to large extent will settle till, till the moment, while I think in the other side, if we're talking about the income tax, which is the income on the profits generated in our countries by the MNEs, this is where we have a gap, there is no rules that cover this now that, that's, I think this is the main discussion that, that's aimed to by, by, by our meetings or by this forum. to talk about it. Nevertheless, later on we can go and enhance the rules related to the indirect, of course, no one can say no for this if needed, but I think better first to look at where we have a big gap and actually there is no rules now that exist to help countries to collect this type of revenues. Thank you, back to Lisa.

Thank you, Chair. I think that was also very clarifying intervention that was helpful for the discussion, I hope. So I now have Saudi Arabia. Please go ahead. And then after that, Cameroon. Please go ahead, Saudi Arabia.

Thank you so much. Maybe back to the point on VAT and GST and direct and indirect taxes. And I think as we have stated yesterday, we prefer that the focus continue to be on the most pressing issues that most of us here in the room are facing today, which is definitely not VAT. And maybe as highlighted by the chair, VAT is being collected today and being imposed. And the focus should be on income taxes. I do understand that. When we talk about DST, we are saying this is indirect taxes, but that is a tax that is imposed on top of VAT and that's imposed in lieu of corporate income taxes as an alternative to corporate income taxes. And there are some literatures also that have looked to the DST implemented by some jurisdictions and they try to work out why it is 3% or 2% or 4%. And they found out that it is a function of the average profit margin of these type of businesses multiplied by the domestic tax rate, corporate income tax rate. And that gives the percentage which if you multiply it by the revenue, you get what should be the corporate income tax that should have been paid. And that's the mechanism of how to impose corporate income tax. And that's something. that we are not saying not to be explored, but that to be explored to address the issues of corporate income tax not being paid, rather than going and talking about VAT and how we should collect VAT. And maybe also, as stated by the Chair, improvement can be done when it comes to VAT, but I don't think it is the most pressing issues that all of us are facing or have today. Thank you.

Thank you for that, Saudi Arabia. Cameroon, please go ahead.

Thank you, Madam Chair, for giving us the floor. I think much has already been said on the issue of the nature of the tax that needs to be collected in the context of these discussions. The position that I would like to raise is in line with what has already been said by other countries such as Ghana, Nigeria, Senegal, Saudi Arabia as well, and Morocco. From our point of view as well, the issue is not tax on it's not a VAT or indirect tax. The Chair has already recalled that the rules already been established and there's some consensus regarding the allocation of tax rights when it comes to indirect taxing. It's the principle of destination, so where the consumption took place that the tax needs to be collected with various details that depend on whether these are material or immaterial services tied to specific territory. I think the rules in this regard are more or less fixed and many countries are already applying these rules specifically, for example, VAT paid by multinationals in the country where the services are being consumed in Cameroon as well. Since 2022, companies registered in Cameroon declare their revenues and pay VAT. But the issue is taxing revenue generated by these MNEs, and that's where we need to find proposals and solutions. I noticed that the real challenge is in the provisions negotiated in tax conventions, many countries face these challenges because the conventions do not recognize a taxation right based on the new criteria that we discussed last week, namely the criteria of creation of added value, revenue generation, in addition to the traditional criteria of physical presence. So if the obstacle is in these tax conventions, then we need to find a way to address these obstacles to overcome them by putting down rules that would allow to adjust all of these tax conventions. France was saying just now that when they needed to address the issue of taxing MNEs, the problem that they faced, the challenge that they faced was that they had a tax treaty network that was fairly broad and that prevented them from taxing revenues from MNEs that were residents in those countries with which we already had agreements, and that's why they introduced the digital service tax. So this is clearly a challenge that many countries will face. When we consider solutions, we need to find a mechanism that would allow to bypass this obstacle that is related to tax conventions that are already in effect. Thank you.

Thank you very much, Kamerun. I have Italy and then Ghana. Please go ahead.

Thank you, Chair, and good morning, everybody. We saw merit in the intervention from the distinguished delegate from France. We think that at this stage of the exercise, we should really be open-minded and confrontate also technical view. Under the technical point of view, we have to investigate more, as Lisa said, on the true nature of taxes. Because apart from their name, we should perhaps international work try to define some characteristic that may push us to find an agreement on what are the taxes that we want to cover.

Technically speaking, this is not an easy exercise.

Technically speaking, we know that some withholding on some kind of payments or mixed payment do not exactly qualify to be income taxes.

We have similarity with the system France described as for DST.

And now perhaps it's not the time to concentrate on position but the time to be more technical in the intercession or whenever in order to go to the substance of taxes and try really to define some of the characteristic that

can bring us to an agreement to the real coverage of this new protocol.

Thank you.

Thank you very much, Italy. So, I have Ghana and then Switzerland. So, please go ahead, Ghana.

Thank you, Chair, for the opportunity to speak again. A few issues were raised when the excise example was being given. And I think one of the issues was the difference between direct and indirect taxes, and sometimes it can get blurred. I think I'll thank Italy for what they just said because then maybe we can move to the characteristic. We are talking about consumption taxes and income taxes, a tax on transactions, a tax on income. Maybe if we define it that way, it makes it easier for all of us since the protocol talks about income from provision of services and not the consumption of the service, the first one. Now, the issue of the excise, at least in Ghana, the excise is on local production, is the ex-factory price, on the ex-factory price. It is that import is on the import value. That money is paid upfront, especially on domestic level, by the manufacturer. The manufacturer pays it but charges it in the price, part of the price of the item. So it's basically the consumer that pays it. Then it's the consumer. So it's on the transaction. It's not paid by the destination. It's basically similar to withholding. And the trap of withholding, as I call it, is the misnomer that it is. We always say withholding taxes, but basically withholding is a collection mechanism. It is not a tax. So if I ask the person paying, buying the product that you, the manufacturer, collect the excise at the X factory point, it's basically withholding that the person is withholding and paying it to the tax authority. If there's withholding on income and we have a withholding on VAT, it doesn't make the VAT an income tax. It's still VAT that the withholding is being done on. So maybe if we look at, if not fall into the trap of the misnomer, it will help us and then that dichotomy, is it provision of services we are taxing or is it transaction that we are taxing? I think maybe that will help with the definition so that we can concentrate on income and look at the other ones later. Thank you.

Thank you very much for that, Ghana. And I think absolutely, I think we're raising extremely interesting technical issues here. And I think that's what, you know, like Italy and France and Ghana now, I think we need to be very clear about the details because the name sometimes does not square with the actual way something is taxed. I mean, just as an example from a discussion I had with some technical people, their DST and I asked, well, what is the difference between your DST and an income tax? And I said, well, and they said, it's withhold on gross. So I said, well, what's the difference between withholding in a tax treaty on royalties, which is withholding on gross on the transaction and your DST? and I didn't get any response. So, you know, we need to really go down deep in the technical data. So thank you, Ghana. Thank you for that intervention. Switzerland and then Sweden.

Thank you, Madam Chair. I'm glad we're having this important discussion because it's been one we've been having for many years now, and I think it is quite key to the whole DST problematic. As been illustrated by many speakers, there is a gray zone between direct and indirect taxes, especially relating to DSTs. And for me, I mean, the title of the tax doesn't really matter. The key is which taxes, which DSTs are covered by tax treaties and which are not. And that distinction is crucial because For countries who want to apply a DST in an efficient manner, it might be easier if they have lots of tax treaties to try to craft their DST in a way that it's not covered by tax treaties. But as highlighted by my distinguished colleague from Saudi Arabia, this DST is on top of VAT, so I don't think here we're trying to open the discussion to DSTs. but it seems to me important at this point to stay open-minded to all types of DSTs, ones that would be covered by tax treaties and those that wouldn't, and in what situations are you, are you not, that's still gray in certain situations. It's a discussion we already had back in 2018 regarding a EU DST at the beginning of the pillar discussions. So I think at this point, it's important to keep the table open for both types. I think the example with Chile and the US illustrates that the excise tax is not an income tax per se, but you have to add it in your tax treaty for it to be covered. So it means it's a similar function. So in a certain way, there are certain types of taxes that are in between direct, it seems to me, and indirect, kind of in a middle zone, if that's possible. So we look forward to discussing this subject further.

Thank you, Switzerland.

So back to Switzerland, yes, absolutely you are right. But maybe my intervention I was trying to say that yes, both of them, both topics, both items should stay in the table because there's some are income and some are looks like indirect but they are acting. in a different way. And this is back to the examples that I think Lisa gave to us at the beginning. What I'm trying to say, it can be postponed a little bit, is the collection, the direct collection of the domestic indirect tax. This is which is, we were referring that it's well settled and maybe it's not to the core of our discussion right now, but to your point, yes, I think Both of them need because we need to define the covered taxes and what we mean by taxes that will be in scope as an income driven from services. Thank you.

That's it.

That was from him.

I said that.

Thank you, Chair Egypt. Sweden, please, and then Colombia. Please go ahead, Sweden.

Thank you, Chair. I think sometimes Switzerland is confused by Sweden and the opposite, and I felt that I was starting my first intervention was, or my intervention here, and good morning, everyone, was a bit like Switzerland, my first part of it, so I think it's important to be open-minded, and I think also that it's very important that we really look at the definition and the -- so that we are on the same page here. And I would also like to go back a bit to give you some flesh on the bone, maybe, with the Swedish experience, which was a bit what you described in the start. I mean, we have had the VAT since the 1960s, and, uh, we also have excise taxes, we have today 18, it's been a big revenue, uh, um, in bringer for us. So I mean, we call them indirect taxes, but I can say two things on that. One thing, the first thing is that I've been asked actually to include the VAT in our tax treaties because there is a lot of double taxation going on here. So for sure it would be great, I guess, to have some kind of system to avoid that, but also to take the point that that might be too early. for us to do that, but we also had actually had a lot of discussion on all our excise taxes, whether they are direct taxes included in the tax treaties or if they are not. And we also had the exact same experience as was described with the US-Chilean experience for insurance premiums where we have now changed our system, but that was also a big discussion. And, by the way, we also have things being challenged in courts. So it shows how important this discussion is that we are really having. So I think that is something that we should really spend a lot of time so we not, as you said, Chair, look at the name, but we also look at the features of the different taxes. Second, I also want just shortly to comment on France because I think that it was a very important question by the, shall I say, well, main chair or by Rami to France. I mean, who will bear the tax? And I think that is something you can only guess. I can tell you that in my experience, probably a 3% tax aiming at some giant companies would hit Swedish startups. It will hit companies that have very low margins because I know that there are such. So I just want to also revert back to the net-based option and how important that you might think that it's the -- I mean, I think personally that it's really divided, and that brings me to my third point that this shows again why we really need to have an economic analysis. We need to know, I mean if you introduce a tax you need to know who's paying it, who is the target, and what will happen, what will be the impact on it. And I think that's something that, well, it depends on, of course, which table you're sitting on, but But here, I think also the investment situation and that net growth space plays in here. So my two points was that, yeah, please, we have to be open-minded, and define what we're talking about, and we also have to really have to be very assured that we need economic analysis for this. Thank you so much.

Thank you very much, Sweden. I think you raised many points that are important. And one of the things that I think what we have we are really realizing, and it's good because we have so many actors in the room, is that we need a technical analysis and hear from you on the experiences you have and your different types of ways of taxing. So this has been very interesting, I think. Thank you. We have Colombia. And then Estonia, please. Would you wait a little bit because the chair wants to say something, the real chair?

Thank you. But yes, I agree with Sweden about the analysis, but just I would like to bring the attention of everyone that the analysis start from here, from this discussion. Because if you're gonna look at our internal discussions with the secretariat, you'll find while we are working out, We usually refer to the cases raised in the room. So you find like, with Richard telling me like, ah, but do you remember that X country mentioned that this, oh, so we need to consider this. And so the analysis actually starting from here, we can't go in our offices and start working on the analysis out of nothing. So what you're raising here is the start, this is the first part of the analysis. This is a gap analysis for the impact analysis. So, uh, so just letting you know that actually now we are doing the analysis, which of course I know what you mean by the impact analysis, but like we are getting to it, but this is the first step in it. So thank you for, for, for, for your contribution in doing this. Thank you.

Um, thank you, real chair Colombia, please. And then Estonia.

Muchas gracias.

Thank you. We agree with what was mentioned by the co-lead about the distinction between direct and indirect taxes and how that's particularly connected to these cross-border services. As such, we believe it's vital that we clearly and explicitly state what direct taxation is for the purposes of the protocol. We need to bear in mind that direct taxes have mechanisms for payment with withholding at source, which should be the final form of taxation when imposed on non-residents. There's gross taxation possible here too. And in Colombia, there are mechanisms for payment of gross income, which is what happens when operators have a significant economic presence. We have a 3% rate for such taxes, which happens to be the same as digital service tax in France. This is significantly lower than domestic taxpayers. These payment mechanisms for direct taxes work on the same basis as indirect taxes operationally. This is very important for the cross-border services we're discussing. Given this, we think it's vital that we very clearly explicitly state what an indirect tax is, and this definition needs to be including the payment mechanisms for gross taxation on non-residents. We also think that the protocol should include, without prejudice to domestic legislation, other taxes for services, whether gross or otherwise, and these need to be specific examples. We need to also look at alternative payment mechanisms different to what we mentioned earlier. We think this is necessary so that many digital services which have been mentioned in our discussions be included within the protocol without prejudice to classification at domestic level as direct or indirect. Thank you.

Thank you, Colombia. That was rather quick. I don't know how the interpretation was, says the Chair, but I think I understood as best I could. Thank you.

Estonia and then United Arab Emirates. Please go ahead, Estonia.

Thank you. I thought I would also contribute to this confusion between different types of taxes and I agree that we probably are using these terms here in our I mean, we say the same words, but we may mean different things here. And if we're talking about income taxes versus the, let's say, value added taxes, and then the indirect versus the direct, then neither the OECD nor the UN model are very helpful in defining the income tax, for example, because paragraph two of article two of both of the model conventions provides that an income tax is a tax on income. And that's talking about the circular definition. So if we manage to come up with something better, then I think we can congratulate ourselves. But that is also one of the reasons why there has been no clear, why it hasn't been possible to draw a clear line between the income tax and let's say then non-income taxes that couldn't or shouldn't be covered by the tax treaties. And with all this discussion about the VAT versus the, let's stick to the corporate income tax for a while, I thought of an example that could further confuse this conversation and I'll give it to you. For example, if there's a company in Estonia that is providing, sorry, buying a digital service, from a company that is established in another EU member state for the VAT purposes, meaning that it has a VAT number there, then when the Estonian company receives an invoice for that service, it has to show that the reverse VAT charge has to be applied. And this means that the Estonian company adds the amount of VAT to the amount specified in that invoice and at the same time deducts this amount of VAT, which means that in the end the amount of VAT to be paid is zero, but yet the transaction has been subject to the VAT in Estonia. It says that the company has the right to deduct the input VAT to avoid the cascading effects. Now, if we had withholding tax on that kind of service. Then the amount of tax to be withheld or paid would depend on the agreement between the service provider and then the Estonian company. If it should be crossed up, meaning that the service provider wants to receive in net the amount indicated on this invoice, then the tax base for the VAT and what we would call a corporate income tax would be exactly the same. So, how do you really make a difference there? And if the VAT was actually never paid, then it's also difficult to talk about the incidence of taxation. Now, if there's a cross-up, who would bear the tax burden? Would it be the Estonian company? And perhaps depending on the market situation, they could pass it on either to the customers, perhaps reduce the salaries of the employees, or maybe the shareholders would receive less profits. So it's highly dependent on the particular circumstances. So what I'm getting at here is that, yes, let's try to sort of narrow down the discussion. It doesn't mean that we should just, you know, keep pushing the subjects or discussion subjects off the table. But just to know prioritizing the work. I still think we should also, you know, address everything in order to be successful here. But we also need to be clear what we are talking about. Thank you.

Thank you, Sonia. And thank you for your example. It's a very practical example that's happening every day, actually. Especially when you are talking about the withholding tax and that the vendor is asking to be closed up. I think this has happened all the time. and you make it more, a little bit more complicated by adding the VAT to it. But, but I, I think the VAT line of the transaction is, is a little bit clear. Yes, of course, the tax pays for the VAT will change based on the grossing up that will happen because of the withholding tax. And it will impact in a way or another. But I think because this is a discussion that was between me and Patricia about when we are talking about the withholding tax, what is the withholding tax? I think it's income tax. It's sort of income tax. It was hold on the income being for the value of the service being rendered. So they will hold tax at the source country, right? Which is Estonia here if I understand your transaction in right way. And then the reason will come why the EU member state, which is second member state, wherever it's based, are asking for the grossing up if they can deduct this as a tax credit, as a foreign tax credit. But I think that the issue comes all the time when the other member state is not allowing this deductibility or in more precise words, or limiting the deductibility of the foreign tax, which pushes the vendor in the second country in this case not to accept this because it's additional cost for the country because while it's supposed not to be, of course there is different cases. trying to talk about the common one because it depends maybe this country, this company in the other member state is exempted, then they are not willing to pay any taxes. There is many cases that can exist. I don't think we are now to list it all, but the question, if you are talking about the grossing up, so why they need to gross it up? Because this grossing up you mentioned, if I understand your transaction, is the one who cause all this change in the tax base for the VAT and for everything. So this is a question from my side. What is the reason that prevent the other member state from deducting the withholding tax? Thank you. Are you coming back on this? Yes, please, just Tony.

Well, what we have seen, the gross up has nothing to do with how the country treats the tax. Because while I can speak for Estonia, the withholding tax would be, you know, it is creditable and it's a matter of the agreement between the businesses involved. If the service provider sets this as a condition that they want to receive the net amount and in the agreement between the service provider and let's call it a business consumer, it is stated that all the taxes and other costs are being borne by the service consumer or the company that pays for the services, then this is a matter between two private actors and we do not regulate this in the government level in any manner. It's just that something we see that may lead in the over taxation if the withholding tax is very high. And it also means that in the country where the service provider is a resident, they would have a higher tax amount to be credited later on because for tax purposes, whether it's crossed up or not, it's still a withholding tax. And if we have a tax treaty to the other country, has the obligation to relieve the double taxation. I'm not sure if I answered your question, but my main point was that this has nothing to do with how the taxes are credited under our legislation, but it's only the agreement between two companies. And again, depending on their power in these negotiations, if we are talking about actors of very different size, let's say Facebook versus a small company, then the small company really can't say that sorry, I won't cross it up. You want to buy the advertising or not, I think there's the choice.

I think, yes, it's, it's, it's, it's like an sort of agree agreement between two parties, but what drives this, this type of agreements or, or, or to reach this agreement is the tax rules that exist, whether in the tax treaty or in, in the domestic, this what drives them to, to move forward. Uh, but, uh, yeah, I understand your example and let's see the reflection of the floor on, on, on this example. Uh, so. It's France. Now, distinguished delegate of France.

No, no, I think it's United Arab Emirates.

Oh, sorry.

Thank you, chairs. So, look, I think there's clearly been a lot of discussion already around the distinction between direct and indirect taxes, and I don't want to repeat that, but I think as typical tax people, we seem to get I'm really bogged down and obsessed with definitions. I think the points that Angela made from Sweden around looking at particularly how the tax is collected or who ultimately bears this tax is a more useful approach. So I think whether this room could think about a particular hallmarks that would be actually more useful rather than relying on different definitions. I think that's one aspect that we would like to raise. The second aspect is really around, it's not focusing on that discussion that's happened so far this morning, but it's more on, I think, the point Lisa Lot you made yesterday around what does the issues note not actually address or not touch on. And there is small references to this, but from our perspective, I think it is also, there's no mention of any exceptions that could potentially apply to what we're looking at. And of course, obviously, there's been a lot of work in other international fora around what potential exceptions could be to certain digital services or a pillar one type of tax. And we're not saying that those necessarily need to be defined right now, but I think there is a recognition that there should be some sort of some room, at least for exceptions to be considered, particularly for those businesses that don't represent a physical presence risk. And the final point really is the fact that And again, it's around what potentially may or may not be missing in the issues note, but it certainly doesn't seem to have been addressed so far in these discussions. And that is, or where it has, it seems to be to some extent quite simplified. So the fact that there's this underlying assumption that the implementation or administration of a withholding tax is relatively easy. Um, we agree that that is quite easy if it's, uh, if we're talking about a corporate, but as far as I'm aware, I don't think we've actually defined that this, the scope of these taxes could be limited to just corporates or related party context. So if the idea is, is that, these rules would apply to individuals, then the actual reality of that working in practice is a nightmare. And I think we should address that because, as we all know, there's no point devising policies that just won't work in practice from an administration perspective. So again, from our end, I think we would like the discussion to really try and focus also on the reality and the practical realities of some of these of these rules actually working when they apply to different taxpayers or different bases. Thank you.

Thank you for that, and I think I absolutely agree. Before we come to the definitions, we really need to look into how these things are actually working in reality, the practical reality, and then we will look into the definitions. So absolutely, I think that's clear. Thank you. I am actually going to give the floor to countries or members who have not spoken before. So I will start with China and then Liberia. Please go ahead, China. Thank you.

Chairs, delegates and colleagues, good morning.

We believe that a new tax rules should be neutral, simple.

And easy to operate, it should not only.

Facilitate tax collection by tax authorities of various countries and ensure taxpayers reasonable tax obligations in relevant countries.

But also avoid double taxation, excessive taxation.

Uh, or taxpayers uncertainty as to how much they need to pay and avoid distorting taxpayers normal business and investment.

Decisions, for example, having multiple rules for cross-border services and income sources and next.

Rule, a nexus rule, is likely to lead to complication.

Certain services are taxed on the service fee in some countries, others.

Taxed in the country where the IP address is located, and still others taxed on the basis of where the.

Taxpayer resides.

This will lead to double taxation and cross-border tax disputes that are difficult to eliminate. Another example is the gross basis taxation for cross-border services. This is likely to lead to over taxation and taxpayers couldn't generate reasonable returns from their normal operations.

We hope that the new international.

Tax rules will have sufficient tax certainty to effectively address double taxation rather than leading to double taxation.

We would also want to allow taxpayers to pay income tax in the country where the profit is generated.

Thank you.

Thank you very much. I could hear it, but you spoke very fast. So please, please, for the translation, if you could be a bit slower, because we don't want to make them suffer too much.

Actually, the translator, the interpreters, they suffer because of some translation. And from my side also, I'm suffering because I'm hearing very fast. I need to, so please, like, Anyone who is not an English speaker or using any language other than English, please, I'm repeating these requests, just try to speak slowly so the interpreters can just be-- give them some easy time and also for me to understand.

Thank you. Thank you. So I have Liberia and then Kenya.

Thank you, Chair, and good morning to everyone. Since it's my first time taking the floor, Chair, the conversation in the room this morning is an indication of the difficulties which lie ahead in terms of decision making with respect to taxation, decisions surrounding taxation. We can continue this decision for weeks and months. and it's going to be difficult to arrive at a consensus because of the peculiarity to different nations about tax decisions. I know there has been a conversation in the rooms around, I mean a lot of previous speakers have commented on open-mindedness about the conversation, it's true, but I also like to emphasize that as much as we should be open-minded, I think we should narrow down the conversation. I would like to join my colleagues who from Morocco, Nigeria, and Ghana that we should keep our focus on redefining the nexus and mechanism for taxing economic operators with remote presence in our respective tax jurisdictions. with a primary focus on income derived from such remote economic activities in light of the evolution in the global business environment. Thank you, Chair.

Thank you very much for that, Liberia. So Kenya and then Norway. Please go ahead, Kenya.

Thank you, Chair. Before we give an example of how we've adapted our nexus rules, I think it would just be good to answer maybe the first question that we have on the screen. And our interventions so far have essentially been towards the need for formulation of new nexus rules because the current rules have not taken into account the capacities or concerns or even the contributions that are being made by market jurisdictions. And in addition to this, another factor which we've seen actually cuts across both resident and source jurisdictions or market jurisdictions is the fact that the current rules have essentially been overtaken by events because the way services were being provided 30 years ago is not the way they are being provided now. A company that had to send a consultant physically to the market restriction to earn income from that jurisdiction now just needs to put that consultant in front of a computer in the resident jurisdiction. So what was applicable 30 years ago or more is not applicable now. So we definitely see the need for new nexus rules. And one of the ways that we have adapted our nexus rules is by introducing a digital service tax, which has over time evolved into a significant economic presence test. and the way we implement our tax, our significant economic presence tax is we will impose this tax on the income of a non-resident that is being derived from our jurisdiction and the basis of that is having a user being located in our jurisdiction. We initially had a turnover threshold but this is currently being reviewed. the tax that is then imposed is on a deemed profit which is taken as a percentage on the gross turnover. So this is clearly a move away from the requirement for physical presence. And for the second question which is related on whether there is continued role of physical presence, we have submitted that physical presence is clearly no longer no longer has the role that it used to have in terms of whether the market jurisdiction should impose tax or not. So since physical presence is no longer a requirement for a company to derive income from our jurisdiction, we don't think that it should be a factor that is used to determine whether the market jurisdiction should impose its tax or not. On the discussion on net and gross basis, I believe we touched on that yesterday, so we won't repeat our comments then. And then on the possibility of different rules for different types of services, the way we would foresee this is, as we'd said yesterday, in terms of imposing a gross basis of taxation for certain types of income and formula reapportionment for others, especially in the digital economy. But we do struggle with the proposal on having different rates for what is being called low margin services because we don't see how that term could possibly be conclusively defined. Because what is a low margin service in one industry or in one sector could be a high margin service in another sector. And we also know that having a differentiated rate or a lower rate will inevitably lead to recharacterization of that income or even to abuse so that the lower tax rate can be taken advantage of. So we struggle with that proposal for a lower rate for low margin services, again, because how do we define that conclusively? And then just to clarify on the discussion yesterday on economic analysis, I do believe that I said the provision was in paragraph five of the guidance on intercessional work and not on the terms of reference. And the reason for that reference was just to show that that is a rule that had already been given to the Secretariat. And just to agree with what the Chair has just said right now, that the current discussions that we are having in this room and in the work streams are part of the analysis that is needed. And that the impact analysis that is being called for, as much as it would provide useful information, should not be used as a prerequisite for the discussions that we have and should not be used to slow down the conversations that we have. to limit that we should also look at the restricted time that we have to perform this work. So the discussions that we have are part of the analysis that is required. Thank you, Chair.

Thank you very much, Kenya. Norway and then Austria. Please go ahead, Norway.

Thank you, Madam colleague, and good morning to everybody. This discussion has been both confusing and clarifying at the same time, if that's possible. And I think that what I take from this discussion is that there are many possible options here. Nevertheless, I think I come back to a point I think was raised by Austria yesterday, that it seems that member states are raising a number of different issues that they would like to address under the current system and they are somewhat different in nature. And I think that going forward it could be useful that we are more clear about the different issues that are raised because I think that can inform us on the type of options that could be relevant and could better best address the different issues. There is, for example, the issue of businesses being carrying on without the physical presence. That seems like one issue and that is an issue that has emerged over the past 20 years perhaps, but there is also the issue of administering transfer pricing and that is sometimes overlapping but it can also be a very distinct issue. So I think it's -- and there's also the issue of base erosion in broad terms. So I think it's good to have more clarity and try to distinguish these different issues going forward because it's not necessarily the case that one solution would be the best to address these different issues if we are trying to tackle all of them at the same time. But I come back to my point from yesterday, and I think it has been mentioned here quite a few times this morning, that in the end, it is the economic -- we have to be mindful of the economic effects of what we choose to do here. And for businesses, it remains a fact that they need to be profitable. If they cannot derive a profit, then they cannot do business and they cannot provide services. And many businesses provide services that are necessary to to provide the welfare that we ultimately as societies want to provide to our citizens. So I think it's quite important that we take care to understand the effects of the solutions that we are discussing here. And ultimately, we cannot decide how the market will address the additional costs that, for example, withholding tax will bring. So they will try to recover that cost at any, otherwise they cannot do business, and that will ultimately be passed on to the customer in the end. We think that from a revenue raising capability, of course, a VAT is superior to any income tax because they will, by their very nature, raise more revenue. They are easier to administer, but I think we should also discuss when different taxes, like income tax or VAT, are the correct measures and the best measures. I think I'll stop there. Thank you.

Thank you, Norway. Yeah, it might be confusing, but I do think the floor is really open to raise all the issues that we want to listen to. And I think we don't want to go ahead, though, ahead of our times. Solutions and why we will take a solution is later on. But I really think that we are doing really well listening to the issues that are being raised by members. So I would like you to carry on with that raising issues, even if it is a bit confusing. So please go ahead, Austria and then Jamaica.

Thank you, Colite. And it's very convenient that I'm coming right after my distinguished colleague from Norway, because I think I also would like to add an experience from Austria resulting from her comments. have some other points, but the reason why I think that it's really important to have to look at different problems and differentiate also what the problems are in technical terms, not only facts, but really, is it a question of lack of physical presence, is it something else? Because I heard yesterday a lot of interventions that were hesitating with the deductibility of, for example, management fees in an intercompany context, so that is clearly a transfer pricing question, and then proposing to solve this with a one-size-fits-all withholding tax on gross payments. And then I'm putting that solution into the Austrian context when we have businesses that are providing construction services abroad. They don't have any subsidiaries anywhere. This is just a purely project-based business. And I'm wondering if that would then lead to a situation where if you don't have a construction site PE, which would entail net taxation, you have gross-based taxation of all the revenue from this one project. And if that is the case, I'm not sure if there will be a lot of projects in infrastructure, other areas in certain source countries, because it would just not be feasible to have a very high withholding tax on this. So this is just one example where I wanted to point out that it's important to talk about different solutions for different types of services in that sense. And I think another example, and that's now coming back to what was discussed more today with the digital question, Austria also has a digital advertising tax, so not a general services tax, but a digital advertising tax. And we're also willing to withdraw it once we have a global solution for these new business models. Our DST is an excise tax, but we would replace it eventually, would be happy to replace it with something similar to Pillar One, which is an income tax solution. So it also shows, I think, that we have a certain challenge and there are different solutions to address it. And I think it's -- we have to start from the challenge and then have the different solutions that we're talking about. And so I'm not so sure if it's so important to find a definition of what is an indirect tax or what is a direct tax, but it's more about the question of what is the concrete proposal that we're talking about and then compare them. And, and I'm, like I said just now, also coming from that side, there's not one-size-fits-all solution for, there is the, the problem with digital services and there's the problem with, with, uh, intercompany, uh, base eroding payments. And so I think, um, at the end of the day, we have to look at the different solutions, uh, compare them and see what, what can best fit. what can be implemented also in a coordinated way. And I think that's also very important because that's why we're here, right? We want something coordinated. Just one word on the VAT question. I think all the time that I discuss with my colleagues from VAT, they laugh at me because they say, oh, poor you, you're still talking about digital. We've come up with a solution easy because VAT is a consumption tax. So they have a destination based principle implemented already. But it's different because income tax usually is not destination based. And so it's a more nuanced discussion necessary here. Yeah, long intervention, but I think I got all my points. Thank you.

Thank you very much, Austrian. And no problem, we do have time. We have all afternoon as well. So please, you know, please provide us with your examples and it's very helpful because I think that is taking, you know, use, effective use of our time, which is very valuable. So thank you for that. Jamaica and then India, please go ahead.

Thank you, thank you, Chair. Yesterday, Chair, I raised the issue of indirect taxes in the context of the issue note. And I raised it not as an alternative to the protocol dealing with corporate tax. It was not an alternative. I raised it just to find out whether or not it had been discussed in the work stream. And the reason for that is because developing countries are not homogeneous. There are developing countries that do not have income tax or corporate tax systems. Nevertheless, they too want to mobilise their domestic resources, and so my submissions had to do with whether the workstream had looked at the alternative of suggesting to some countries that if you are not able to, if you don't have corporate income tax or income tax and can't impose those on cross-border services, then perhaps you could consider a VAT on digital services. So that was the context in which my comments were made. So my intervention today here is very non-technical. I want to-- and part of the reason-- I'm from a region where a lot of the countries do not have corporate or income tax systems, but they have signed on to this framework convention project. And so therefore, it was in their interest that I raised this issue. Our experience in Jamaica, we are currently carrying out a reform of taxes, and we are looking at VAT on digital services. And we got impact analysis done, and the revenue that was projected from that impact analysis far surpassed what we would have gotten if it was corporate tax on digital services. And so, you know, as I said, this, I'm just sharing from our experience. So it is not to say that We are against the protocol dealing with corporate taxes. I'm just thinking that there are other countries that may not have that option.

Thank you very much for that clarification, Jamaica. And I think point taken. And I think also the chair mentioned about capacity building in some areas, and I think we need to keep that on our table because of the reasons that you explained. Thank you. India, please go ahead.

Thank you, Chair. On the issue of the discussion on DST, which has been initiated by France, I would like to highlight India's experience in this regard. We introduced the equalization levy, which is otherwise known as DST globally, in 2016. And it was a standalone tax measure to address the challenges of taxing digital businesses that operate in India without a physical presence. Initially, the levy was applied at 6% on B2B payments exceeding INR 0.1 million, which is approximately USD $1,500 made to non-residents for online advertisements and related services. In 2020, we widened its scope to include a 2% levy on e-commerce operators, that is non-residents operating online platforms for the sale of goods or services, where the transactions involved either Indian residents or users accessing the platform from an Indian IP address. This 2% EL was payable by the e-commerce operator on the consideration received or receivables. We provided exemptions from this levy in case non-residents have permanent establishment in India or services which are already subject to 6% EL and entities with annual revenue threshold below INR 20 million. And we also provided for different administrative obligations for the different categories. So like 6% EL was to be withheld by the Indian pair while the 2% EL was to be self-assessed and paid by the non-resident e-commerce operator. We do realize that our EL did play a role in mobilizing revenue from the digital economy. However, its implementation also revealed various operational and policy challenges, including overlapping issues with the existing income categories, such as royalties or fee for technical services, uncertainties in coordinating with our GST obligations, which is VAT, an administrative complexity disproportionate to the revenue collected. And in practice, the revenue generated through the EL or DST, as globally known, was significantly lower than the compliance and administrative burden it imposed on both taxpayers and the tax administration. And therefore, our experience suggests that a digital service tax or equalization levy alone is unlikely to meet the revenue expectations from the growing digital economy. And we believe that there is a need for a more comprehensive and structured framework that recognizes and quantifies the value of user data, network effects, digital contributions, and that should form part of the broader future tax reforms that reflect the long-term sustainability of the tax base. Thank you, Chair.

Thank you, India, for sharing that valuable experience from 2016. So very useful. Thank you very much. I have Spain. Please go ahead.

Thank you very much, Madam Co-Lead of the workstream. I'd like to respond to some delegates who, like Ghana and Liberia, have understood that this digital services tax discussion isn't deviating from our main discussions, much the contrary. The goal of the discussion is to seek new nexus rules for new negotiation models, looking also at physical presence. I think that the French example, which is very similar to what we have in our country, is a good example, whether or not it's a direct or indirect tax, and it allows us to explore the IP nexus. which is an exercise like any other, but which may be a good one for indicating where added value is created and where MNEs are situated and about their tax paying in the territories where the users are physically located. All of this to say, Following on from Sweden and Switzerland's ideas about having an open mind, we're not here to copy and paste any kind of model, the French one, our one or any other. Rather, we're trying to find elements. I think the IP element could be a good nexus to explore for any potential agreement we might come to here. Thank you,

Spain, says the Chair.

I will now open the floor for second interventions. Yes. second interventions, and I have the first on line for second intervention or third, might be some with third intervention, I have Kenya. But others who wants to make their second interventions, you're very welcome now as well, before we take stakeholders. So please go ahead, Kenya.

Greetings. Thank you. Am I -- am I -- yeah, great. I think my colleague has gone through the journey that we had with DST and SEP and I believe it was quite clear. The other issue that I would want to add on to is the issue of low margin services. When you look at low margin services, depending on how developed a particular economy would be, you'll be able to categorize a service as a low margin. There are factors that actually lead to you determining whether it is low margin or not. One of them is as simple as high competition within that particular industry. The other one is the way a multinational might decide to actually price the services that are offering. or maybe high operational costs. So it would be very difficult to categorize a low margin service and actually put it on paper and say that, for example, human resource services or marketing is a low margin service. It's all dependent with the industry and how well a particular economy is developed. Moving away from that, I would wish to just reiterate on what my colleagues have said right from the beginning in terms of what we are discussing on one being whether we are looking at indirect, direct income or whatever we want to call it. If we take a snapshot of what the terms of reference is indicating on paragraph 15, would see that we are talking about derivation of income from cross-border services. We are talking about deriving income. My simple interpretation would be we are looking to tax income that has been derived from cross-border services. If you look at the simple definition of maybe derived or accrued would be what is this that this particular multinational enterprise is making from provision of that particular service. Depending with either the municipal or domestic law, you would find that income might have been defined either as income itself or maybe wealth or profits. However, here we are talking about an income. So we are looking at how this particular tax is levied and who the tax is levied upon. So that would actually assist us in determining the scope of the taxes that we are looking at within this particular conversation. And I believe we derive our mandate from paragraph 15 because it talks of we should look at a protocol that addresses the issue of income derivation from cross-border services. Without belaboring on the issue of indirect taxes or whatsoever style we would want to define it, we would be talking about maybe good service taxes and value added taxes. which we can say we have settled principles on that internationally. And I think it had been mentioned earlier in terms of destination principle, neutrality, and all that. So for us to be focused towards getting a solution within this and being able to scope it appropriately, we would be guided by the two issues, how we are going to levy this particular tax and who are we going to levy so that we can clearly get to know the nature of the income derived from the service that we want to actually tax that we might take. Thank you very much.

Thank you very much, Kenya, for that very detailed technical input that was very helpful. Thank you. Um, I have now Singapore who has first intervention actually. You're welcome.

Good morning everyone and thank you Madam Co-Chair. I've decided to come in only at this point is because I wanted to reflect on the points that have been discussed yesterday and also to hear the richness of the discussions that took place this morning. I think what came out quite strongly this morning is that indeed I think business models have evolved and that digitalization has a great impact on how services could be conducted globally and I think we acknowledge this development and it is indeed possible for businesses to be able to actually provide services in another jurisdiction without a physical presence. We acknowledge that business models have changed and perhaps we should go deeper to understand how this would have affected value creation. And I would say that for Singapore, we are open to better understand some of these business models and to work constructively with our fellow delegates to explore this issue further. But having said that, I think we would also want to make the point that physical presence continue to be important, and especially in the context of many traditional services that are still provided over physical channels. And I would also take the view that while there are new business models, they are really still traditional services which actually form the bulk of service activities that are being conducted on a day-to-day basis. And for these services where a service provider has actually invested its capital assets and even bear the risk and hire the necessary employees in the jurisdiction, I will find it hard to ignore the fact that we should not impose tax in that jurisdiction because that jurisdiction has provided that infrastructure, provided that legal system such that the business is able to operate in that jurisdiction. And therefore, we think that we cannot ignore physical presence when looking at such businesses. Um, I want to move on very quickly, uh, to the discussion on whether to tax, uh, the income or the proceeds on a net or gross basis, I think, uh, many delegates have spoken on this issue, and I do think that, uh, the points that are raised are valid. In the case of Singapore, we tend to favor taxation on a net basis. We think it is a fairer way of taxing the business because it recognizes the cost that's been incurred by the businesses and also that the tax should be imposed on a net benefit which accrues to the business. But having said that, we have also heard the views of other delegates. that hold the view that gross taxation is a simpler as well as more administrable option. I think we acknowledge that point as well. So our suggestion is that in coming up with the protocol, it may be useful to actually include both options and leave it to jurisdictions to discuss bilaterally on which option works best for them. I will stop here for now and when I have further points, I will chime in again. Thank you.

Thank you, Singapore. I have Belgium and then Portugal. Please go ahead, Belgium.

Thank you, Ms. Kohli. And I just want to echo the previous interventions made by Switzerland, Sweden, and Spain when it comes to the digital services. I also think that It is clear that when it comes to digital services, there is more agreement already on what we should look at. I think the importance of an economic analysis really lies there too, although it is mentioned also in the TOR, specifically that analysis is amongst one of the elements taken into account for the framework convention. I agree with Kenya, it's not a prerequisite to have the technical discussions here also, although I do believe that it remains important to also have the data and analysis to move forward in a constructive way altogether. When it comes to the traditional services, we would like to align ourselves with the previous intervention made by Singapore. Thank you.

Thank you very much, Belgium. So please go ahead, Portugal. And then I have as a second intervention Nigeria. So first of all, Portugal and then Nigeria.

Thank you, Madam Co-Lead. I would like to compliment you as well as the rest of the leading table of these discussions because after the lunchtime of yesterday and this morning, this has been globally quite good discussion and I believe that we are achieving the rhythm of this process that we wanted to have. our appreciation for that. I have not given you yet, even if you can imagine what is our position in respect of any of these bullet points, I have not given you some more elements in respect of that. I'm not in conditions to give you a sort of answer, closed answer to every one of them, but I would like to point out that in respect of the continued role of physical presence, and as you know, we in fact believe that it's not time to devaluate, to devalue the physical presence as an access and as an element that has a role to play. Even if, as we all agree in this room, I believe, it is not an element that is up to date and is fit for purpose to deal with new ways of doing businesses, especially in respect of businesses that can be played in jurisdictions that are foreign jurisdictions without having a physical presence there. We are almost agreed on that. And this opens the question of a possible new nexus rule. And this is probably what will occupy us for intersectional work and also next sectional work. And I believe that we have to face it. In respect of net and gross basis taxation, well, we meant since we are this protocol, it has an object, it is cross-border renderers of services and being the render of services being a business activity, an active activity, we naturally believe that next taxation is the optimal solution that we should aim at. even in this case. And the crucial point is that we are dealing with active businesses, active income that to be generated and to be gained, it demands enterprises to incur in some costs. And this has to be well translated if we want to achieve an income taxation that respects tax neutrality and economic efficiency. I believe that this is mandatory even to protect the domestic resources that we want to mobilize. This is something that we have to have in our minds. Yesterday I heard and also today a name that can encapsulate all this. That is the fear of us entering in a space of over taxation, which is different than double taxation. And it's very hard to prevent. And when we have it, we start to have economical effects that we for sure not intend to have. And to prevent it, I believe that nexus taxation is our best option. This said, possibility of different rules for different types of services, I believe that it's something that we have to discuss and decide when we have more elements and more discussion about it. And for taxes covered, I would give the same answer, but I will take opportunity and I would try to collect some gains from our morning's discussion, noting that we are faced with the possibility of accumulation of excesses and gross basis taxation. over the same income or turnover. In gross basis, income and turnover are somehow similar, and if we are simultaneously taxing the same straight line of income with indirect taxes or somehow similar indirect taxes, for instance, or even direct taxes, I believe that we are again approaching a situation of over taxation. And I believe that for us to have a clearer picture of what we are in kind of results that we can put ourselves in going further in this discussion, I believe that is quite useful to count with some elements, some analysis, something that can show us what kind of economic results we can have by accumulating these two sorts of taxation over the same income. Thank you.

Thank you very much, Portugal. I have as a second intervention Nigeria. Please go ahead, Nigeria.

Oh, thanks, Madam Chair, and for the privilege to come back again. We've listened with very rapt attention to the contributions from distinguished delegates on the floor. And speaking to the questions that you have on the screen, we have actually in our responses yesterday addressed some of these issues. But just for people of emphasis, we could also do a kind of a top up on the possible new rules and the continued role of physical presence. I think that is exactly why we are here. And I take it from one Portugal said that the physical presence is not an up-to-date rule again. So that to us is a given, is everybody is on the same page regarding that, that physical presence is no longer up to date because of the several other models or ways of doing business that we now have currently. If we take a cast back and look back at when the PEA or the physical presence rules was developed, we realized that then you cannot do business without significant physical presence in the jurisdiction where you want to do that activity. So then, if you permit me, I want to say that the consideration was significant physical presence in the jurisdiction where you want to do that business. And when you look at the model, when it's talking of you must have done like 183 days or whatever in a particular jurisdiction, the idea is to ascertain that you have sufficient or significant presence before such incomes that are derived there could be taxed. So now that we can do it without that significant presence, then what then are the options before us? Can we not be looking at significance digital presence? significant economic presence because this is other models that we can therefore put on the table for consideration. We had spoken to net and gross basis taxation yesterday and we have said that we prefer the gross basis and also we reiterated that because of the fear that gross basis taxation could lead to over taxation, then all we need to do is to look for a very low rate because what we are trying to do is a proceed for income tax. That is what we want to deliver. And so that would drive away or drive off the kind of fears that people might be nursing regarding that an enterprise may have been overtaxed using the gross basis. But we come to think about it too, you know that services, we know that services much more profitable than companies that operate in the rail sector. When you have a manufacturing concern or you have a construction outfit, when you render services, the first thing you will do is you want to recover your cost, then there will be a top up. So whatever kind of service that somebody renders, it is given that it's going to be a profitable venture. But if you go into manufacturing or you go into construction, it could be either way. So services are much more profitable kind of businesses than when you go into the real sector kind of businesses. So that takes me now to whether we will prefer same rule or different kind of rules and listen also to contributions from distinguished delegates. Kenya had explained that, and if we go by having different rules, we are making it more complex. We are bringing, we are introducing complexity into it. And if we agree that services are generally profitable, then we may also look for, I mean, a rate that can apply. Like when in STASI you do a kind of scatter graph and you then do a line of best fit and you move on. So that is a proposal that we think we should consider. On the taxes cover, I know we have commented on that before, beforehand. I think the terms of reference has given a guide. What we are here to do is to develop a call for taxation of income that is derived from services. And we want to be going by nomenclature. Our fear is that it may become an unending discussions. I think the important thing is whether the taxes are income or they are not. And whatever kind or type of taxes that people or delegates might have in their tradition as long as it is not income tax, then it may not be necessary for discussion based on this protocol. Yes, the framework convention could allow us to have other kinds of protocols, and we could therefore move those ones to such protocols. Chair, I submit.

Thank you very much for that, Nigeria. We are actually going to think of having an early lunch break, and we will therefore open the floor for stakeholders, because I don't have any other members asking for the floors, after lunch. Just one comment from my side, if you could consider over lunch, and it's a little bit on the gross and net, and I remembered during Nigeria's intervention, the discussion yesterday, and I think what was said, and I think I would agree with that, is that many countries have a system whereby even if your treaty or if you have an agreement where you have gross, you can actually file for a net taxation, and that's absolutely optional. So it's actually up to the taxpayer or service provider to decide if that person wants to pay on net or gross. So when I hear here that we should have net taxation, my question to you would be, you want to oblige the taxpayer to pay on net so that they will have to comply with administrative rules and regulations in the source country in order to have that net tax, because that's the reality. You can't pay net taxation unless you comply with administrative rules on filing tax returns. And that is not -- you know, sometimes that has been discussed as something that is not very -- when you talk about the nexus rule, then they say, that's why we shouldn't have taxation at source, because it's so complex to do administrative. I would doubt that. But the point is, do we Do you want to oblige in our future agreement that the taxpayer has to pay on net? Is that what you mean when you say you want net taxation? as I think Nigeria pointed out yesterday, and I agree with that, is that if the treaty actually allows for gross taxation, that does not preclude the taxpayer from actually having a representative who would do something in that country and get that taxation. So just put that into the soup for lunch, and then have a good lunch and see you at 3:00 in the afternoon, and then we open the floor to stakeholders. Thank you.