Intergovernmental Negotiating Committee on the United Nations Framework Convention on International Tax Cooperation - Second Substantive Session 2025, 4th meeting

Welcome back everyone. I hope you enjoyed your lunch break. Are we ready to start? Okay, so now we are starting back to continue our discussion for work stream two, protocol one on taxation of cross-border services. We went through some very good discussions in the morning. And we're going to continue. So we will start first by resuming the floor and giving we stopped at the multi-stakeholders turn to take the floor. So now we're going to continue. Then after that, we will have some good questions that I think also we need to think about it and see how the different member states will comment and reflect on these questions because it's very crucial for the upcoming work that will take place from here till November and till February and as we go forward. So now the floor is to the distinguished representative of ATAF.

Thank you, Chair, for giving us the floor. And thank you to the co-chair, Madam Chair, for the work done so far in this work stream since morning. I have notes up front that clarification of tax covered is a critical element for this work stream. Chair, in our intervention yesterday, we have zeroed in on the fact that tax covered should be restrained to income taxes. And we did that premising our response on the guidance that had been provided by the terms of reference. As stated by Kenya in the morning, the terms of reference in paragraph 15 has stated that this work stream had to be focused on taxation of income derived from cross-border services, not on cross-border transactions. or cross-border supplies or even consumption. That said, the question becomes how do we determine income, what is income derived from cross-border services and distinguish it from other type of taxes that may apply to cross-border transactions or services. And we have looked at it. We understand why some jurisdictions are reluctant to classify DSTs, for instance, as income taxes. It may have something to do with the restraint that attends the permanent establishment concept as elaborated in tax treaties. But we have also seen scenarios where some design of DSTs have capabilities to enable entities to move the burden to the residents of the jurisdiction where the taxes are paid while claiming the benefits of such taxes. So all in all, we feel that for us to have a meaningful determination as to what income covered and how to go about it, we will have to look at the characteristics of the taxes per se. And in looking at the characteristics of the taxes share, we must look at where the burden lies. We believe that for indirect taxes generally, the tax burden usually will lie at either the consumer or the purchaser, as the case may be. We also understand that there is really established principle, which is principle of destination that is not tantamount to the principles that apply to taxation of income. We must look at those elements and then determine that for the taxes to be covered, we are looking at income taxes and the functional equivalent of income taxes. And indirectly, we are also now saying that we should exclude from this work stream all the taxes that are indirect taxes or functional equivalent of those indirect taxes, no matter what name they are identified as. So in summary, in tying it to this work stream, we believe that we are talking about protocol and in the context of the protocol, we should be able to define what we mean by income for the purposes of determining tax covered. We must enumerate the characteristics of what we as a people agree to be income and we must now move on to include what qualifies as income taxation and exclude what does not qualify. We thank you, Chair, for the time and we yield back.

Thank you. Now to the distinguished representative of CCFD.

Thank you, Mr. President.

Mr. President, this morning's discussions highlight the fact that, in the absence of fair, effective rules, countries have to manage alone to address their own facts and incomes. My country, France, was one of the first to introduce a tax on cross-border services. has actually managed to mobilise income in the digital sector, and this information should be accessible to all countries. In France, it is estimated that it brings in around EUR 500 million per year. But to come back to the heart of the protocol, we think that it should open the path in two ways. In the short term, it should allow all countries to tax digital services, but in the longer term, to meet the main aim of the framework convention, that is to ensure fair, effective taxation of all multinationals, and to not forget the over essential issue, which is reforming transfer pricing, which is a cross-cutting issue across all of the three work streams. This would allow us to build a system that would tax multinationals as they truly are, which is global entities. This is a system founded on their global profits, including their digital activities. This is the method that we're looking at here, which is a unitary taxation and with a formulary approachment. As was said earlier, we can truly design an out-of-the-box system here. To do this, we agree that we need to be open-minded, but above all, that we need to have the political courage to definitively turn the page on transfer pricing. So in the workstream two issues note, we can see that developed countries think that they need to look at countries of the south to apply the rules of transfer pricing. We take note of that argument, but let's be clear, this isn't an issue of the capacity of countries of the south. We think that they can't any capacity transfer when the transfer pricing system does not work either in the north or the south. For instance, it is clear to see that this transfer pricing is already absurd. For instance, look at the Starbucks case. We also need to look at Another example, the Apple case, after years of proceedings, the Court of Justice of the European Union annulled two APAs, one went back to 1991, that was led to 13 billion dollars in taxation more. but this should be applied across all continents Europe, Africa, Middle East, etc. These examples show that transfer pricing are based on a fiction according to which the members of a same multinational group would be independent entities, but in reality this system does not guarantee any legal certainty to anyone, particularly not to those countries that are seeking to fund their public services. They will therefore invite Workstream 2 to, without further ado, look at transitional measures but also to prepare this crucial reform in workstream one to give a clear mandate to the Conference of the Parties on true unitary taxation. Thank you.

Thank you. Distinguished representative of major group for children and youth.

Mr. President, I take the floor on behalf of the FFD Children and Youth constituency of the major group for children and youth. We urge that in the creation of this protocol we are not simply imposing short term solutions, but sustainable and resilient policies that will not fall short in the face of an ever changing and uncertain future. We believe that it is vital to innovate equitable and transparent solutions that respect and uphold the interests of all states and stakeholders, leaving no one behind in the mission for a better future. First, we believe that over-reliance on capacity building as a substitute for systemic policy reform should be avoided. While we recognize capacity building and technical assistance as critical tools to improving domestic tax administration, it cannot be used as a justification to maintain outdated and failed systems such as the BEPS framework. Developing countries should not be obligated to invest scarce resources into administering complex, ineffective regulations that do not align with their domestic legal frameworks. Rather, technical assistance and capacity building should complement, not substitute for fundamental policy reform. Second, we demand the recognition of the contributions of the market jurisdiction to value creation. The protocol must clearly and explicitly acknowledge that markets where services are consumed contribute most significantly to value creation and should therefore receive a fair share of taxing rights, even when the provider does not have a physical presence there. Finally, we reiterate our call for consistency and transparency across service types. We believe that different tax treatment based on the medium of service compromises the neutrality and fairness of the protocol. We call for a unified approach that would eliminate loopholes and create equitability for all enterprises, both domestic or foreign. Distinguished colleagues, Mr. Chair, this protocol is a once in a generation opportunity to put an end to the decades of tax avoidance conducted by multinational enterprises. Children and youth demand a fairer, just and level playing field. We thank you.

Thank you. Thank you, sir. Get, uh, this is representative of, uh, Bombay Chartered Accountants Society.

Uh, thank you, Jay. There's a good discussion on, uh, DSTs for the direct tax or indirect tax in the morning session. Uh, you know, we need to, uh, understand that DSTs were drafted very carefully to ensure they, they don't qualify as a covered tax within the meaning of tax treaties. And, you know, if we consider that otherwise everything else, you know, works like a direct tax. Another important test could be that, you know, which team from the government executed or administered the tax. So it is a government Ministry of Finance may have direct tax experts and indirect tax experts. And I would say mostly the direct tax expert, they are the ones who looked at the DSTs and they administered or collected the taxes. And lastly, even if there's any doubt, this room is full of the lawmakers and the lawmakers can simply declare in a law that DST is to be treated as a direct tax, which kind of avoids any doubts. Now some questions on the screen, Nexus rules, I would say the minimum rules which one needs to understand or apply is the existence of the end user in the country and the level of economic activities in a country. if it is possible to go to one of the examples which is in the presentation on slide number three or four. Can the slides be moved? The first case study. Yeah, yeah, yeah. So, you know, I just want to elaborate on this case study in which will explain us that gross basis of taxation, you know, is not necessarily very easy. It may also involve some complex topics or issues wherein one needs to determine the attribution of gross revenue as well. So in this example, let's presume that 180 days was spent by the employees in state P and the employees also worked in state R. And let's say the four times of the work was done in state R. Now, in this kind of fact pattern, how do you give taxing rights to the source country? We'll have to probably split the revenue into two parts. Gross revenue needs to be split for the work which is performed in the country of residence and the work which is performed in the source country. And that involves some level of attribution. Now on what basis you're going to attribute profits or attribute gross revenue to the source country that becomes an issue whether you apply transfer pricing rules or you apply some other rules, that's the question. And thereafter the next question comes in that what parameters or what economic nexus parameters you use to determine the taxing rates for the source country. Because for one fourth of the revenue which involved a higher level of activities in the source country, the taxing rate should be higher. And for the balance, three-fourths of the revenue where the work was completely done remotely, the taxing rates could be lower. So a lot more requires to be examined before we take a call on gross or net versus. Thank you.

Thank you. Distinguished representative of African Union.

Thank you, Mr. Chair. Excellencies, distinguished delegates, the African Union fully aligns with the position of the Africa Group as delivered yesterday by Kenya, the positions of Ghana, Nigeria, Kenya, Morocco, Cameroon, Senegal, Liberia, and now ATAF. We extend our appreciation to the co-leads, the secretariat, and all the delegates for the constructive work that has brought us to this point of our deliberations. Paragraph 13 of the issues note rightly recognizes the current rules limiting source state tax to physical presence do not reflect today's business models. Paragraph eight further acknowledges the need for broader nexus rules. For African economies, this is not theory, it is our daily realities. Digital platforms, cloud services, and other emerging business models generate significant revenues in our markets. However, due to outdated rules and challenges such as tax base erosion, profit shifting, and tax evasion, there is lack of meaningful taxation where the real economic activity occurs, value is created, and from where the revenues are generated. as recognized in resolution 78230. As the African Union, we stand ready to work constructively and ambitiously towards a protocol that reflects the economic realities of all countries, especially developing countries, recognizes equality among all nations, and supports our regional agenda 2063 and also our global shared agenda of sustainable development. Thank you very much.

Thank you. Distinguished representative of International Bureau of Financial Documentation, Fiscal Documentation.

Thank you, Chair. So with reference to the questions on the screen, first, but on the possibility of a new nexus rule, I think We can all agree, and I believe it's popularly recognized, that the current rules we have are not working and they do not reflect economic realities. And that with the current role or approach taken by countries, that double taxation will be an eventual risk that has to be addressed. And therefore, we have to look at a new nexus rule and from the discussions that some people have brought up, um, the, the, the, the, the, that was the basis on which they had to take certain approaches outside of the treaty, um, framework. So to make a more enduring and sustainable rule, we have to look at a new nexus. From the work that has been done on the other forum, we can see that there is accommodation and welcoming of such an approach. And we could look into something that deals with sales revenues, local sales revenues. With reference to the role of physical presence, I think we have to understand and recognize that physical presence cannot be displaced because we still have a lot of businesses that still are using traditional business models and rely on physical presence. And the current rules we have around the arms length principle still gives the closest approximation to um, economic realities and market conditions, and so would be relevant for those businesses. Um, with reference to the net versus gross basis taxation, um, from the discussions we've had over the past days, I believe we all agreed that there is an administrative practicality towards it, especially for low capacity jurisdictions. However, this approach has to be balanced so that over taxation is not the eventual outcome. And so I would still like that we explore looking for a way in which this balance can be maintained. This would have to deal with categorizing services, looking at industry profit margins and trying to get rates, apply tiered rates that would take into consideration profit margins. So generally, one size doesn't fit all. I think we have come to that understanding. and that we have to have different rules for different services. And then with reference to the last question on taxes that would be covered, yes, income taxes should be covered, but then also taxes that behave like income taxes, taxes that would present an outcome that would be relevant or parallel to income taxes should also be covered because that only makes whatever we're doing useful and practical and helpful to everyone here. So flexibility and open-mindedness on what we can explore should be something that should be put on board. I also think we don't need to just keep it at net taxation and gross taxation as the options that we have on board. We have to look for a way to see if we can explore a modified version of net basis taxation that fits into at least trying to get a profit attribution system in place beyond the arm's length principle that can still present fairness towards businesses. So I think that should be all from my side and thank you very much for the opportunity to make this comment.

Thank you very much. So now we don't have any more from multi-stakeholders. requesting the floor. So now I'm gonna give the floor to the secretariat, Andy Patricia, because she's gonna raise some questions or seek some clarifications from the floor about some points that we were discussing this in the launch and we saw that it would be good to discuss with the floor to have more clearance or to be more understandable for us and for everyone. So over to you, Patricia.

Yeah, the first example. Thank you. So I wasn't -- I have some other questions I was going to do, but -- or ask, but to come back to this, I think this is the analysis from the stakeholder assumed sort of a combination of payment and physical presence rules and was suggesting sort of dividing up the payment that is made by Subco to the parent based on a split place of services. And I think if you read the issues note carefully, what it it's not proposing that sort of mixed system. I mean, we can consider a mixed system, but you've described pretty well why that's complicated. What it what it says is that many developing countries have a system where they apply gross withholding taxes generally, and that allows them to tax services without regard to where the services are performed. And so the sort of, yes, you should split it up and look at where the services are performed is not really one of the options that's in the paper. And as I said, you've sort of described why that's complicated and maybe explained why it shouldn't be added to the paper. But it's not there now. Okay. So that point. I wanted to come back to the very interesting discussion we had this morning. This issue did come up. We didn't-- it's not raised by one of the examples that's in this short presentation. As I mentioned this morning, there were a lot of examples. And one of the examples on automated digital services sort of brought out the difference between the place of payment rule, that many developing countries use, or the source of the payment, and the use of looking at where the user is located. And so I think that we heard that France uses the IP address. We also heard from Spain that they use the IP address, which means they're looking at where the user is located, whereas For example, Article 12B and what's described in the issues note looks at whether the payment is made by a resident of a contracting state or a permanent establishment in that contracting state. So it's place of payment versus or identity of payor versus user. Those, I think it's useful to have some discussion of how we want to define what the market is. Maybe it's both. Maybe it's one versus the other. But I think because France and Spain have both said they use place of the user, and I think we heard something similar from India, that they're looking at where the user is. that we need to explore that to get some ideas about how that can be addressed as we go forward. And then the other point is for Kenya and maybe Nigeria. And it's the point that Singapore made, which is that physical-- there are certain circumstances when you are still going to have a physical presence. You're going to have an office, you're going to have employees, and they want to be able to tax in that case. And I think what Kenya said was physical presence is irrelevant. And we're not sure-- we were discussing this-- we're not sure whether Nigeria said that or not. But there is a question, is it that it's irrelevant or it's not necessary? And in particular, I think both Nigeria and Kenya described a significant economic presence test. And the question is, would a significant economic presence test be an add-on to physical presence? Or is physical presence somehow taken into account in applying the significant economic presence test? So I think those are sort of really technical issues, but would be very helpful to understand how things work.

It's understandable that getting to such questions after the lunch break is difficult. But I want to start by the last point because we were discussing this in the lunch break with Patricia. And for the physical presence and for the economic presence, I think the economic presence substitutes the physical one. So because if you have a physical presence, that means you have economic presence. Because physical presence does mean you are carrying out some trade or commercial activity, which is economic presence. So if we're going to define the economic presence, I think it will substitute the concept of physical presence because it will capture including it. It will be included in it, the physical presence. So it's not more, it's not relevant anymore, it's still relevant, but it will be captured by the wider concept if it's defined. So now the floor to the distinguished delegate of Kenya, followed by Nigeria.

Thank you, Chair. Just to answer Patricia's question, what we've been saying is not that physical presence is irrelevant, We've been saying that physical presence should no longer be a factor that is used to restrict the taxing rates or deny the taxing rates of the market restriction. And why we see it as probably still being relevant, like for example in our SCP law, there is an exclusion where significant economic presence tax is not going to be imposed where the services are being provided through a permanent establishment. So if we find that you do have a permanent establishment in Kenya, then SCP doesn't apply and you will be taxed through the permanent establishment. So there still is some relevance to physical presence. What our position has been is that because it's no longer the only factor or a factor that has to be met by a service provider for them to derive income from our jurisdiction, then it should also not be a factor used to determine whether we should tax or not. So if you have a permanent establishment, we will tax you through the permanent establishment. If you're not present at all in Kenya, we will still be able to tax. So it's not irrelevant, but it should not be used to restrict that our taxing rates as a market restriction. And if I can also just add to a point that was raised since I have the microphone, and this is purely in my view, I think when we talk about physical presence, we are linking it to fair allocation of taxing rates. So I don't think the aim here is to deny either the resident state or the source state its right to tax. I think what we are calling for is a shared taxation, fair allocation of taxation, meaning both states get their right to tax. And I think that also comes out from the recognition that there would possibly have to be a restriction in the rate that is imposed by the market restriction so that we can allow the resident state to tax. So I think there is a point that had come that the resident state would be denied its right to tax and I just thought that it would be important to say that in our view the aim is to share taxing rates, to have fair allocation of taxing rates so that both states can tax. Thank you.

Thank you. Thank you, delegate of Nigeria.

Okay, thank you, Chair, and thanks to Kenya for providing that clarity. Maybe from my end, just to tap it up, Nigeria, we didn't say that we should take off or strike off physical presence. No, we never made mention of that. We just drew the attention of the entirety of delegates to the fact that we have businesses that you cannot tax using that rule. And what that means to us is that we need to develop some additional rules to capture those that you cannot capture by virtue of physical presence. And you'll recall I said when the rule of physical presence was designed, it was based on the belief that you need to be significantly present in a particular location. Now that you can do businesses without being significantly present, So we need to then look at, in addition to the physical presence rule, things like significant digital presence or significant economic presence like Kenya said. So in our own domestic law, we have provisions that bring non-resident taxation. If you have a fixed base, which connotes physical presence, we also have provisions that bring that is significant economic presence into, as a nexus rule to determine taxable presence if you qualify or you meet those conditions. Thanks, Chair.

Thank you. But I, as I see no one get to the first point that Patricia raised, which is about the user, the payment and the market. So, whether they are three different concepts or terminologies, so, or, or like user and the place of payment, they, they are components of, of the market, or they are totally different from each other. Because we hear the three, the three terminologies from, from the floor. Some were referring to the user, some to the payment, some to the place of payment, I mean, and some were mentioning the market. So what does we mean? We are trying to continue our discussion from the morning in which we all of us used to use different words, but actually we don't have like unified understanding and mutual understanding for it. So again, this afternoon we are trying to do the same as we did because it was very successful this morning. and we get out with some good and common understanding between us, or at least for us, so when we start the drafting, we know what exactly we are writing. So now again, we are trying to put on the floor the different terminologies that looks similar, but maybe, maybe it's like with everyone understand it in a different way. So just highlighting again the first question of Patricia because very important to determine which word we use. So if we use the user, then we are covering the whole thing right now or market or three of them or which one? Thank you. Distinguished representative of, distinguished delegate of India.

Thank you, Chair. I'm not sure whether I will be able to address the, you know, the conceptual clarity which is required, but just because there was quietness on the floor, so I thought of breaking that silence. and making some attempt towards that. And I agree with what was being conveyed by Kenya because the concept of significant economic presence was brought in only to capture the businesses where taxation was not being able to pursue in the absence of physical presence. And that's how the significant economic presence concept was designed. because we realized that there are limitations of traditional nexus rules in capturing the value created by digital businesses and therefore to widen the tax base for non-resident entities who were operating without physical presence, this attempt was being made. And when we created this concept, user was primarily a driving figure. The revenue threshold figure was also there. So these were two important criteria, user and the revenue generated out of the particular business connection concept. And we had our own thresholds like INR 20 million for the revenue generated and 0.3 million Indian users as the user threshold criteria. Besides that, this threshold-based approach also was applicable even if the contracts are concluded abroad or services are rendered from offshore locations. So this made it clear that irrespective of from where the payments are being made, this would be applicable. And that has been our experience because we all understand how MNEs operate and how there may be certain manipulating situations. because it would be very easy for M&Es to get rid of this whole significant economic presence if it is all related to the payment basis. Therefore, we deliberately said that irrespective of where the contracts are concluded, which means we also avoided that from where the payments are being made. So, just I thought of bringing it to the light of the House. Thank you.

So back to India at this point, this is for my clarification. What you're saying is absolutely right, but when you're saying that the MNEs can get away by, if it's only based on the, I'm not defending the concept of payment, but like just to understand, I think it's very difficult to happen because the majority of the users will be using their local banks to do the payment for the service that they are using, whether they're using the service like software, like platform, whatever the majority may like. And again, I will go back to as, as France said, like, I don't think that one of the users will just. just like manipulate just to save taxes for the MNEs. So no one will do it. That's I think what we were talking about. So it's difficult that the user will play just to save taxes for MNEs. So if you can come back on this, please.

Thank you, Chair. I realized that there was a missing communication and I could not clarify. because the way we designed our equalization levy or the DST, so the threshold mechanism of tax collection was the time when the payments are being made. So to that extent, end user and the payment were connected. But if we consider that place of payment per se as a criteria, it was not there. But our taxability or our withholding mechanism was triggered the moment end user is making a payment for any online advertisement services, for example. So at that point in itself, a TDS, a withholding would be made. So when we are talking in terms of the end user payment, yes. But the place of payment per se, that you know, whether the payments are being made from India or whether the payments are being made from X entity, that concept was not built in. I hope I'm able to clarify.

It's clear now, yeah, thank you. Distinguished delegate of Austria, followed by Spain.

Thank you, Chair. So my intervention is also more to break the ice. have some thoughts, but also some questions. Um, if I understand you correctly, you want us to comment on whether we think that market, user, location of payment, if, if this is all the same, or how, how can we bring more clarity in, in, in those concepts? And I think, um, this kind of also entails the fact that, it depends on the type of service whether any of these concepts is relevant. And I think just for example, when we were designing the sourcing rules for amount A, we did have quite a long list of different types of sourcing rules depending on the service. We said for advertising services, the source, the nexus would be where the viewer of the advertisement is. For location specific services, we said the sources where the service is carried out for related to immovable property should be where the immovable property is located. And I think this, so now when hearing in the room some suggestions to talk about market or sourcing more of the income taxation to the market or where payments are made, then I also have the question of what exactly do we even mean? Do we look at the market of the whole MNE? Do we look at the market in the sense that it is where a particular service is provided to one specific person? It will not be the same in all situations, I think, and I keep looking at the example that is on the screen now. What, what, what would we say in this context, we don't even know what Subco is, is, is doing here, is Subco consumer facing in the sense that it produces revenue from, from consumers, or is it simply, for example, a production entity? part of the bigger value chain of the MNE group. So could we say that here the service is sourced to the market if there are probably not even consumers in state P? So that keeps confusing me a little bit in the discussion. And I think we need to be careful to differentiate between the market in a bigger sense when we talk about MNE groups and their markets. and then look at drill it down to concrete intercompany transactions where services can be provided that are only indirectly linked to a market at the end of the day. And I think it would be helpful to get some clarification from other delegations how they see that issue. Thank you.

Thank you. And In this example, Subco is growing the flowers. It is not providing the services. It's consuming the services, which are provided by Bigco, the parent company.

I think, Surya, what you are referring is doable, of course. It can be different rules for different type of transactions. I think this will be part that's why we need to set the sort of basis for the work stream to go because when we are talking about market and user even for the examples for amount a that you give like when we talk about the viewer and what for for advert advertisements then the you the viewer is is the user and The user is if you know in the digital platforms, the advertisements go directly to the location, so when I'm here in USA, and when I open like the, any platform, any streaming, the advertisements that appear is related to USA, while I'm in Egypt, I get, if I'm watching the same movie, I will get advertisements, but it's for related to products in Egypt. So here, I think we are not saying this should be limited to three counts. Of course, it can be different criteria. And this, I think, some of our colleagues were referring to this. So different criteria, but here we are talking about the overarching concept. Because at the end, you will find it like a user in market. So the advertisement I watch here is related to the market of USA, while the user is in USA. or you consider as Egyptian user, but in USA. So, you know, a lot of interacting concepts that can come together, but that's why we are discussing here this concept, so we just open the door for a common understanding so they can break it down after that, this concept, to the criteria and elements that fit to each type of transaction, the same as the examples you referred to. That's why we because but now I think it's difficult just to go through different to listed transactions and try to identify who is as a driver or the trigger for the transaction. That's why we are using that like overarching and using the terminology that was raised in the floor to define it. But absolutely you're right in what you said that different transactions require different drivers for it. Distinguished delegate of Spain for by Kenya.

Yes, thank you. I also wanted to answer this question. Indeed, it depends a great deal on the type of service. This morning, I referred to users as well because we are talking in the case of the Spanish digital services tax, these are very specific technological services, online advertising, etc. and they focus on the user. The tax goes where the user is located but the idea is also that we want to stress that it is the user that is adding value because this advertising that might for instance appear in Egypt but that comes from a US company is specifically directed at this user because this user has provided its data, their prior data, and the advertising is targeted at that user. That's why the user is important in this type of services because they add value. That's why the taxation occurs where the value is added, which is where the user is. That's why we focus this tax on the centre, which is the centre being the user. Thank you.

Thank you for this point because I think now we are, with your intervention, you are linking the concept, so now you are referring, at least I'm just giving my personal opinion in this, because out of the three elements we are talking about, which is the payment, the user, you link the user is the one who is creating the value, which maybe it's different from the payments, it's not the case. I think, of course, anyone can come and correct us and say, no, there is, and give us another side of the view or of the transaction of the topics we are talking about. But I think it's a very good link when you are linking the value with the user more than the market or the payment. So just saying that I like this link that you provide. It seems they get off Kenya, followed by Colombia.

Thank you. Thank you for the flow once again. I think our target here is to clearly get to understand what do we mean by fair allocation of taxing rights. Without belaboring the explanation, I think initially we had indicated that for there to be meaning, then the three items need to be present, which we had mentioned initially, that is economic activities, value creation, and where revenue is generated. Going back to the issue of user, payment, and maybe even location of data for this matter would be a question of where do they fall within the three categories that we are talking about? And how are we going to classify them? Giving a very simple example, for example, if country A actually uses information from country B and sells it to country C, the question would be information for country B is being used by country A to derive or generate revenue that is being received from country C. How is country B, who are the ones who hold that particular information being remunerated? that will be a question of that particular data being part of the economic, one of the economic activities within that cycle of transaction. And we've kept on asking ourselves, how are we going to fairly allocate taxing rights when it comes to these specific issues? For example, if you do dwell on user, you start realizing that there are other services that would not really have an allocation in terms of taxing rights by using the user. There will be other elements. A very good example is what has just been mentioned, that one party or one country might fall within the brackets of a user, but the payment is coming from another country. So the question becomes, where do they fall within the value chain in terms of creating that particular value? A live example is if you have a particular service. and this service is as good as you want it to be, but it does not have a market. Yes, they would have research that has gone through it, would have development of whatever kind of service that it be, but if it does not find a market, then that particular service, no matter what kind of value you want to put to it, it will be valueless. Then there is also another concept around it. For example, if data is being collected from the source or market and it's being used to develop or customize that particular service to fit a particular market, then remuneration has to be done in relation to that particular economic activity. So we cannot really cast or put our minds to that, that we are going to say payment will cover everything or user will cover everything. But what we are trying to say is we need to sit down and agree value creation entails inception of a concept, creation of a concept, whether there is R&D in it or not, up to a point where that particular concept as a service has been disposed of, then we can say value has been created and then we are able to apportion it as it is. Thank you.

Thank you, but your intervention raised a new question in my head now and I don't know the answer for it also as well. So is it only about two parties who should in this transaction who should share the taxing rights or sometimes there are more than two, I mean two jurisdictions who share it. Normally it's two, like the residency and the market or sometimes it involves more than one location or jurisdiction or parties that should share the taxing rights.

Thank you, Chair. From the beginning, I said- The.

Question is not only for you, I mean for the floor.

Fine, I can still take it. I started by indicating that what we are looking for is fair allocation of taxing rights. So if there is a particular tax jurisdiction that is adding value to that particular transaction, then it suffices not to say that they will be denied remuneration to that effect. And that is why we've kept on saying right from the beginning that when we talk of gross taxation, we are not implying that it needs to be a one-sided and that is why we are able to say that a restricted kind of gross taxation would be encouraged because of the fact that it is recognized that value is created by quite a number of it is possible that value can be created with quite a number of jurisdictions. Thank you.

Thank you. Delegate of Colombia, followed by Zambia.

Thank you, Chair. Just looking back at the fair allocation of these taxing rights and given the rule that we implement in Colombia, which is significant economic presence, we understand in Colombia that we generate this right to tax where the users are located in Colombia. That's for digital services which are covered by the significant economic presence rules. it's not related to the payment, we don't check where the payment is made, rather where the user is, where we check whether or not the user is located in Colombia. Now in terms of other services, for instance the service here on this screen, this would be another type of service, maybe a technical type of service, not necessarily a digital service, And the understanding here is that there wouldn't be a permanent presence, so there would be a withholding at source, uh, on the revenue. gain from this service and they would have a Colombian client from this technical service from another company that could be related or not to the initial company. So the client or the user, depending on the type of service, would have to be located in Colombia. Thank you. Gracias.

Thank you. The sanctions delegate of Zambia followed by Czech Republic.

Thank you, Mr. Chair, for giving me the floor. Mine is -- I've been following the conversations, and mine is just more of a clarification from jurisdictions that use the user as the point of taxing, is what exactly determines or qualifies the user? Are you -- I know there was a mention of the IP address. earlier, I think from France, that they would just, I don't know if they use the IP address when they're determining the tax. So I'd like to hear, I think that the last speaker from Colombia did mention that they use the user. So what determines that? Because when we are looking at users from my point of view, I'm not expert in this field, but I think there's a danger in that users are not mobile. So if I'm in a different jurisdiction and I'm using that service in that particular jurisdiction, then you would definitely consider me using it. But at the end of the day, whether you're doing R&D or the user, there will be a payment that would definitely have to be made at some point. So in what comes to mind is what the issue is when it comes to the taxing of the digital economy is obviously when we are looking at MNEs operating in our jurisdictions, I'll speak from the Zambian perspective, is obviously business profit article cannot be used. We can't tax their profits because there's no PE and therefore we have no taxing right. And I think why we're here today is to find Where then, how do we then have a share? I know we have the significance economic presence that's usually, that's being used by some jurisdictions. And here they're looking at obviously the economic value that's generated and the revenue threshold from the in-scope transaction of the digital transaction. That's what they're using to determine to say, okay, fine, you don't qualify to be a PE, but based on this, We are, we're, we're, we're taxing you. So if, um, the problem has been that the rules under the PE, if you come and look at marketing, for example, uh, I know we, um, um, business profits article was, um, improved to say, okay, let's look at where they habitually, assign those contracts, who's leading to signing those contracts as, as a creation of a PE. Um, uh, but now obviously that can be done without even having, um, the, the, um, the advertising capital company or the marketing company in that jurisdiction. So I can just do it online based on the advert I have seen. So in that case, the, The PE rules and the business profit article, they still is, the problem is still there of not having the share. So when we're now determining the economic value generated and, and, and, and, and things like that. I just, I don't know if maybe my, if my question and my thinking out loud is making sense, but I just thought I'd maybe get that clarity in that sense, especially when you're looking at the, the user as the basis for taxation. And whereas I, I, I think payment would be more logical because, um, then you have no issues of, users moving between jurisdictions. And also, I just wanted to mention, I know IP was mentioned earlier as one of the nexus. And so it would be interesting to hear, so how do we go around the VPNs in that case if we are going to use the IP address as well? Thank you.

I think to our colleague from Zambia, now you are adding a different perspective here. You are trying to treat the payment as an identifier for the user, more than being a separate concept, which is okay, but like I think you're adding another dimension to the story, which is, yes, This can be one of the criteria, one of the driver, one of the identifiers, more being equal, like payment or user notes. It's payment under as identified to user. So it's another dimension that, yes, we need to think about. Our colleague from the delegation from Czech Republic.

Thank you, Mr. Chair, for giving me the floor. And also thank you, everyone, for this very helpful discussion. We find it very useful to understand everyone's perspective and needs and focus. And also I would like to particularly thank for the workstream two discussions we had in the international meetings. I think they were very helpful for us to understand also the perspective of other member states. I have to say I'm trying to still figure out where we are heading with all of this. because my perspective that we kind of had at the beginning of the work stream two was to analyze ideally, I guess, all possibilities of examples of providing services, right? And it doesn't really matter if it's a bilateral or if it's multilateral because there are various options that we can provide services out there, right? And maybe this is academic perspective, but we would see it from the perspective we should make a list of all possible services out there and then see how we can provide them in what situations and then analyze that and then maybe say we heard some countries saying, well, maybe we should focus on all of them, some countries saying we should focus on only on some of them, but we should make this absolutely clear about the scope of the discussion we will have in future. So we know about what services are we talking because sometimes we are talking about digital services, sometimes we are talking about other services. So that's something that I think would make it very helpful to have a clear discussion. Then I would like to support what the distinguished delegate from Austria mentioned because the particular different services can have different nexus, right? So that's also something we should focus on because I guess we are at the point right now gathering what possible nexuses are or whatever is the plural form of nexus, whatever. Nexus we use out there, and I think it's very helpful and very useful, and it's something that should guide the next, the future discussion. we will have, but I don't think we should presume any particular nexus for any, for our future work. So that's something that should also feed into our future discussion. And then just a little bit joining into the discussion we had earlier this morning, and then I think it's, we should also focus on, I guess, imposing possible solutions for all these situations and problems. based on what we believe afterwards is the best solution, right? So we shouldn't presume that it's always better to use in particular taxation, either direct or indirect or net or gross, and we should keep these solutions as open as possible for as long as possible, or at least as long as we understand all the possible services that we want to focus on. Thank you very much for that.

So our colleague from Czech Republic, I think, yeah, I got your point in which what type of services, but here there is two points. I think we are opened, we just get whatever the floor open, so yes, maybe a little bit since the beginning of the session, everyone is more towards the digital one, and I think we need to explore what other services, as you said. But again, I think we can't limit it if you are talking about future proof protocol. So that means you can't limit it because you don't know what's coming up in the future that can be included. But again, it doesn't mean that we will not get the clarification about what exactly we are talking about. But just maybe it's by chance that since the beginning and just everyone is going toward the digital one. Thank you. Distinguished delegate of Ghana followed by Senegal.

Thank you, Mr. Chairman. And I think I'm going to muddy the waters a bit further. Now, and the reason I'm saying this, in somewhere in 1992, the Income Tax Act, we had a very interesting definition for source when it came to telecommunications. So where somebody transmitted messages by either cable, radio, optical, or satellite communication, and in 1992 was just transmitting through what we called apparatus established in Ghana, it meant that the person was earning some income from Ghana. So though, and I remember in 2003 there was an interesting case of a satellite, somebody provided satellite communications through satellite, and the question was whether the person was at the, the provision of the service was in Ghana or not. And basically it went to court, the person withdrew the case and came to settle because at the end of the day there was some income. Now come to 2015, we widened it a bit to make it not just the transmitting but also receiving of those services including, and we added electronic communication. Now, at that time, we said that even if you have a mobile phone, it is still a paratoss situated in Ghana. And so it meant that whether you were watching whatever you were watching on it, listening, whichever way it was, you still had to pay some income to us. So whether the satellite gain, same thing, we had a few interesting discussions on that. In the age of digital services, the suggestion came that look, take off transmitting everything, just make it digital services. and widen the definition of apparatus to cover everything you can think of and create an omnibus clause, whichever way it is. And so, as we are talking about value, we are talking about payment, this one looks more of the recipient and how the person receives the communication or the service. It's, as I say, I'm just thinking out loud because We are all coming out of ideas and I'm wondering whether ICRIT is something we can work around and even expand to cover some of the things we are discussing. Thank you.

Thank you. Thank you. Thank you. Thank you.

Thank you.

Thank you. Let's start by echoing the comments of Kenya and Nigeria, considering that meaningful economic presence should be considered as a complementary criteria to physical presence, especially since it allows us to capture new models of taxation, including digital. I also share the comments of Austria. We need to think about the nature of the services in order to define multiple sources. that could be attributed to this. I also share the comments of Czechia. We think we need to have a broad approach that in addition to digital services, we need to be able to capture other services. Now, regarding your question whether we should only focus on the payment or the actual location of the user or the IP address, I think that the first thing that we need to do is define what is a user, who is a user. And when we're looking at digital, a user is an individual that consults, that uses, or that interacts in any other way with a platform, digital platform. Use, interaction, or consultation gives us an idea of the diversity of the sources and the diversity of the criteria to be used. Therefore, there is for the need to have a kind of a cascading approach. If you look at the example of services with digital content or online or cloud services, computing, the localization of the user cannot be determined by only one criteria. We will need to use several alternative criteria that succeed each other. For example, if the user is a business, the commercial address of the business could be an indicator that we can use. If the user is not a business, but an individual who has an address, a billing address, that billing address could be used. And if we're here neither regarding payment or IP, if these two criteria are not available, then the location of the bank account that was used by the user to pay can be used. So we have several criteria that we use. And we could even find ourselves in a situation where you don't have the billing address, you don't have the commercial address. and you don't have the means of payment. At that point, there's geolocation associated to the device at the time of purchase that can be used. And if none of these criteria is available, then you refer to the IP address. So we need to have a kind of cascading approach to be able to work in a coherent way in these different options. Thank you.

Thank you. Distinguished delegate of Saudi Arabia.

Thank you, Chair. I think we agree with many that taxation should be based on identifiable economic presence in the source country, not merely on the access to the market or where payment is made. We believe that when payment is made, it can be said that there is an economic presence. Therefore, we recognize that user participation as a value driver in certain models. User participation can be one of the nexus indicators alongside revenue threshold, targeted marketing, and similar factors. Thank you.

Thank you.

Thank you, everybody. This is fascinating. And I feel like I'm I'm picking a little bit on Kenya and Nigeria a little bit. But I am curious about this. And I want to make sure I understand sort of what people are doing. So Columbia said in this example that this would not be covered by significant economic presence. It's outside because it's not a digital service. Automated digital service or digital service? Only digital services. And so you're outside of SEP, and so you would under your domestic law apply the withholding tax. Okay. So now I have the same question. It's related to the question I asked earlier, but I didn't know to ask this exact question. So what I heard Kenya say was if there is a permanent establishment, then the SCP does not apply. But the question is under domestic law, if you, this case would SEP, so there's no permanent establishment because they're not there long enough or assume they're not in state P long enough. So if there's no permanent establishment, would it be covered by SEP or does SEP only apply to digital services? And I have the same question for India and Nigeria. So see who answers.

First.

Thank you. Thank you, Secretariat, for the question. I think during the work streams, we went through quite a number of examples, this one being one of them. from my initial intervention, you'll realize that one, and I think the secretariat has pointed it out very well, that a PE will not be established because of the duration of the employees, which based on the rule, it was established way back before we did even understand what PEs are. So to answer your question, here, one, the PE wouldn't exist. That is one. Two, if you look at the SEP rules, they gravitate towards digital services. We talk of online advertising, all those things, and they're well enumerated. I wouldn't want to go through the listing and all that. And I think the delegate from Senegal enumerated it very well based on the cascading. So for this particular point, it will be based on payment at a gross level. that is based on the existing rules that we are looking at, either management fees, professional fees, and all that. The only restriction will come when you've entered into a tax treaty that is restrictive, which was entered maybe some in 19-- I wouldn't even-- those years, which we didn't even understand what we were getting ourselves into. But now that we have proper knowledge of what needs to happen, it is something that we are looking at and trying to cure. So to answer your question directly, it is on payment that would be handled at this particular point. Thank you.

Thank you. The distinguished delegate of Nigeria.

Oh, thank you, Chair and Patricia. Thanks for inviting us. Just wondering whether the question that you have posed has anything to do with our comment regarding significant digital presence. what we have said, it is our law is doesn't target the significant digital presence law is not targeting withholding tax as the first option. It is a nexus rule, just like you have the PE rule. So if you look at the example on the board, the first consideration will be whether there is a taxable nexus and there are a lot of options to choose from. The starting point is if you have a physical presence, that is one aspect of the rule. If the answer is yes, then you have something, you have taxable nexus. The next thing will be what is the amount to tax? If you don't meet that, then you go to other options like whether you have a dependent agent PE. or if that doesn't work, then you look at the significant digital or economic presence as we put it. So that's another option. So it's not as if we are looking at, I want to tax payment, I'm looking for a withholding tax. It is an income tax provision. If you are open to further inquiry regarding our law, I will be grateful to share one with you, then maybe you'll be in a better position to have a much proper understanding of it. Thank you.

So Nigeria, just because it looks like three of us didn't get the point, so you will not be doing withholding tax?

The rule is not targeting primarily withholding tax. It is just to look for a nexus to determine taxable nexus. That is the rule.

Thank you, distinguished delegate of India.

Oh, thank you, Chair. I would like to point out, I think the discussion which is happening around is creating lot of confusion primarily because we have not categorized different kinds of services and we are mixing concepts. because we do understand that different services have been, we have tried to bring them under the taxation net under various frameworks. And we are going ahead with this protocol realizing that the traditional rules have not been able to garner the taxation rights which should have been. there across the jurisdictions. And therefore, when we are talking of the different services, different concepts have arisen. There were certain services wherein the physical presence was required. There were certain services which we realized that no more are part of the physical presence per se, but they are being rendered and not brought under taxation. And that is how the concept of physical presence, which was further you know, try to be overlaid by the concept of significant economic presence. It's very difficult for us to insulate both of them under two different categories. We must realize that. And I think we are trying to do that because definitely things begin with physical presence. But in cases where there is no physical presence and these services are being rendered, the markets are being used. the users are driving the value, the revenue is generated, and that is how we brought the significant economic presence concept. Primarily, significant economic presence concept was geared towards the digital transactions. But if we bring this significant economic presence concept perhaps to the other services where physical presence is necessary, I feel that we are trying to confuse a lot of concepts. So my humble submission would be that if you could categorize a few services and then if we see definitely going ahead, we are talking of professional services, maybe some accountancy services, there may be certain overlapping issues, but there the number of users per se would not be a determining factor per se. There the person providing the services would be a more determining factor. And that's, I mean, because the place of payment is also to be seen. This is a very important factor, but it has got different connotations in the different transactions because when we are talking of the digital services, when we are talking of the significant economic presence, the primary focus is on the number of users. And when the number of users because the payment per user may be very, very minute and it may not have any significance in the whole picture. But if we are talking of a service where one single transaction has got, you know, the revenues which is worth considering and there the place of payment may become a significant factor to be considered and therefore we came up with the withholding mechanism. So if we, you know, kind of jumble all the factors, we may not really able to reach to any kind of an understanding vis-a-vis all the kinds of services. Thank you.

Thank you. Thank you, India. And I apologize if we're jumping around. I think in the work stream, we had a discussion of paragraph seven. of the issues note and added some nuance to paragraph seven about the interaction between withholding taxes and physical presence in that case. And then after that, we added the paragraph that talked about significant economic presence. And what I realized from Columbia's intervention is that that paragraph is at best incomplete and possibly wrong. And so in order to move forward, that's why I asked the questions to understand how it operates in different countries. Because to think about and it, you know, We're hearing some commonality across countries that digital services are sort of sometimes treated differently for the reasons that were described by Spain. And then Colombia pointed out how that is. And none of that is really captured in paragraph 19, but needs to be taken into account as we move towards Nairobi. So that's why we're sort of jumping around because it was a point that was raised by Colombia that frankly had never occurred to me.

So just to add a little bit, I think the addition here for everyone to get on board with the discussion is that Colombia has an economic substance test or norm in their legislation. In our case, in Chile, we do not, but in this case, if we don't have a PE, we would use the payment rule. So if there is a payment from Chile, there is a withholding. So I see that that's very much what Kenya is doing, but not what Nigeria is doing. So You know, it's, it's, it's, it's important to clarify these things and, and that's what we're trying to do now, thank you.

Okay, so now we are moving to a new question. I think for the first few questions, we get some good insights and we start to feel the flow from the opinions that we heard from different parties. And I think this will help us a lot and answer some of the questions that we were talking, me and secretary, this in the lunch break about. And so I think it was good that we present these questions here and we heard some good answers and we understand the direction right now, at least at these points. But my question will take me to a question that, or a point that was raised this morning about the low margin services. and how it should be treated and whether it's actually really a low margin, given the point that was raised that usually service margin is higher than even goods. So how we go for some services and we start to classify it as a low margin, and is it only related to the related party transactions or it's in general, this service is a low margin? So this is a question that I would like to hear. It came from the floor and I just, I would like to replicate it here now so we can listen and understand some insights about it.

Okay. The chair has thrown this one to me. I'm not sure why. But we're still on this slide, right? We've talked about possible new nexus rules. We've talked about the continued role of physical presence. We've talked some about net versus gross basis taxation. And now we're on possibility of different rules for different types of services. And one of the things that we have heard from the business community, although I see that the ICC has left the room. No, Pakistan is still here. Okay, still here. And we've heard from various member states that we need to take into account the possibility of low margin services. that. And so and so I think the question is what when we're talking but we haven't heard any specifics about what are low margin services. Are they certain types of services? Are they services that are provided under certain circumstances? You know, Is there a way to define the low value services? I think we heard, and I could be wrong, we heard at least one member state say this morning that whether something is a low margin service may depend on a number of factors, including demand, et cetera. Okay, I see Kenya nodding. So that's where I thought it came from. So So I think to -- the Chair told me I should get things moving. So if the protocol should take into account low value or low margin services, then how do we define that? How would the protocol do that?

Thank you, Beatrice. Thank you. Thank you, Patricia. Actually, the question was for you to answer. But also, I would like-- I have no answers, only questions. Yeah, so-- and because also I would like to add it when we are talking about it. So we can talk about the low margin. So it's low margin for certain type of services. Where? Like if you are doing like if you're an accountant in Egypt, that means you're a rich man. Like, yes, that's true. In Egypt, the margin for lawyers and for accountants is very high for these professions, for this type of service, very high in Egypt. I'm not sure it's the same in other places or not. So, which, if it's not the same in other places, does this mean that, again, how we can classify certain type of services to be low margin globally, worldwide, whenever it exists? So is this okay? So again, when we are defining or talk about the low margin, so this is low margin based on what and where? The United Kingdom.

Yeah, thank you, Chair.

I'm afraid I don't think I do have an answer for Patricia, but it's a question I've been wondering about as we've been having this debate, which is How do you measure the profit margin if you're trying to apply different rates to different services? Would you end up going down the path of having to calculate the net profit anyway to establish the margin? I think it is important to have regard to the withholding tax on services because as we've heard from business, it can have a real cost for providing services and inhibit that business. I think even if the service provider is sure that it can obtain the full credit for the gross tax in the resident state, there's still the question of whether that results in a fair division of the taxing rights between the source state and the resident state. And I draw people's attention to the example that we put in our written comments, a simple example in a perfectly normal scenario where you can see that the resident state loses pretty much all of its taxing rights in a situation where maybe you think that wouldn't be appropriate. So these are sort of questions I think are coming up.

Thank you.

Thank you.

Thank you, Chair.

I think there are many moving parts that come together, but I wanted to address your question saying that usually this margin for services is higher than that of goods by sharing an example and well, it's just an example, but I think that's why we're sort of wary of gross taxation and we approach that carefully because we have encountered cases where the provider of services would have a high presence and many costs in one country, but in the other country there would be no physical presence and if there was withholding in the country of source that very, by far exceeded the profit generated from that country and even exceeded the profit generated from quite a few countries and after encountering cases where you try to alleviate some of the double taxation, but sometimes it's not possible. So we're very cautious. So while that's not an empirical study by any means, we would think that it's important to think about the activity or the presence and the level of actual activity that takes place. And to that end, because of the special characteristics and the specific characteristics of each business, we think we would benefit from an empirical study and that's where a robust economic impact analysis could come in very useful for our discussions and take this concept.

Thank you. of India.

Thank you, Chair. On the question of low margin services, I am really doubtful whether we can come up with any kind of standardization on that particular aspect because the whole issue is very contextual, it is very geographically and economically influenced concept because the profitability of a given service is influenced by various dynamic factors which may include the prevailing market conditions, the competitive landscape and the scarcity value attached to a particular service or the capability being offered because as you yourself mentioned that in Egypt, accountancy is being considered as one of a very highly priced service. But that may not be a case where there are a lot of colleges and a lot of students, but there's no market for those students who have become the accountants. And therefore, it is in one market or in one environment, the same service may be categorized as the low margin, but that may not be a globally suitable criteria. and there is whole lot of demand supply dynamics which needs to be considered and at times, you know, one particular factor may add to the strategic importance of that service. So it's, I do not know if we can come up with any kind of standardization on the definition of low margin services per se. Thank you.

Thank.

You, Mr. Chair. I just want to intervene to say that we entirely agree with the previous comment from the distinguished delegate for India. And maybe I would just want to draw the conclusion from that observation. I think here what we're, I think what, This exercise is trying to see whether we can proxy the economic impact of an income tax through a gross basic tax, and I'm afraid that's quite challenging to achieve. We make a distinction between these two taxes. We say that a gross basic tax is profit insensitive, while an income tax adjust your tax liability depending on your profit. That type of flexibility, I don't see how you can replicate this with through a gross basic tax for the reasons that the distinguished delegate from India said. So to me, it's one of the key differences between the two form of taxation and one of the key reason why we think the net income tax is superior to a gross basic tax. There's not, just not that type of flexibility that you can achieve and including for situation where the net margin is actually negative. How can you deal with a business cycle where a service provider would be incurring losses over a couple of years? How can you deal with such a situation with a gross basic tax? I'm not sure I see the situation and it is in this situation that the economic harm that would be imposed by a gross basic tax would be more severe. So for that reason, I think our view is still that we -- that the net income basis is the superior option in that respect. Thank you.

So as Patricia said, I think now we are done with, I think we explored the possible, the first question which is possible new Nexus rules as a continuity of the rule for physical presence, net in the gross. Tax covered also, I think we went through it in the morning and we are left with a question with possibility of different rules for different types of services in which I start by triggering this question through my question about the margin. But again, getting back to the question itself, that talking about the possibility of different rules for different types. So the question, but in another way, does this increase the complexity of of the legislation, of the rules, of the regime, whatever we're going to name it, that we are going to have by having different rules for different types. So is it against simplicity? So is it better to have just one rule that may be simple and just go straight and work for everything, one or two, rather than having more rules or having rules, different rules for different categories? Maybe it's by itself, it's a simplicity. So in getting to this question, how we can address the simplicity rule or question or criteria if you are providing because it starts with like setting like two, three different rules, then after that it may end up with many rules. and overlapping between the different services and which rules should apply to what and especially when the business models are developing very fast, then maybe you're gonna classify today to like five, 10 type of categories or services, but very soon you will find these service or categories are changing maybe more than even can say adding to it or changing. Uh, so in addressing the simplicity, how we can look at, at this question? Distinguished representative of ATAF.

Chair, thank you for allowing us to weigh in on this question. From the face of it, ATAF believes that there are going to be possibilities of different rules applying to different types of services. And we say that drawing lessons from the existing practices Chair, you will agree with me that when you look at the head of services, take intra-group payment for instance, the treatment that will be accorded to intra-group payment will be different from the treatment that will be accorded to maybe automated digital services. And if you take it back to the discussion that we had since morning, you will realize that if the rules are developed and rates, and we are talking about rates, The rates that we apply to intra-group payment will also be different from the rates that we applicable to maybe low margin businesses. And now, does that make the rules more complex? We are talking of possibility for business segmentation and that brings a lot of complexity. But we go back to the TOR and the principles that guide the work, you begin to see that simplicity is not in isolation. is also in the same context with fairness. And we have to find a way to balance the two. In one way, we must aspire to be simple. In another way, we must also aspire to be fair. And fairness in this context means that for those low margin businesses, example, contract manufacturing that are based on cost plus basis, you will not tax them at the rate of 15% like you could possibly tax intra-group payment. So we will have to look at it at that context. And in so saying, Chair, I will also want to suggest that this, apart from this very fruitful debate we are having here, some sort of debate which we want to have in inter-session work groups, have it extensively, find data to support whichever direction the workstream wants to go and then produce something that maybe the plenary could now look at and then give further direction maybe in the future. So that's what we have to say about that for now and we thank you.

Thank you. The delegate of Sierra Leone.

Thank you very much. Thank you very much, Chair. This is my first intervention for the day, and I just want to register my support and alignment to the other African countries when it comes to taxation of cross-border services, especially digital transactions. digital services. Thank you very much, ATAF, for just making the point that I was going to make, that when it comes to the rules, it's very important that we have them generalised, but however, it is important that they are domesticated because the services are different. I mean, Chair, you made a great point that, you know, when it comes to marginal services, Um, in Sierra Leone or in the United States, a doctor is considered to be, um, a very high marginal service, but in Sierra Leone, it's the reverse. So it depends on the, the jurisdiction. And I think it's important that, um, we consider, uh, domesticating the rules as we go. Thank you.

Thank you. This thing. the distinguished delegate of Czech Republic.

Thank you, Chair, for giving me the floor. Well, I don't have any particular answer. I just wanted to say that whatever answer we come up with as the committee should be guided by proper understanding of possible in-scope services, as I mentioned earlier, and then we can decide what rules we need and how to design them. And also, it is crucial to consider specific situation of each member state. And secondly, I would like to say, well, any answer should be also guided by the principles we have discussed earlier this year, such as economic efficiency, ease of administration and ease of compliance, robustness to tax avoidance and evasion. Thank you.

Thanks to Czech Republic. Now to the distinguished representative of major group of children and youth.

Thank you, Chair. I take the floor on behalf of the FFD children and youth constituency of the major group for children and youth. Chair, MGCY does not believe that physical presence of an enterprise is integral to corporate taxation. First, shifting economic trends have demonstrated that enterprises are able to generate significant profit even at the absence of a physical presence. We must recognize that through the development of a digital era, enterprises are able to conduct transactions and provide services to users in a virtual manner. However, if taxation policy is limited to just physical presence, it allows these corporate entities that gain profit through digital and virtual means to avoid taxation, even when it is extracting profit from the people of that state. Hence, we believe that taxation must be centered in the principle of value creation and not physical presence. Secondly, we call for the mobilization of resources in advancing technology in low and middle income states. Regulation of the digital economy is necessary in correcting imbalances in former tax conventions, which have harmed marginalized groups as well as children and youth, and creating a future proof solution that will last for decades to come. We cannot have an equitable future without first eradicating the barriers which limit member states from fully participating in this convention. Therefore, we call for the active involvement of youth in the establishment of innovative sustainable systems that are serving to eradicate the barriers standing between developing nations and full participation in the convention. Chair, children and youth firmly believe in the power and possibility of a global tax convention which can eradicate tax evasion and elicit tax flow while aiding all member states in their completion of the 2030 SDG agenda. However, such convention is only possible when we create innovative novel solutions that can address the existing loopholes of the previous international tax policy. We thank you.

Thank you. Distinguished delegate of Ghana.

All right. Thank you, Chair. And thank you for giving us the floor once again. We want to again commend you for the good work. I think we've had quite good discussions for the past number of hours. And just to touch on the issue on the board with regards to possibility of different rules for different type of services. I think as admired by our colleagues from Kenya and also Austria and India and others have said, certainly services within this scope, we can have just one-size-fits-all for all of them. And I think it's important that we look at those things, of course, as you mentioned, simplicity can also mean that you look at the services and then give them a good treatment to reflect what they actually require in terms of the nexus rule that will reflect and then how we can tax it. And Chair, just to make a quick point or comment here that I think throughout all discussions here, we are not talking about tax rate and I think it's all within the scope of the question that we have answered. The moment we begin to go into differentiation of tax rates And trying to bring in these matters, that will also bring a whole lot of complexities and confusions, and if you're not careful, will derail the efforts of this whole, um, exercise. So, um, I just want to make that comment that let's be guided and stay within the scope, but I think there are a couple of, one or two comments. that was made with respect to tax rate and I think that I want to put on record that we need to be guided within the terms and then just stay within this um five questions as we are putting out thank you chair thank you.

Thank you, delegate of Nigeria.

Okay, thank you, Chair, and Ghana, thank you for bringing up that very important discussion. I think I follow through and support that comment. Nigeria support that because determination of rates is not something that we can do at this forum. It should not be appropriate because the rates are to be determined by respective jurisdictions. And if you look at a particular service like India did mention when you when you spoke about accounting service, it could be high value or attracting higher streams of revenue or income in your country. And that would be a different thing in another place in other places. So we support that position presented by Ghana. that we should just remain focused so that we are not distracted trying to fix what we will not be able to do at this forum. Thank you, Chair.

Thank you, distinguished delegate of Zambia, followed by Kenya.

Thank you, Mr. Chair, for giving me the floor once more. We do welcome the possibility of having different rules for different types of services. However, we just want to re-echo the statement that was read on behalf of the African group by Kenya yesterday. And as mentioned that the protocol should adhere to the principle of simplicity and ease of administration as laid out in the terms of reference. And in that vein, even as we develop these rules, we want to make sure that they will be rules that will be easy to implement for developing countries as well. And also to ensure that the provisions are going to be future proof. Thank you.

Thank you. Thank you, Kenya.

Thank you, Chair. We'd like to start by supporting the comments that have been made by Ghana, Nigeria and Zambia before us, especially with reference to point number four on the screen. We did address this issue in our submissions in the morning by basically saying that we do foresee a situation where we would have different rules for different types of services and that we can't have one-size-fits-all. in terms of the rules that would be adopted, especially when we're looking at the digital economy. But with reference to the differentiation in terms of the rates, we raised the question in the morning of, in relation to the proposal that had been made to have a lower rate for low margin rates, we welcomed the discussion that the chair brought just a few minutes ago in terms of What do we foresee as, as being defined as low margin rates? We had imagined maybe the, the proposals of the lower rate would have, um, explained to us what the definition would have been, but I think it has, uh, become clear that that's not something that would be possible to do. The examples that have come. out across the room that that's not an exercise that can really be done conclusively. So as we said, we do struggle with the proposal to have differentiated rates for low margin services. We just want to reinforce that we don't foresee a differentiation in the rates, but we do see different rules for different types of services. Thank you, Chair.

Thank you. so I don't see any more requests from from the floor or multi-stakeholders so first of all that's good because we were expecting that these questions will take more than two sessions but that's good I think we we worked well together and we we covered and we get the direction on these questions from from the floor and ahead of our time with like 20 minutes so Which is good, so I think it would be a good bonus for everyone to go home early 20 minutes because now we're gonna take your feedback and all what we hear today and We digested and come back tomorrow with maybe another points that we need talk that will come from what you raised today And almost to be also driven from the questions that already we have in the issue notes That everyone already have in his hand. So thank you for all your comments and contributions and interventions. It was very useful for I think for everyone and personally for me I learned from it and looking forward to see you all tomorrow in the same room at 10 a.m. to continue our discussion and work stream 2 protocol 1. Thank you all and have a good evening.