(10th meeting) Intergovernmental Negotiating Committee on the United Nations Framework Convention on International Tax Cooperation - Fourth Session

Good afternoon everyone.

So now we're going to resume our discussions for Work Stream 2, Protocol 1 on Taxation of cross border services. Now we're going to resume the floor, I think with the stakeholders from, from the morning. So I'm going to hand over the floor to Lisa to continue the discussions.

Thank you. Thank you Rami.

And welcome back from lunch. I have, we're picking up from where we finished before lunch and we're going to listen to Stakeholder one, which I understand is Committee on Fiscal Studies. Please present yourself and welcome for your intervention.

Thank you very much. Really appreciate being given the floor.

I wanted to make some observations on the differentiation between the types of services. So last year the Committee on Fiscal Studies we produced a paper listing out the broad range of services that Protocol one could include. So having a broad concept of services is actually very welcomed and we're happy to share the paper if it will be of any interest. And on differentiation between types of services, that would be an ideal way to go. But it should not be done by naming industries or using fixed labels like digital or non digital or even words like automated digital.

And I'll explain a little bit on what I mean by that because those labels are unstable and they can easily be reworked by digital business models. So the more reliable way would be to differentiate services is by looking at how they are delivered. First, some services can be supplied entirely remotely into a market. Others cannot. If a service can earn substantial income from a country without any anyone ever being there, then that raises a different tax question from a service that requires people on the ground.

Second, there are some services that are scalable and repeatable as well. Once the system is built, the same service can be supplied thousands or millions of times to a market with very with very little additional cost. That is a very that is very different from bespoke or one off services where income is naturally limited by performance capacity. And then third, there are some services that depend on sustained engagement with the market itself. Their value grows as users interact, as customers return, or as local demand shapes the service.

And in these cases, the market is not just where payment happens. The market becomes part of how income is generated in itself. So these delivery characteristics explain why existing tax rules at the moment are struggling. They also explain where nexus and taxing rights should arise. So if Protocol 1 differentiates services using these observable features, it avoids rigid lists, it remains forward looking and it gives legal meaning to market connection.

If it does not, we then risk either capturing too much or leaving the core problem untouched. And finally, the text on the slide it mentions automated digital services. I believe. Now the problem with that is that business models have actually moved on. Many services that create the same tax challenges are no longer automated.

They are hybrid. They're combining algorithms with human input. There are platforms with moderation and there are digital interfaces having back end support or subscription software with continuous service layers. So if the protocol relies on automated as the language term or as the defining feature, it will immediately be under inclusive. So I think we need to think about labeling in a more precise way.

Thank you so much.

Thank you very much. And I think you've highlighted some of the difficulties we as tax people have with practical issues, you know, on technical things that you really need to know. And I'm very grateful that you offer your paper. I haven't seen it and I'd be very interested in reading it.

So I'm sure I'm not the only one. If you could perhaps give a link or something, then we could can make sure that those interested get to access to that paper. So thank you very much for that input. I now have iata. Please go ahead.

Thank you. Koglit. I speak on behalf of the International air transport association, IATA, representing 370 airlines and 85% of the global air traffic. We support the interventions calling for a clear differentiation scheme and objective criteria to determine which sectors should fall outside the scope of this protocol. On that basis, international air transport should be treated differently for reasons grounded in economic reality, legal coherence and the avoidance of double and multiple taxation.

Here are some of the reasons. International transport is a critical enabler for development. It connects markets, supports tourism, enables time sensitive trade and provides essential passenger and cargo connectivity for both developed and developing economies. The sector is already governed by a dedicated global tax framework. This regime exists precisely because aviation operates across multiple jurisdictions in a single commercial cycle and cannot be taxed through ordinary source based rules without creating cascading taxation.

Commercial interactions occur globally, not in a single market jurisdiction. Ticket sales, cargo bookings and digital services are consumed and processed across borders. Under the proposed nexus concepts, each point of interaction could generate a separate taxing. Right? Even where no economic activity occurs in in that state, the sector is uniquely vulnerable to competitive disorders.

If some states apply source based tax and others do not, airlines operating identical routes would face materially different tax burdens. This would disorder route economics with direct consequences for connectivity and affordability. IATA stands ready to provide data and technical input to support the assessment of these risks and to help ensure that the protocol avoids unintended economic disorders for states and preserves the integrity of global air connectivity. Thank you.

Thank you very much for that input.

Iata. I now have the ccfd. Terre Solidaire. Please go ahead. Thank you.

Madam Colleague, Madam Colleague, Distinguished delegates, I'm speaking on behalf of CCF d' Tersolidaire and the Global alliance for Tax Justice. We fully recognize the pressure many countries face to secure revenues quickly. Fiscal needs are real and legitimate, in particular in developing countries. My own country, France, was among the first to start taxing parts of the digitalized economy, and for sure it is only fair that all countries get equal opportunities to do the same. In that regard, we welcome discussions on options to promote taxation of services, including possible tools under War Extreme 2 to help countries raise revenues more rapidly.

However, let us be clear. Piecemeal approaches to taxing specific sectors are not a system. They are responses to a broken framework. This first protocol reminds us of a basic principle. No protocol makes sense without a strong convention.

It also underscores the urgency of advancing work on the Framework Convention and with substance and ambition in line with the terms of reference. Through this mandate, we have been tasked by the UN General assembly to reform the entire international tax system, including ensuring a fair allocation of taxing rights and equitable taxation of multinational enterprises across all sectors. Addressing cross border services through a separate legal instrument risk fragmenting the system and producing rules that do not fit into the broader framework. Over the course of the last week's discussions, we have listened carefully to delegations. We have heard that some countries seem to suggest that all the substance must go into protocols.

But we do remain highly concerned about this approach since it would create a highly incoherent and complex system. Seeing the discussion about Protocol 1 reveals how fragile this approach is, and even more so when the Convention's foundations remain unsettled. In particular, in the absence of clear provisions in the Framework Convention, especially in Article 5 on Allocation of taxing rights, it is difficult to understand what this protocol aims then to operationalize. Without agreed principles on who gets to tax, on what basis, and under which conditions, a protocol cannot deliver coherence, equity or predictability. Proceeding in this way risks.

Quite simply, putting the cart before the horse and Article 5 is far from the only gap that remains to be filled in the Convention. I want here to highlight the importance of Article 15 in the draft Convention, which which is meant to address a relation between the Convention and other agreements, including double tax treaties. Taxation of digital services, or rather lack thereof, presents very clear examples of the damaging role that double tax treaties can have when it comes to fair allocation of taxing rights. It is therefore essential that the Convention clarifies that double tax treaties which are inconsistent with it must be renegotiated and or terminated, a basic requirement for credibility in this process and for effective multilateralism. These issues cannot be solved in Protocol 1.

They must be addressed in the Framework Convention. Civil society has consistently raised these concerns and has developed proposals to address them in line with the ambitions of the Terms of Reference. We have, for example, proposed an additional article in the Framework Convention of on the equitable Taxation of Multinational Enterprises, which would provide a solid basis for any future protocol should one actually be needed. Let us not confuse emergency measures with structural solutions. This Protocol addresses only one narrow aspect of a much broader challenge.

A strong Framework Convention could achieve far more, not only addressing cross border services, but but reshaping the entire international system that made these problems inevitable in the first place. Thank you.

Thank you for that intervention. Although I would like to mention that I understand other issues in other parts of this process. But we have a very, very tight agenda to discuss Protocol 1 today, tomorrow and half day on Wednesday. So please, please refrain from intervening on other discussions that's held in other work streams. Please.

Thank you. I now have ataf. Please go ahead. Thank you Khalid. And because my first opportunity to make an intervention, I want to take this opportunity to thank you Khalid and of course the Chair for the efforts that we are all making and the progress that we are making in this work, including this particular work stream.

And in particular we want to appreciate the issues notes which of course provided very good starting point on the scope and other considerations. I want to join the African Group and in particular supporting the intervention made earlier by Nigeria on behalf of Africa Group, strongly supporting that this protocol needs to be broad in scope, that is covering all the services, both services that are rendered physically and also those that are delivered over the Internet or any other electronic media. And we find that broad scope is important because many of our members over the years have had challenges with Internet effective taxation of services, both from the treaty context, where some treaties definitely don't give sufficient taxing rights at all. And also we got challenges associated definitely with digitalization. And therefore this is an opportunity to look at all these issues and fix those gaps onto your specific question as to whether we should have defined differentiation or categorization of services.

I think because of the broad scope is inevitable that we'll have to do that because different categories of services will need different nexus rules, in particular those services that are rendered or delivered physically, physical tests rules will still be remain relevant, automated Digital definitely we need to look at new nexus rules that would include, for example, the location of the users, which definitely would trigger the considerations such as rules to define where a user should be located. We have had before lunch several other considerations such as whether we should be looking at low margin services or core and non core services. Those we can understand from a technical perspective. But I think at this early scoping discussion we caution against those because those different types of services, they are better discussed. When we start thinking about tax methodology at that point, then we can think about what are the other different nuances in terms of categorization.

Colleague, allow me just to mention something which it's our proposal. A lot of work has taken place in the intersection of discussion and of course in this maybe day and a half. And our suggestion is that the next part of the discussion should be a situation where we have the protocol now having the substantive text now structured. And I think that will fast track the discussion and also have more targeted conversation when we have a proper text of the protocol. Thanks.

Thank you very much for that input. I have Stakeholder four, which is BEAS Bombay Charter Accountant Society. Please go ahead.

Thank you, Kholid, for the opportunity. Today morning the room was requested to give solutions for the issue and my comments are, you know, in response to that invitation, although this is not very clearly fitting within the flow of the discussion, looking at what's on the screen, but I thought it's not maybe relevant to give these comments.

The suggestion which I'm making is a little aggressive in nature, out of the box thinking and, you know, so. So from that perspective I'll go a little slow and I hope that this will get attention. What I'm suggesting is that for certain countries it may be possible to levy tax on services even without protocol one. And this may be done by appropriate changes in the domestic law. And let me explain how this can be done.

Article 7 is the problem which is based on a physical presence. Article 7 is using the terms profits of an enterprise. Now this term is not defined. The commentary said that it was thought not necessary to define this term. And it is possible for a country to define this term in the domestic law.

And the reliance can be placed on Article 3 to create this definition. The domestic law definition may be worded to mean that consideration for services or automated digital services, what we want to agree on that should not be treated as profits of an enterprise unless the activities are carried on through a PE in the source country. So what this definition does is that it will close the doors of Article 7 for the purpose of digital services. And then what remains is Article 21. If you look at Article 21 para 3 of the UN model, it gives a taxing rights to the source country.

So wherever this kind of changes are made in the domestic law and the Treaty contains Article 21 based on a UN model, the source country gets a taxing right on services without signing any protocol or this work getting finality. I'm not saying this work is not important. This is the most important. What I suggested is only a partial solution for some of the countries. Now question is, how will this be looked at?

Is it a unilateral TT override? Someone may say that, well, this is an attempt to change the TT terms by unilaterally amending the text of the domestic law. The defense to this could be that no, this is not a unilateral treaty override. There's a clear window available in a tax treaty, but it is a restoring the original intent and purpose of a tax treaty. When the treaties were signed, the digital economy did not exist.

So one cannot read that into Article 7. And it is most appropriate that unintended results which are arising today are curated by changing the domestic law. This will certainly result in disputes. The matter will go to the courts and I believe the courts will look at the intent and purpose of the tax treaties. The business models will prevail in 1920s, 30s, hundreds of years back when the model was created and could decide in favor of the revenue.

The MNEs may want to go for map. That means it will come back to you guys in the room and you all will have to come up with a solution to solve these issues. Does it result in double taxation? Because the country of residence will certainly not want to give credit for it. Now, as I said yesterday or the last week, that MNEs would always achieve what they want by reshaping the business models.

It may not always be possible, but they always do it. So whenever there's a double taxation happening, the MNEs may, or I may advise that they may intentionally create a PE in the source country. And once the PE is created, the country of residence will have an obligation to give credit for the taxes paid in relation to the profits attributable to the pe. So what are my recommendations? My recommendations?

Yes, we continue working on this protocol, but simultaneously we also consider this domestic law proposition. The committee may evaluate this proposition further. If acceptable, further guidance may be given to the developing countries on how to implement this. I believe there's a UN legal team which may be involved to understand whether are we violating the Vienna Conventions and further work may be done on this. Having said that, this is applicable only where the TT has Article 21 based on a UN model.

Thank you. Thank you very much. I think you illustrate very clearly why we're here, because we all understand that we can do legal engineering as we have put up on the slide. And I think what we try to avoid is all these turns and ways around our double tax treaties. Because I think many of us feel that the way things are progressing today, we are undermining the certainty of our tax treaties.

And I think you illustrated it very well. If we can't actually make our agreements in a way that deals with economic circumstances of today, we are going to end up with issues like you proposed. And I think the reason we're here is to try and agree on something that works better for all of us and we can actually keep, you know, the sort of legal force of our tax treaties in the way that perhaps some of us think it should have been. So thank you for the intervention. I think it illustrates exactly why we're here and I hopefully people get more and more enthusiastic about trying to solve issues.

So I have now Stakeholder six, which is the Instituto Brasileiro Derito Tributario. Sorry, my Brazilian is not that great.

Thank you Khalid for giving me the floor. Good afternoon distinguished delegates. My name is Matthias and I am representing the Brazilian Institute of Tax Law, ibdt, A Brazilian non profit academic institution dedicated to teaching and academic research in tax law, including international and comparative taxation. We would like to make a brief consideration in relation to the proposition of the material scope of the Convention, namely regarding the service covered from the perspective of IBDT. We welcome the intention that Protocol 1 should encompass a broad range of cross border services and remain simple, administrable and adaptable to evolving business models.

These characteristics are essential for ensuring the protocol effectiveness and long term relevance. That said, the IBDT respectfully does not support the introduction of a categorization of services within the material scope of Protocol 1. While categorization is can appear to offer technical clarity, in practice tends to generate significant complexity. Service categories create boundary disputes, encourage recategorization and increase the risk of inconsistent domestic applications and interpretations. And as services increasingly overlap, residue classifications are likely to become quickly outdated, undermining legal certainty and increasing compliance and dispensation resolution costs.

The IBDT suggests an alternative approach adopting a single broad definition of cross border services, not only to define the material scope but also in relation to each. The nexus rules would be applied and all these services falling within the scope of Protocol 1 will be subject to the same nexus rules for purpose of source taxation. We know that there's a huge challenge to design nexus rules that can be applied to every single kind of services. But we think that it's a challenge that's worth facing because if countries can design rules that can be applied to every single service, we will not have problems in interpretation of these categories and we will avoid the the legal engineering that has been discussed earlier. So under this model, without the differentiation between services and a single rules of nexus being applied to every single services, the focus will be on the design of nexus rules and discussions will be focused on the essential that is the choice of the nexus that can assure a fair allocation of taxing rights.

And by prioritizing nexus rules over service categorization, IBDT considers that Protocol one would better promote simplicity, neutrality and coherence without reducing interpretive fragmentation across jurisdictions. From the IBDT academic standard standpoint, this approach is more consistent with the objectives of the Framework Convention and with the fair allocation of taxing rights. We are very grateful for the opportunity to speak here today. Thank you Co Chair.

Thank you very much for that intervention.

And I think you're right, there are trade offs and I think we're going to hear more on that when we go forward with the nexus conversation discussion. Now we going to listen to the intervention of the Representative for the Children and Youth International. Please go ahead.

Thank you Chair, Distinguished delegates and Excellencies, My name is Alan Creeda Dayal and I have the honor to deliver this statement on behalf of the Financing for Development Children and Youth constituency within the UN Major Group for Children and Youth. I approach this dialogue as a technologist and product designer who has spent years building digital systems where policy meets livid experiences as youth.

We welcome the focus of Protocol 1 on the taxation of income derived from cross border services in an increasingly digitalized and globalized economy. Copenhagen promised full employment and Doha reaffirmed it. Yet young people today face precarious gig work, wage stagnation and exclusion from decision making. We have commitments but we lack employment implementation on the ground. Young people are underemployed and over educated.

Over a billion work informally invisible in statistics central to survival. Yet unprotected women and marginalized youth, particularly at risk groups, traditionally discriminated against based on work and descent, face compounded barriers and this is not inevitable. It is a choice. One of the largest challenges to implementation is confusion regarding definitions as expressed by many of the members of this committee. Committee collaboration becomes difficult without clear and transparent definition, so we urge the establishment of a global tax convention that must meet the respective needs of all nations.

Therefore, we believe that it would be most beneficial for the Protocol to take on a broader definition of taxable services, thus including all services that promote monetary revenue. Using this broader definition, the Protocol should then work to establish bilateral agreements and treaties between member States through which they can agree upon and redefine services that may need to be excluded. Through this structure, we can build a global tax infrastructure that doesn't infringe rapidly upon the individual interests of member states, but supports collaboration and multilateralism. The steps towards an equitable tax convention must begin at the localized level, leveraging relationships between member states, civil society, and the youth, before being transformed into a global multilateral effort in which all can participate in for children and youth, this discussion is not Abstract. It directly shapes the fiscal space available for education, health, social protection, and digital infrastructure.

The Foundations of Intergenerational Equity we have seen how the digital economy has transformed how value is created, delivered, and captured. Yet current international tax rules continue to privilege for physical presence over economic reality. As noted in the CO Lead's Draft Options paper, an increasing number of Member states recognize that traditional rules developed in the 1930s no longer produce appropriate results in an era where services are performed remotely. As a result, profits generated through digital and cross border services are often undertaxed in the jurisdictions where users and communities are located, particularly in developing countries, so to ensure Protocol 1 delivers fairness in development. Lastly, emphasize three key points.

First, taxing rights must be rebalanced. Protocol 1 should ensure that source countries, especially developing countries, have clear administrative rights to tax income derived from cross border services, including highly digital digitalized services. We advocate for a nexus based on significant economic presence, acknowledging that interaction with the market through data generation and a user base constitutes a relevant economic link justifying taxing rights even without physical presence. Without this, countries with the youngest populations will continue to lose critical public revenue, exasperating inequality across generations. By rebalancing these rights, youth majority nations can reclaim the fiscal sovereignty necessary to fund the education and infrastructure that allow their young populations to drive global growth.

Second, simplicity and inclusiveness must guide the design of this protocol. Highly complex rules often aggravate constraints in administrative capacity for developing nations. We encourage negotiators to prioritize straightforward rules and standardize gross basis without holding taxes where appropriate, as they are easier to administer and mitigate profit sharing risks. In this pursuit, we must remember that privacy is not secrecy. While we protect individual data we must recognize that MNEs are not rights holders and must be transparent.

A global tax architecture that only works for a few would not necessarily be a just one. And lastly, intergenerational and developmental impacts must be explicit, explicitly recognized. In recent years, the major group for children and youth, Global Caucus for Decent Jobs and Sustainable Economies, has partnered with the UN and governments to track youth employment policies and ensure diverse young people have a seat at the decision making table. We highlight the Decent Jobs for Youth initiative as a model to scale up action through catalytic investments. We strongly advocate to link revenue mobilized through fair taxation of cross border services to sustainable development outcomes, including investments in youth employment and universal connectivity.

We suggest improving the language of the agenda to explicitly prioritize the social dimension of sustainable development, ensuring that no right holder is left behind as children and youth. We also want to leave the discussion, raising two questions for this committee to consider. One, what implementation and follow up mechanisms are needed at the global and national level to realize our commitments to decent work for all and how can we ensure that it's supported by meaningful inclusion of youth and civil society? And two, how can we align the implementation of Protocol 1 with the Doha Political Declaration and the Sevilla commitment to ensure sustainable people centered financing for social development, including the creation of quality employment and the expansion of social protection floors for those traditionally excluded? This negotiating committee has a historic opportunity to correct long standing imbalances in international taxation.

Protocol 1 must not reinforce existing inequalities under digital veneer. Instead it should advance fairness, development and intergenerational justice. We stand ready to collaborate with Member States, civil society and the UN system to help shape a practical, equitable protocol that can be implemented effectively by all. And we stand ready to support a framework that ensures the digital economy contributes its fair share for today's children and tomorrow's generations. I thank you.

Thank you very much. Again, please remember that we have an agenda today. Protocol 1 and if the input I hope could be more specific to the agenda that we're discussing. I'm happy to hear some quite general comments there. But the agenda we would really like if you can concentrate and respect respond to the agenda, please.

Now we have stakeholder two, which is the Committee on Fiscal Studies. Please go ahead.

Thank you Madam Co Chair for this opportunity. My name is Faith Amaro. I have been analyzing data on cross border services from a tax perspective at the request of the G24. The data and analysis may be helpful for delegates in relation to the discussion of the different categories of services. We use data from the OECD WTO balance trading services as well as the OECD International Trading Services data sets which are consistent with the IMF Extended Balance of Payments Manual.

In addition, these organizations jointly published a handbook on measuring digital trade in 2023. We analyzed data for the most recent year, which is 2023, for cross border services imports, defined as services provided to customers in a country by a non resident. According to our estimates, the breakdown is in four broad categories. The first is services that require some physical presence and so they are classified as not digitally deliverable. These we estimate to be 30%.

They include international transportation, construction, waste treatment, agricultural, mining services, etc. The second are services that are digitally deliverable. These can be delivered remotely but require some human input. We estimate those to be 25%. They include technical and professional services and many business to business type services.

The third are the automated digital services. These can be delivered remotely but don't require human input. We expect of course with the cloud, big data and AI that this category will expand rapidly in the coming years. But we estimate that it currently is 35% of all cross border services. So it includes a wide range from financial services to insurance and pension licenses for software, telecom, et cetera.

A smaller category of those are digital services taxes. These have a varied scope, but we estimate that overall they cover only about a third of automated digital services and just 13% of the total cross border services. And they are the targeted taxes on streaming, cloud computing, digital intermediation, etc. The final one, which should not be forgotten are the charges for the use of intellectual property rights which excludes software licensing. These we estimate to be about 10% of all cross border service payments.

These are of course categorized under tax treaties as royalties and they may be taxable at source. And we're happy to make this paper available for the delegates. Thank you Madam Chair.

Thank you very much. Yes, that would be very appreciated.

Thank you very much for that input. I have odi. Please go ahead.

Thank you. I would like to come back to a point raised by Egypt on how different services can entail different profit shifting risks.

I think this is very important to highlight because when deciding on what to exclude from the types of services, like for instance, it has been well documented in the literature on profit shifting that intra group services is one of the channels that is used by large multinationals on profit shifting. So it's just to highlight that before deciding on which service to exclude, it should be assessed the level of profit shifting for it. Thank you, thank you very much for that input. Yeah, this has been something that has been put into the discussion. It's, you know, the criteria of profit shifting or the sort of risk of profit shifting should definitely be part of the discussion there.

Thank you very much. So with that we don't have any other statements from the stakeholders so we would move on then to the next slide which is finally Nexis. So please, we have put some questions for you. There is the support for providing different nexus rule for different type of services? We already sort of hinted on that we would be able to look at different types of services.

Are the proposed approaches in section 3B appropriate? Referring to the options paper, of course. Are there other proposed nexus rules that should be considered? And then we have some comments on physical presence or remote and digital services. So I will open the floor now which I hope you are prepared to give us your input because we've already sort of covered some of the ideas about the nexus, but now we is really going hopefully to focus more in detail on when a state may tax.

So please go ahead.

So I have the United Arab Emirates. Please go ahead. Thank you for breaking the ice.

Thank you Madam Kholid. So on nexus, our thoughts are that the payment for the service in itself to us isn't sufficient to create a nexus and the majority of the taxation that should occur should occur where the key value drivers, significant people functions and the key entrepreneurial risk taking functions are situated.

But ultimately, I think it's important that we recognize that there is still sound economic rationale that a number of input factors create value and that's still best captured by net basis form of taxation. Thank you.

Thank you United Arab Emirates, Germany.

Thank you Madam Kohlid.

In terms of nexus, Germany recognizes the concerns articulated by many countries regarding the adequacy of existing rules in capturing new business models and remote service provision. At the same time, Germany remains guided by the principle that taxing rights should correspond to genuine economic activity, value creation and meaningful participation in markets. This principle is central to ensuring fairness, efficiency and stability in the international tax system while reducing incentives for international, for, excuse me, artificial profit shifting. In this regard, we continue to place a high priority on solutions that are coherent with and built upon internationally agreed and existing standards. We therefore underscore our strong preference for multilateral consensus based approaches designed to address the tax challenges arising from digitalization through a coordinated allocation of taxing rights on related profits and enhanced certainty for both tax administrations and businesses.

We note the discussion of expanded source based taxing rights through payer based nexus rules, gross basis withholding taxes and newer instruments such as digital Service taxes and significant economic present test. While we acknowledge that such approaches are seen by some Member States as administratively simple and responsive to revenue needs, we have concerns that widespread reliance on these mechanisms, risk fragmentation of the international tax framework, increased risks of double taxation and uncertainty for cross border investment and trade. Overall, we encourage further work to reinforce clear and operational links to international recognized criteria, including updated nexus concepts, treaty based allocation rules and established transfer pricing principles. In our view, a clearer and more precise articulation of business activity and value creation would help ensure consistent interpretation, avoid overlap with existing standards and preserve the integrity of bilateral tax treaties and multilateral agreements. We caution against approaches that rely primarily on gross basis taxation without adequate regard to profitability and the allocation of profits.

These may result in taxation that is not aligned with net economic income. Thank you very much. Thank you.

Germany Italy Please go ahead.

We share much of the two previous speaker said. We also understand that withholding taxes may be simple to administer, but it should be recognized that they have some drawbacks in terms of economic distortion, negative impact on FDIs and inflationary pressure on the market. So we struggle to accept that the general application of the withholding taxes on payment for a service actually constitutes the most appropriate operational response to the issue addressed in Protocol 1. From our standpoint, the involvement in the production process and the contribution to devalue creation are key to establish whether or not the location of the payer or the user is relevant for the economic activity and therefore can trigger attribution of taxing rights to the State where they are located. It is clear that the pure notion of consumer does not add any contribution to the creation of economic value.

It is appropriate to build an axis whenever consumer or user contribute to value creation by providing data, content, feedback and networks, especially on digital platforms. In this respect, we could be open to discuss the approach of the significant economic presence. The Protocol should translate in clear nexus through all the connecting factors encompassed in the commitment in the Framework Convention so as to allow the effective exercise of taxing rights while avoiding any undesirable overlap and uncertainty, as well as the risk of multiple taxation. Thank you Co Chair. Thank you very much.

Italy Nigeria Please go ahead.

Thank you. Madam Co Chair Kolid, thank you for giving us the floor. I will be speaking on behalf of the African Group. For African Group we generally support the direction in section 11B. I mean section 3D of the paper.

But specifically we support providing different nexus. We support having different nexus which should be established through a combination of one payments or remittance based triggers, market engagements, then physical presence for physical presence, we are of the view that any presence should be sufficient and we are not considering having a PE style concept of physical presence, therefore remote and digital presence. We are of the view that payment or remittance based triggers as well as market engagement will be sufficient nexus. And in that regard we are not considering having sustain. The word sustain or significant may not.

Such adjustments may not be necessary. We are not considering looking at threshold or sustained or revenue threshold or consistent or significant. For us such wording will be unnecessary. What we are looking at is engaged market engagement and payment or remittance trigger. And in that respect we are looking at sourcing rules that will encompass where services are performed fiscally in that state.

A state should have should have the right to tax where services are performed fiscally in that state or where payment for the services is made from that state or where the consumer or, I mean sorry, where the user of the services is located in that state or where the consideration received for providing services depends on end users that are in that state or where the services provided depends on user data that is generated from that state and any other rules that the state parties may from time to time agree or develop. Because as the way of business change or as technology change, we note that there may be need for the state parties to look at the possibility of including more rules. But for now we will be looking at those 5 sourcing rule in respect of the nexus that has to do with remote or digital services provision. Thank you.

Thank you very much for that.

Nigeria India Please go ahead.

Thank you Madam Kohlid and I also thank the speakers who spoke before me. Now the section begins with a question and I also have only questions. Now we've heard some words being mentioned like value creation or payment trigger. And then we also heard that businesses may develop. So we need to have a protocol or we need to have a solution which will catch up with those developments.

My question is that has business not developed so far? I think it has. And that is the reason why the answer to all these questions is not so simple. Now let's take an example of the word value creation. Value creation can mean different things in different business circumstances.

India, for example, is full of, as I said sometime back, is full of service providers. We are full of software developers. The question that often comes to our mind is that where is value created? Is it created in countries like India where a lion's share of the actual work of software development is done, or is it created in the parent company where there are some decision makers who sign off on the decisions that are are taken by engineers sitting in India or is value created in regional headquarters in some country who provide some sort of managerial or human services. So I don't think this question is so easy to simply say that wherever value is created and then to identify as to where that value is created and assign all the remuneration or alliance share of the remuneration to that jurisdiction.

Take the case of a distributor. India is a huge market and a huge amount of profits are generated from the Indian market. So is the Indian market then the value creator or is the value creator only in that jurisdiction where the trademark lies or where the legal owner of the trademark lies of the goods that are sold in countries like India? India is a huge market. There are users, huge number of users who are in India of digital services which are being provided from some other jurisdiction.

Where is the value created? So I think there is no one answer. So to say that, I mean with due regard I can understand the concerns of different jurisdictions that the payment should be a trigger where the payer is, that should be the trigger, that should be the only trigger or where, so on and so forth. I mean I don't want to belabor the point. So in fact this goes back to the discussion we had some time ago as to whether we need to have differentiated differentiation about services or have a differentiated list of services.

This only goes to strengthen that point that this is not. There is no cut and dried answer. We have to get to answers. It's not for a moment that we say that we step back from that challenge. But yes, these are different concepts that we have to work on where physical presence has worked on so far.

We can continue with physical presence, but there are business segments where physical presence has not worked, it has failed. So we need to work on that. But what would be the solution for that? So I don't have an sir immediately. Maybe we'll find an answer as we go along.

But these are some of the issues that I wanted to flag. I will not make any comment as of now as to whether withholding tax or gross based taxation system is better. I think that's the next section, so we will come to that later. But this is what some of the concerns that I wanted to flag. Thank you.

Thank you Inda. And I think, you know, you open the floor with questions and you know it's good that we can.

I think the concerns that you raised are concerns that many of us have and you know, we need to listen to members now what the reactions are to this and if we have anything that we could move forward on with that, Rami, please go ahead.

Thank you. Maybe because of the intervention of India, I would like. And especially you were talking about the value creation. So I would like to add, like maybe from my point of view that there is a different dimension for value creation.

Because usually I hear all the conversations are going around where the value is created as if the value is created just one time in one place. But here I will go away from the idea of technology and digitalization and let's look for example, like for oil and gas company in which they go for country, they extract the oil. Then after that they do all the refining. Then they sell it as a gas for cars. Actually, as a consumers, the oil in its raw shape, this black thing, like it's with no value for us.

I will never put it in my car. It will not work. It's with no value for me. It will be with the value when it's refined. And I get it in the sort of liquid things that I can put it in my car, make it work.

But the oil is of a value for the oil and gas company because actually without it, the factories will not work. They need to get this oil. So they put it in their factories, then it work. Then here, where the machines and the factory create the value which then they sell it another tier of value that go again for the clients, the final consumer in which they pay. If we're going to look for similar example for the technology, if you talk to any of the technology companies, they will say the value is not in the data.

The value is on the processing that we do for the data. Actually the data used to be there again, the oil and gas used to be there in the soil all the time. So the data is creating value for the company. Then the company processes, then they sell it to their consumers for marketing, for data analysis, for whatever. So we can say that where is the values created, the value created indifferent in the market jurisdiction in which you collect the data.

It is of a value which is created now for the company itself. Then the company do another tier of processing in which they create a different type of value which is relevant to the end consumer. So the value is created within the supply chain in different tiers of the processing, processing. So we can say that like it is the normal argument that the data doesn't create value because it's there and the technology is the thing who add value to it. So what will happen if you didn't collect the data?

What the technology will do nothing. If there is no data to process it and do all this analysis, then you can sell it. So then he. But here's the value go to the company. Then the company converted to a different form of.

Of value that's relevant to the end user, the same which happened with the natural resources. So maybe we need to look at the value creation with different dimensions, not as where it's created, as if it's created just in one spot and this is where the attack should take place. But maybe it's created in different forms, different levels, different places on the same time. But maybe it's the value here was a different shape relevant to different things. So just trying to express my point of view.

Hopefully it may add something to the discussion. Thank you.

Thank you, Ramya. Absolutely. I think, you know, the discussion we're having is making the little gray cells working, which is what we want.

We want little gray cells working. I have. Jamaica, please go ahead. Thank you very much. Khalid.

Khalid. We are pondering the coherence between this paragraph and Article 5 of the Framework Convention, especially where there may be different nexus rules for different types of services in the context where Article 5 is seeking to determine what elements constitute fair allocation of taxing rights, for example, value created where the market exists. We're just trying to. Our concern is that if you have different nexus rules for different types of services, would that conflict with Article 5, which would determine what is a fair allocation of taxing rights?

Thank you, Jamaica. I'm not sure I am the right person to respond to that, but I think the discussions in Work Stream one will have to carry on and I think for purposes of ours, let's see what we think is the right answer and then, you know, inputs from this group or these views hopefully works together with what's going on in other work streams discussions. I see the point you're making and I think, you know, being aware of it is important. Thank you. I have Peru Porfao.

Thank you very much, Madam Coordinator for giving me the floor. With regard to the questions raised as established by paragraph 35 and 36 of the document that's been shared, we are in favour of establishing specific criteria for every type of service addressing the specific characteristics of each of those groups. Along these same lines, we agree with using the nexus of the identity of the payer for the services provided remotely and for digital service. For digital services we could use the location criteria where the users are based based on the IP, as is noted in paragraph 35. Thank you.

36. Thank you, Belgium. Please go ahead.

Thank You Chair, sorry. So thanks for the presentation and thanks for the explanation. Belgium would like to align itself with Italy, Germany and partially uae. We would be willing to look further into the payer based source rule, but this needs further adequate economic analysis. According to us concerning automated digital services, where user location proxies are mentioned, these raise privacy, reliability and auditability concerns for us.

So we would prefer auditable location proxies, data retention standards, and we would also be in favor of safe harbors for small service providers. The intervention by distinguished delegates of India was very interesting to us and we would like to align ourselves with where he says that it is a very difficult discussion to say where value is created. And as the chair also mentioned, difficult. Different states could presume or could claim that they have created value. We could also say that the biggest value, as the delegate of India mentioned, could be where the business decisions has happened, where the capital, where the investments have been taken place, so where the entrepreneurial risks were taken.

So this is a difficulty. And that comes then to the if there are different states that claim to have created value, there will be multiple taxation possible. And then the other question remains, there should be some relief because the investors will search for relief for multiple or double taxation. So this is also a question that is really important in discussing the whole with the nexus debate. And further, of course, we still consider physical presence also as an important conceptually sound and administrative nexus for the taxation of many traditional services.

Thank you. Thank you very much. I think just a comment on the physical presence because I think physical presence, Different members or administrations thinks differently about what is a physical presence. I mean, you could be there 20 hours, you could be there a week, you could be there six months. But you know, physical presence by itself could be 30 minutes and then you're gone.

So once we talk about physical presence, we have to be aware that in fact, physical presence in Article 5 actually doesn't say anything about, you know, the time. It's just interpretation. And that's one of the issues that, you know, we need to, you know, you sort of think let's not undermine the way we understand tax treaties. But the thing is, you know, a country who hasn't signed up to a tax treaty, hasn't signed up to the OECD model or the UN model, how do they understand the physical presence? You know, I've seen some countries who have said that for them a PE is when the contract is signed in their country, that might take a day.

So, you know, physical presence is a slippery slope as well. So we can't just say sort of physical presence. I think we need to say a little bit more as well on that because it could be, you know, it could be expanded on or it could be. It's discussable. So just wanted to put that into the nexus discussion.

Please. I have. Kenya, please go ahead.

Thank you. Khalid, Good afternoon.

I would start by aligning our thoughts with what had been presented by Nigeria on behalf of the African group.

I think we need to ask ourselves why we are here in terms of trying to move away from the status quo.

The status quo has been gravitating around physical presence. And right now we are trying to come up with nexuses that would attend to the metamorphosis that has taken place within the services themselves. And that is why we are looking at how do we identify new nexus rules that would assist.

In taxing the new order of services?

I think that's said and done. There is this element of value creation, and I think it has been touched upon by quite a number of delegates.

There is an issue about the value creation, and we see the kind of definition that is being given to it tends to gravitate towards the supply side only. However, if you look at what actually creates value across a particular transaction, it consists of both demand and supply factors. And here we are saying we do understand that the status quo that was there was in relation to the supply factors, but we are looking at now the demand factors because of the nature of or the way the services are being provided currently. So you realize that if we are to clearly look at the value drivers and correctly identify these particular value drivers, you'll start realizing that also the market has a place in this particular transaction. Because the market actually serves as an essential arena where economic value, the economic value that we are talking about is actually realized at the market, which acts as an intersection of customer needs, competitive differentiation, and also organizational strategy, as alluded by delegates from India.

Further, it creates value by facilitating exchanges. Actually, that is where the point of value within the market comes in.

That is a point where farms actually turn these services into revenue. Because you can have an expertise, but if you do not have an audience to actually disseminate your expertise, then the expertise that lies within yourself would not have value in itself. You must have an audience. And that is why we are saying in this discussion we need to include the market side of it. Also, we are not saying it's not the only one, but we need to include it.

And that is why we are bringing in other nexuses to the equation for the question of Physical presence.

Today in the morning we had a discussion about the super bowl. And during that halftime you could see the kind of money that actually was used within a very short period. And you were asking yourself if this was Kenya and the service providers come from without, set up a multi billion kind of event within 5 minutes or 10 minutes and walk away, you'd be asking yourself with the current definition of physical presence, would you be able to actually tax that kind of service that was delivered? That is a question that I would wish to pose. So those are the things that we really need to look at.

And then the other issue would be when we are looking at now these nexuses that we've mentioned, like for example, payment, we need to also look at how are we going to define this payment? And I think it's something that we've kept on discussing about. For example, if a cost has been credited in a, in a taxpayer's book, for us that is a kind of payment and howsoever it's been dealt with within the books because there is a cost that sits there. So that should also cover the payment definition. Then when we go to the aspect of location, we are thinking of having.

Clear definitions or rules that would actually indicate where location of a particular user exists. And we have quite a number of definitions that we would actually want to put across. So that is basically what we are saying, that within a value chain there are quite a number of factors that come into play both from the supply side and the demand side. So when we come up with nexus rules, we need to be looking at both sides of the, of the divide. Thank you.

Thank you very much for that input. Kenya, I have Botswana. Please go ahead.

Thank you, Madam Kauhlid for offering us the opportunity to see speak. Madam K. Firstly, we align with the submissions made by the African group. We share the same sentiment as that of the submissions from Kenya. Madam K, earlier on we alluded to unpacking of the phrase economic substance. And we of the view that we are slowly running into that junction where everything now leads to what economic substance may mean.

But from, for, for our submissions, Madam Kholid, we, we are comfortable with the approaches as stated in section 3B. We're of the view that from especially from our jurisdiction, for example, when dealing with digital services, we are more concerned with identification of payers and significant economic interaction. So of the view that currently the approaches that have been set up in section 3B will lead to a more comfortable discussion on those areas. Thank you.

Thank you. Botswana, I have France. Please go ahead. France and after France, Austria. So France, please.

Thank you, Chair. Yes, just a few further thoughts indeed, France, as we said from the very outset, very pleased to see the, that the nexus of physical presence is being included and is put at the top of the list there on the screen so that we're aware of how important it is.

I think from the very outset it's been one of the founding, most basic criteria for taxation and how this taxation is distributed. And so it's important to keep this as a criterion. It's important to keep it and it's also important that we are able to define it and to set thresholds because essentially we're also defining in doing so things that don't form part of this nexus but could come part of remote services. For example, I'd like to highlight, as I did the first time I spoke, that there are quite a lot of us in this room that have a tax convention network and states who have signed to tax conventions also. They need data and principles that are in line with their tax conventions, particularly the UN model.

So as I say it, it's important to have a stable criterion for physical presence in line what we have already in the model for tax convention that was created at the un. But I do know, and we of course recognize that it's important for all of us to find other nexuses that are better for some services. But I do think that using these physical presence criteria, we could find criteria for remote services.

And lastly, I wanted to go on to the idea of value creation. I listened very carefully to the example that was given by the Chair referring to the creation of value on a good oil.

But that raised quite a few questions for me, particularly in terms of services, because you could have the same service that is provided between from one enterprise business to another and the same service is then improved as it goes from one business to another. I'm just saying this because these goods that go from one business to another, much like a service, and take an example service that's gone from one business to another each time it's transferred, value is created, but it also includes the value that has would have already been taxed.

So in that example, if we start working on this idea of value, we need to remove and isolate this idea of overvalue because it's important to be able to work on a position that is supported by a business.

So that's the first question I had on this then, that we need to be able to be clear on the real value for a business. And then secondly, does that then mean that we need to deduce the initial value so that perhaps is part of the charges. So I do have, therefore questions on that, on the basis of taxation and also on the method for taxing, to be very specific, because we're talking about services. If you take the management of client data, you can have a date, you can have a business that collects client data, cleans it up and structures it, and then brings it in line with rules on data protection. And that service has already been provided.

And then that data is sold to a second business that this business then also makes improvement to this data, breaking it down, analyzing it, creating models to predict other issues from this. And so that also creates added value. And then this data is still being sold and that's another service that's being provided. And then the third business then that in this pipeline can then provide other services that can do marketing, targeted offers, client customer campaigns, for example. So as I sit, perhaps it goes back to what we were saying at the very beginning, distinguishing between services, but services in physical versus remote services, etc.

But here you can see a whole chain of services use the same service, but then each time value is added.

So sorry to make this perhaps more complicated, but I think it is important to take these kind of chains of value creation into account. Thank you very much. Thank you very much. You certainly got my little grey cells working. I think it's really helpful and I think, you know, you might make it more difficult, but that's what we need at this stage.

So thank you, thank you for that input. And I think it's really helpful to get more, the practical, you know, the ways for, you know, how to deal with this in a practical sense, that what's going to happen as much as we can, because we tax people. But, you know, imagining the problems is our task at this moment. So thank you for that input. Austria, please go ahead.

Thank you, Kohlid. And hopefully I'll also get your gray cells to work a little harder. And maybe after that we could have some coffee. But you were asking on the slide if the proposed approaches in section 3B were appropriate. And going back to section 3B, there are actually several approaches in there.

And so let me comment quickly on the different ones. So the first is that with regard to traditional services, there should be an allocation rule in tax treaties that is based on payments. So the sourcing rule is where the payer is located, which is in our opinion, actually not appropriate in every circumstances. We've heard a lot about different types of services and that should be taken in to account. And I think that when we think about nexus for income derived by business activity, we originally had the PE concept because it was a proxy for meaningful economic activity in a given country.

And while business models might have changed and here I think I completely agree with what we've heard already in the room, the underlying rationale of a nexus in a tax treaty might not. And so I think we think that different types of nexus and different types of thresholds need to be considered. The second approach in section 3B is actually a measure to counter base erosion profit shifting. This actually when you read the text comes a little bit as a surprise that it is introduced like in between these different types of tax treaty concepts or allocation rule concepts. But nevertheless, let me quickly say something on that.

I think for better for being able to evaluate whether we need such a measure, it would be very helpful to understand how exactly services are used for base erosion profit shifting in an M and E. I mean we heard a lot about BEPS during the BEPS project and I mean we addressed a lot of those BEPS measures by the use of IP or also through interest deductibility and stuff in other BEPS sections. So would be helpful. And most of these actions were addressed to kind of making sure that where there is no substance, no profit should be allocated. So now I find it a little bit harder to understand it in the context of service because usually when a service is provided, there's some substance behind it. I mean there must be people who provide the service.

What is more, while the paper cites the IMF paper that says that a withholding tax can be an effective measure against beps, I would also like to point towards the fact that we have also just introduced a rather broad measure to address remaining BAPS risks which is a global minimum tax will still remain to be seen how effective that that will be to to tackle further BEPS risks. So when thinking about this and also listening now to other interventions about value creation and, and everything, I was, I was wondering if the whole discussion is not really more a question of value creation within an M and E and actually the question of which countries are entitled to actually tax residual profits of an M and E that operate globally and derive their profits from acting as an M and E as opposed to a single entity. So just a little bit food for thought, the third approach that you mentioned that is mentioned in the paper is targeted to automated digital services. And here I think just to mention we've seen in pillar one discussions that there's a lot of merit in Having a more global approach actually to avoid proliferation of unilateral measures. I think was a lot of talk about how uncoordinated approaches can be harmful for the overall economy.

But nevertheless, I think it would be good here to look into kind of non treaty solutions such as dsts. So that was a lot. On your second question, I skipped the first one. On the third one, I think just a simple yes, I think other proposed nexus rules and threshold should be considered. Thank you, colleague.

Thank you Austria. Now if you prepare, propose other options, we need to hear them. You know that, that's why we're here. So you're not getting off the hook that easy. So thank you Austria.

I have China and then Spain.

Thank you, Madam Colleague. I would like to thank the colleagues taking the floor before me. Very thoughtful and helpful comments. Actually, for the time being, I don't have the answers for this slide. These are very difficult issues.

But I would like to share some of my thoughts triggered by the previous comments. In particular the comments by Mr. Chair Rami and also the distinguished representative of India.

Yes, indeed, there might be different value creation or value creating factors or nexus points in real cases, as per our relevant experience we drew from our previous working cases. Basically you will have a very big spreadsheet or matrix identifying or listing out all possible specific factors or nexus points and then negotiate to determine which one are more relevant and which ones should be taken out. And the next step is to negotiate to determine the contribution portion ratio for each identified factor. This should be done case by case under bilateral context and very often being too complicated for both CAs and then ends up, I mean in many cases it will end up agreeing to disagree. So now we are talking about a multilateral contest.

I don't know how to make it work. Things may be more complicated, maybe threefold or fivefold complicated, where more stakeholders, more countries, more CAs are involved and even more sourcing rules are taking into consideration in the same case for a same taxpayer. So I would like to hear to flag again here the risks of a double or multitaxation here, which concerns me quite a lot and which we should be very careful to deal with later on. Thank you, Chair. Thank you.

China.

I have Spain and then Canada. Please go ahead.

Gracias. Thank you.

Well, I don't have any answers either, but I just wanted to comment a bit on the nexuses as we have in our approach in 3B because that's what we're being asked to comment on. But in principle we think that this is the right approach in terms of the traditional services, the traditional nexus of physical presence. We think it's correct that we keep that for this type of services that are provided with physical presence. We're also referring to the possibility of looking at economic presence for services that are difficult to trace or that are provided personally but remotely. This is a slightly more complicated concept.

It's harder to define. We might face more difficulties in defining it. But I think it's interesting for us to. To be able to explore this economic, substantial economic presence nexus. However, in terms of this type of services provided remotely, the identity nexus, I think is perhaps simpler and could be more useful, therefore.

But it is at the same time true that billing could carry or invoicing could be done through a third country and this could lead to distortions. We don't therefore think that it would be an appropriate type of nexus. Finally, we refer to the more modern or technological nexuses for more digitalized automatised services. These are, for instance, the IP address that we are using for digital invoicing. And we think that this is a nexus that correctly reflects not necessarily all of the added value, but at least a large part of that added value of the service provided.

That's all. Thanks.

Thank you. Yes, a short. You know, the thing is, with this, we have to be very aware of how technology is moving the IP identity. And I don't know, I'm saying too much now, but those who ask, or the world that likes to watch television, cross border, you can now contract vpn, international vpn, so you can access different television areas of the world. So we have to be aware of these difficulties, you know, to identify really the payment identity of the payer, etc.

Adding more complexity to our discussions. But I think we need to be aware of it when we try to pin down some solutions. Perhaps there should be a combination of solutions, combination of nexuses to trigger the real taxation. Canada, please go ahead.

Thank you, Madam Chair.

So, in looking at the question of nexus for business income, which is the question we're dealing with here, I understand there's a. In theory, you could try to dissociate this question from that of how the income would be taxed, although I find that in practical practice it's difficult to isolate the two questions and that how you would tax the income under a certain nexus is important to consider in determining your views on the nexus per se.

But at the same time, I think in the end you should assess the options here based on. On the same list of criteria, not only fairness, but also what economic impact it would have ease of implementation if compliance costs, it would add for businesses. So we should still try to assess the various options that we were talking about according to the same grid work, the same criteria here.

And an example of that I think is the example that the chair gave of the value change and the value being created at various steps in the value change, which is certainly right. But here the question is each change at each step in the chain, what should be. Is there a different nexus? I think in a situation like this, if you, if your approach is a tax on a gross basis, where you tax the whole revenues, well, you would, there would be a cascading effect and you would. It would have ultimately result in very high effective tax rates.

So that if you determine that at the last step of the change, let's say you tax the whole value that has been created, but at the same time that some other countries, some other jurisdiction would have tax income at earlier stage, it would result in a very high effective tax rate. And that should be taken into account obviously.

So that said, overall, I think we are the same sentiment of the distinguished colleague from Germany as to the value of the physical presence test. We also consider that this remains the appropriate approach for the vast majority of situation of the type of services being provided. We do recognize that things are changing, that the technology is evolving. And probably in line with the comment from the distinguished delegate from India. We certainly agree that we need to consider how things are changing at the same time, but we need to, we agree that more work is needed to determine exactly how the evolution that we're seeing is affecting our approach to nixos.

Because to some extent, remote provision of services is not a new business model. To the same extent, I would say that user participation is a new business model. But even for user participation, I think it would be useful to have to look into that changes more in depth and see exactly the change that should be triggering a new nexus in that particular situation.

And I would also want to agree. Sorry I should have mentioned earlier, but in support of the current approach, as I share the comment that was made by the delegate from Austria that profit shifting, there's other approaches to address concerns with respect to profit shifting, including as she mentioned, pillar two that it's not. But I don't see that concern of profit shifting or should disqualify the current approach per se. I think that's a separate issue that should be dealt with the other solutions that exist right now. Thank you.

Thank you very much. And I think highlighting the enforceability, the administratability etc. Not only for business but also for, you know, administration. Tax administration is a very important part. Thank you Canada for that input.

I have Japan, please go ahead.

Thank you Khalid. I totally, we totally agree with Canada and I wanted to comment briefly that Japan still thinks that physical presence is important. Important and within physical presence we believe firmament establishment like requirements is still needed. But we also understand that technologies and digital environment is really evolving fast. So we first need to understand the current situation and we need to carefully consider tax systems that contribute to future development of the digital economy in each country and that do not discourage direct investment.

So we believe that we should not avoid hasty discussions and we prefer to discuss more farther into this issue. Thank you. Thank you very much. Japan, United Kingdom, please go ahead. Thank you.

Madam Kohlid. We agree with other members such as Japan, Canada, some others, that physical presence continues to provide an appropriate criterion for taxable nexus in most circumstances. And we think it should remain a significant factor in allocating tax rights. And I think what we're hearing is that there's still quite strong support for that across a wide range of countries. Whether you go further from that is another question.

I mean, just to repeat the perhaps well known arguments for physical presence is it generally indicates the strongest connection with the state through for instance the service provider making use of the state, infrastructure services, etc. In a way that won't be the case where the services are provided remotely from outside the state. We do accept that there can be a case for moving away from that in certain clearly defined circumstances. For instance, possible greater market allocation of taxing rights over the profit of the largest and most profitable MNEs, particularly those providing digital services. But I think we've probably all agreed that a one size fits all approach to taxation of cross border services is unlikely to be appropriate just on the nexus of payer.

It's not clear to us why the normal location of the payer should itself justify a nexus for taxation of services generally. I think we agree with my colleague on my left here, the uae, you made a very similar point and there are situations where it clearly doesn't provide a sensible or administrable basis for taxation. Thank you.

Thank you, United Kingdom. Let me just remind you a little bit.

When you talk about physical presence and you know, we don't have a complete agreement in this room on what is a pe, on what is a physical presence. So you know, just saying physical presence is not very helpful. You know, you need to sort of specify what you mean by a physical presence because as I said some countries here think that a physical presence constitutes a PE. If you're there and sign a contract and that's 24 hours. So is that what we are going for or is it something different, a physical presence type?

I think we need to say a little bit more. That's what I'm saying. The physical presence by itself is not. It doesn't give a flair for what you actually want to do because remember, we are in a setting where different members are, you know, having different views here. So we just can't assume that everyone will understand physical presence in the same way.

So I would. If you're going to use that concept of physical presence, it will be helpful if you add something to it. What you mean by that physical presence. I have. And after Zambia, Saudi Arabia.

Please go ahead, Zambia. Thank you so much Khalid. And thank you to Secretariat and to you Khalid, for the proposals that were made in the draft proposal. We consider them to be very progressive and serving as a very good starting point for discussion of the nexus. Zambia generally agrees with the position that was shared by a delegate from Nigeria on behalf of Africa Group and also aligns with the submissions that came from Nigeria or rather from Kenya as well as Botswana as Zambia.

Our view is that we agree with the proposal for a plural and flexible approach to nexus. Recognizing that different categories of services may justify different connecting factors. Zambia maintains that the Protocol must clearly affirm the right of of the source state to tax income arising from cross border services, including where such services are delivered remotely. This right should not be contingent solely on physical presence, long duration thresholds or profit attribution exercises that are often difficult to administer in practice. Instead, the Protocol should recognize that economic participation in the market, including through payment flows and service consumption, constitutes a sufficient basis for source state taxation.

In particular, Khalid, our view is that physical performance of services within a jurisdiction should continue to constitute a sufficient nexus. However, we are also mindful of the challenges that have come with the current understanding or treatment of physical presence which is often based on permanent establishments. From experience we've come to understand that often permanent establishments facilitate avoidance through structuring. So much fragmentation is involved which tends to allow taxpayers to avoid the creation of a permanent establishment that would ultimately constitute physical presence. And therefore we are of the view that it would be important indeed to have a discussion on what really constitutes physical presence.

Lower time thresholds would be helpful if possible. Any presence could serve as sufficient to avoid the current scenario where the time thresholds that are currently in existence are circumvented and Therefore making it difficult to establish physical presence through pes in terms of remotely delivered services, especially management, technical consultancy and other intra group services. We have the view that peer based source rules provide a clear, administrable and auditable nexus for automated digital services. Market or user based indicators should be recognized of course using objective proxies such as where value is created, revenues are generated, user or data is located or economic activities are carried out and therefore we strongly align with the submission by Africa Group in terms of of the nexus as well as source rules that were submitted. Zambia considers these principles to be essential to restoring balance in the allocation of taxing rights and to addressing long standing structural symmetries in the international tax system.

We further agree with the Africa Group in terms of remote or digital services, the use of words such as significant or sustained economic interaction tend to connote some kind of threshold and we are of the view that any economic interaction should be sufficient to denote nexus. Zambia does not support stagnation by restricting ourselves to prevailing rigid or exclusive nexus hierarchies that would unduly constrain source state taxing rights or facilitate avoidance through structuring. Thank you Chair. Thank you very much for that input Zambia. Very helpful.

I have Saudi Arabia, please go ahead. Thank you very much Kholid and to answer your first question directly, yes, we see a merit in having different nexus rules applying to different types of services provided this is done in a coherent and a structured way. And to jump to the third question, we would like to know the physical presence. While it is still relevant for certain services, it is insufficient for digital and highly technology enabled business models even for non digital services. Advances in technology now allow services to be delivered over much shorter periods than traditional PEs permanent establishment thresholds which may no longer fully capture a meaningful meaningful economic participation and hence we believe that such shorter durations or times be considered in one of those nexus rules.

And for digital businesses or digital services like you mentioned co lead, it is important to recognize that different models create values in different ways. For example, in advertising based models the relevant economic link may be the location of the viewers or users, whereas cloud or subscription based services the payer's location may be an appropriate one. And also on that note I agree with Kenya's comment to define each nexus rules, I think that will be helpful and also referring back to your comment on what is a physical presence and it would be good to have definition of these rules and maybe to get back to the second question we believe it is well section 3B is helpful and provided Helpful notes. But we believe it is still important to think about how these nexus rules are intended to work with one another in practice. We feel that it is not clear whether the protocol envisages a hierarchy of a nexus or parallel tests and how the applicable sourcing rules would be defined where more or one or more nexuses applies.

And maybe, yeah, I think it would be good to start a step by step process to help us envisage how these rules would look like or how we should consider them. Thank you. Thank you very much for that input. That's also helpful. I'm a bit concerned to have a coffee break.

I'm sorry, Austria, but I, you know, it's only 45 minutes to go and you know, it will be, you know, we would lose a lot of time and we started late as well. So next if you want to pop out and get the coffee, you're okay, but I propose to just carry on because we do have quite a few speakers left here on the screen. So sorry for that, those of you who need your coffee and intake, but perhaps there are other ways to deal with that. So. Papa, New guinea, please go ahead.

Thank you. Kholid. I want to echo the sentiments of some of the delegates of who have taken the floor before me. For NEXUS purposes. Papua New guinea deems that any presence is sufficient should be sufficient.

The protocol should not have rules similar to those under existing frameworks that set time thresholds and promote the PE style concept. These existing rules inhibit Papua New guinea from getting its fair share of taxes from taxpayers that provide services in PNG and whom we are trying to set rules for under this framework and the accompanying protocol to obligate them to pay their fair share of taxes. As for remote and digital services with regards to this agenda, PNG is currently pursuing this agenda domestically to impose an indirect tax on such services. The work that we are doing places prominence on location of users and payers and sets a revenue threshold. And we propose that the protocol consider these two aspects as rules pertaining to remote and digital services.

We look forward to further discussions on the NEXUS rules. Thank you. Thank you very much. Papi. I have now Sierra Leone.

Please go ahead.

Thank you, Khalid.

Sierra Leone aligns with the statement made by Nigeria on behalf of the African group. As echoed and supported by many other countries. Sierra Leone emphasizes that nexus rules must reflect modern service delivery, preserve source based tax in rights and remain administratively workable for developing countries. Countries nexus should be based on meaningful economic connection, not solely on physical presence. On the question of different nexus rules for different types of services.

SIALUN believes that different nexus rules may apply to broad categories of services, particularly traditional and person services, remote, digital or automated services, but should avoid overly fragmented service by service nexus rules. Differentiation should be functional, not sector specific. Our rationale for this is that different services create value differently. A single nexus rule cannot fairly capture on site consultancy or cloud computing or platform based intermediation. Cilune supports differentiated nexus approaches where services differ fundamentally in how value is created and delivered while cautioning against excessive fragmentation that would increase disputes and compliance burdens coming to the statements Are the proposed approaches in section 3B appropriate?

CRM believes it is partially appropriate but insufficient on their own. CRM believes that Section 3B approaches are useful as a starting point. However, they must go beyond traditional PE concepts explicitly accommodate remote and digital services include simplified nexus triggers. Our concern would be repackage PE style concepts use high thresholds rely on facts difficult for developing countries to verify. CIRN emphasizes that while the approaches in Section 3B provide a useful basis, CRU considers they should be complemented by clear and simplified dexa's rules for remote and digital services to ensure effectiveness for developing countries.

On the question, other nexus rules that should be considered silent supports withholding tax based nexus revenue based nexus user based nexus significant economic interactions. We believe that these are easier to administer, less dependent on information asymmetric and more reflective of market based value creation and on physical presence nexus. Sierra Leone believes that the question is any presence sufficient? No, but minimal presence should suffice. Presence should not require fixed place of business, extensive infrastructure or activities.

Creating value locally should matter more than form on time threshold. Certain views on this east yes, but with lower and flexible thresholds. Traditional 183 days thresholds are outdated, easily avoided. So Sierra Leone would prefer shorter cumulative thresholds and activity based measures. Time threshold should reflect the economic reality of services provision rather than traditionally easily avoidable benchmarks on PE style concepts.

Sierra Leone stands is that not as the sole or dominant nexus rule for Sierra Leone. PE concepts were designed for brick and mortar businesses do not work well for modern services. PE remain one option among several, not the gatekeeper for taxing rights. Permanent establishment concept may remain relevant but should not be determined native for nexus in respect of modern cross border services. For remote and digital services nexus the question on identify of the taxpayer yes pay allocation is a valid nexus, especially where payments originate in a country.

In the source country withholding mechanisms exist. Why we consider this is because easy to verify low administrative costs already used in many African tax systems on location of Users? Yes, particularly for digital and platform services. Users contribute to value creations. Market jurisdictions deserve taxing rights.

We caution that it should be supported by proxies example billing address, IP, SIEM, executor, etc. Avoid overly complex tracing requirements on revenue threshold. Yes, but threshold must be low and realistic. High threshold exclude developing countries entirely. Revenue threshold should be calibrated to the economic scale of developing countries and not mirror thresholds designed for large economics.

On significant economic interactions we say yes because it is a carbon and nexus principles captures success. Sustained participation in the local economy does not rely on physical presence aligned with digital economic realities. Significant economic interactions provide a balanced and forward looking basis for nexus, particularly for remote and digital services and should form a central pillar of the Nexus framework. CILUN continues to align with the African group considers that nexus rules must reflect modern patterns of service delivery. While physical presence may remain relevant for certain traditional services, it cannot be the primary basis for taxing rights and expect of remote and digital services.

Thank you, Chair. Thank you very much, Sierra Leone. That was a very detailed input and very helpful. Thank you. I have Ireland.

Please go ahead.

Thank you for giving me the floor, Madame Kolid. In terms of general comments on the paper and the protocol, to save time, I'll just add that I'd echo the comments of the delegates for Germany, Japan and the UK and then in terms of specific comments on section 3b of the paper, just to add a few points, paragraph 33 of the paper proposes that the Protocol should apply to services that are provided physically and that we need to consider whether a taxing right granted for those services provided physically would be subject to a PE requirement or a time threshold. In our view, this PE requirement is absolutely necessary as otherwise the Protocol would be creating a significant admin burden for taxpayers and will be practically unadministrable for tax authorities. Also in that same section, as I think the Delegate for Austria touched upon paragraph 35 notes that to counter BEPS shifting BEPS within M and E groups, we need to consider taking steps such as limiting deductions for intercompany payments in specific circumstances.

Here I feel we're changing the scope of our work. My understanding is that the purpose of the Protocol is to address the limitations of the traditional rules for taxation of cross border services in the digital economy. Questions of NEXUS essentially, and that sentence relates to further BEPS measures which in our view sits outside the scope of the Protocol. Thank you, Madam Kholid.

Thank you, Alan. Don't worry, we have time. You don't need to reduce yourself so Please be very happy to hear your input. Thank you. Don't worry, you're very welcome to make more input.

Senegal, please go ahead.

Merci, Madame la Presidente. Thank you. Chair. Just to answer your question, Senegal supports the existence of different nexuses because we have different services in different areas, traditional services and we also have digital ones. So I prefer not to use the expression physical presence as you underscored, because that has a different definition depending on the state that's using it.

I prefer to use it to say traditional services. So for them, in terms of taxation we have the criteria for establishing permanent presence and that applies if there's a treaty and if necessary then it's then the provisions of that treaty that would apply. If there's no treaty, then of course each state is going to apply the provisions that they think is the most appropriate. I see that there's a lot of states that apply taxation revenue source for cross border services in absence of a tax convention. And so then they automatically end up with a situation where there's a double taxation.

And I think the aim of this protocol would be to have a multilateral solution which would address these double tax situations. Another aspect on digital services.

And ads' I think there are, we've listed the various factors, but would it be perhaps be better to use a combination of these factors because perhaps one's not going to work and then you risk getting stuck. But for example, you have the identity of the payer, you also have the location of the users. But if the payer is in a different country from the place where the service is being generated, there are two criteria. There's a payer in X country and the service is in country Y. So now which country would have the right to tax that?

So I think we do need to use a combination of factors. And if we say that if a condition isn't met, then there's a second option. So then that would be a way of having a taxation system that is more consistent. Another element that I wanted to highlight, we talked about thresholds, but I think these are. This might come up further down the line in the more administrative administration, tax administration section.

And at that time we will need to also be able to take into account costs linked to tax management. If there are charges linked to the taxation, if that's higher than the tax income, then that would be inefficient taxation. So these are the parameters that we should take into account in the future and how we discuss this further down the line. Thank you. So thank you very much.

Senegal. I'm very happy. We're getting very good input here. So Switzerland, please go ahead.

Thank you. Thank you, Madam Kholid, do you hear me?

Yeah.

Thank you Madam Khalid. Briefly, we've heard many interesting interventions and we can see the complexity of the problem.

I think it's important to maybe come back to what Japan said and the big distinction between ads and then other services. And I would also focus on automated digital services especially, or at least put that as one category. And then next to that you have normal services with the whole physical presence debate, which is quite complex as we can see. Just so to keep in mind that are really two fundamentally different categories for me.

Thank you very much. Switzerland. I just wanted to remind you we heard from a stakeholder that completely 100% automated services might not be what's going on. So please be aware of that. So I mean we do need to keep up with technology, but it seems to be hybrid.

That's what I heard. So we need probably to think a little bit more about just talking about automated digital services. Algeria, please go ahead.

Thank you. Madam Chair.

We would echo what was said by the African group presented by Nigeria and supported by several countries in our national capacity. We'd like to provide some additional information. We support the preparation of new nexus rules that recognize the economic role of market jurisdictions, including the lack of physical presence. We believe that the identity of the payer or the location of the users are identified objective administrative consistent criteria in line with the current economy. We are in agreement with the approaches in section 3B, but we think that we should take into account several nexus criteria according to the nature of the service, that is Economic, digital or physical presence.

The nexus allows jurisdiction to impose cross border services and must take into account the different nexus rules depending on the service provided. In terms of automatised digital services, the user location or another approach is most in line with the nature of those services. More in line than the approach based on the payer's identity. Because through that type of services we see situations in which users and payers are not necessarily in the same same jurisdiction as was flagged by the representative of Senegal. Thank you.

Thank you very much. Algeria, I have United Republic of Tanzania. Please go ahead.

Thank you. Madam Kholid. Tanzania aligns on the statement made by Nigeria on behalf of the African group and many other countries in support of the statement. We appreciate that the colleagues draft options paper responds to many of the concerns raised by developing countries, particularly the recognition that traditional physical presence role does not adequately address remotely delivered services in that sustained interaction with the market through payment, consumption, user base or data generation can justify taxing rights for the market jurisdiction. In line with this Madam colleague, we support a clear move towards source taxation reflecting where the marketing users are located.

As many speakers noted, value is realized where there is a market or consumer. Therefore, relying solely on existing supply side nexus concepts is increasingly insufficient. Tanzania supports the development of new nexus rules that capture market engagements such as payment based nexus and where relevant objective indicators linked to where the consolidation received for providing the services depends on end users user location and user data while preserving flexibility to accommodate future business models as they evolve. I thank you Madam College. Thank you very much Tanzania.

I have Nigeria. Please go ahead.

Thank you Madam colleague and we appreciate you for the wonderful work that you are doing leading this work stream too. Nigeria had earlier made a statement on behalf of the African group and in addition to that, we want to say again that the statement that we had made that we made, we are in support of it, no doubt about that. We also want to make following elaboration in order to clarify our technical rationale that will be our preferred approach to nexus design for cross border services. Nigeria considers differentiated nexus rules that are essential to ensure that existing taxing right reflect economic reality of our various categories of services are supplied. Especially in modern days, a single uniform nexus standard will definitely fail to capture these distinctive ways in which value is being created better physical, remotely and digital service delivery.

So differentiation is therefore necessary as it will encourage accuracy, fairness and administrability. So when we speak of physical physically performed services, we support physical presence based nexus for services that are performed within a jurisdiction. We do not however consider it necessary appropriate to rely on the traditional permanent permanent establishment concept. What are rationale nature of the activity in itself? The physically performed services inform the presence of either persons or assets in the market.

Rendition and a physical presence test capture this reality without the complexity and threshold that are associated with pe. When you speak to administrative administrative administrative simplicity fiscal presence networks avoid the interpretative disputes that often arise under PE concept. When you talk of fixed place dependent agent fragmentation, it provides a clearer and more predictable basis for such taxation and also alignment with economic substance. The value creation in physically performed services is tied to where the service is is executed. A tailored physically presence rule ensure that taxing rights follow that substance speaking to remote and digitally render services for services that these are services deliver without physical presence.

We support necessary rule that are based on identity of the payer, the location of the user and economic interaction with the market. But we are not in support of revenue threshold because we know that economics of jurisdictions differs from each other. And as a tax man, when you see taxable income, you don't look the other way. So for us, if the income is taxable, then tax must be paid. So these are important factors in determining the the moving forward in this respect.

On the identity of the payer. When the payer is located in the jurisdiction. This established clear economic link between the service provider and the market. And this is what the physical presence has been doing during the brick and mortar years. Just the interaction of the service provider and the market, which is one of the things that could be done in modern days without necessarily having to come to our jurisdiction.

User location is widely accepted proceed for market engagement in digital transactions. And it reflects where the services is consumed and where value is effectively realized. And on economic transaction interactions, which is meaningful interaction with the user's market, whether through digital income interfaces, platforms or remote service channels, demonstrate purposeful engagement with the market jurisdiction. This aligns with modern nexus concepts that are used in digital task frameworks globally. Together, this criteria ensure that the remote and digital service providers with significant market participation contribute appropriately to the jurisdictions where economic value is generated, even if where physical presence is absent.

Thank you, Madam Kochia. Thank you first for your kind words and thank you also for that detailed technical input. Thank you. Very helpful. I now have Brazil.

Please go ahead.

Thank you. Thank you, Madam Koleder. I think that as other jurisdiction, I think that service are increasingly provided remotely as a result of the technology. So service that were once provided in person are now being delivered remotely. So.

And this movement will continue to increase, to evolve. So consequently, the traditional tax nexus based on physical presence in the future will become obsolete. So in that sense we think that it's important to use a combination of the nexus rules because it's difficult to recognize and even in the future exactly which service or provided physically and not because the technology is allowing this movement. So.

As other comments that were made before, we believe that maybe we should consider a combination of this nexus rules. So thank you. Thank you very much. Brazil. I don't have any other members, so we will start with the stakeholders.

We will start with the first stakeholder is De Justicia.

Thank you, Madame Kid. I'm going to speak in Spanish.

Distinguished delegates. My name is Maria Matamoros. I'm speaking on behalf of the Center Studies of Justice for Colombia and other civil society organizations. We believe it's crucial to strengthen the Framework convention, particularly Article 5 and the protocols developed there under establishing nexus rules that go beyond the physical presence and promoting a clear harmonized approach to determine a new nexus criteria which would allow a country to tax companies that have a significant operation in their country. Some Latin American countries, such as Colombia, already use income tax based on significant economic presence as a part of the efforts to adapt the tax system to digitalization.

This example has shown that we need a multilateral approach that ensures consistency in how it's applied. This means that we need to define monetary and non monetary thresholds that could be compared between jurisdictions so that the economic participation of cross border companies in every market is recognized on an equitable basis. Further, it means adopting simplified methodologies to assign utilities to jurisdictions in which the income is generated where other rules would be difficult to apply. This would establish clear criteria for interaction with clients and create methodologies to address this kind of approach. In Colombia, the digital sector represents between 3 to 4% of the national GDP.

The majority of this value is for cross border services. This bears out the increasing integration of the country in global digital markets. However, the tax collection related to significant economic presence, which is currently equivalent to around 1% of the current national tax proceeds, shows a broad margin to strengthen tax systems in this expanding area of the economy. This disparity is in line with a clear approach. A substantial number of households receive income, which means that we need international tax rules that better reflect where economic activity is carried out.

Finally, it's important to include rules that take into account fragmented income between affiliates, the use of users on marketplaces to elude tax obligations, together with registration systems for non resident taxpayers supported by administrative cooperation, more robust international tax cooperation. Thank you. Thank you very much. Stakeholder number one, which I think is Seatini Southern Eastern Africa Trade Information and Negotiation Institute. Please go ahead.

Thank you. Chair Aloysius Chitengo. I work for Southern and Eastern Africa Trade Information and Negotiation Institute. Speaking on behalf of the Africa Civil Society Working Group on UN Tax Convention.

Chair, it should be noted that when the PE or permanent establishment was developed, it worked for the brick and mortar economy where physical presence in building is required. Traditional payment method such as cash check credit were used. Face to face interaction between the buyer and the seller took place and there was physical delivery of goods. However, in a digital economy where there is no need for physical presence in a country, but all is needed is Internet. And if you remember what you talked about of the vpn, the VPN and the Internet, online transfer of funds, no physical interaction where even an email address is sufficient to transact the concept of a permanent establishment is outdated.

Traditional services such as transport, you can Line it with uber communication, accommodation, education among others can now be provided remotely. This means that by allowing the outdated PE rules that require physical presence, we are essentially limiting the taxing rights of the source countries.

There has been attempt to right this situation by introducing the nexus through payment, but this has certainly not been enough. For instance, the article on taxation of technical service has not been taken up by many existing double taxation agreements which further demonstrates resistance towards transforming the nexus rule to allow source countries taxing rights. A study which we conducted on 741 double taxation agreements, only 29% contained Article 12A of the UN Model Taxation.

This calls for a multilateral harmonized approach in transforming the nexus rule cemented within both the framework Convention Article 5 and in the renegotiation of the double taxation agreement that currently restricts source country right to tax. I thank you Chair.

Thank you very much for that input. Practical uptake on models and the difficulties of course I've seen studies on the uptake of 12A the old technical service article in the UN model and I was actually quite surprised that quite large amount of tax treaties had taken it up. But we could talk about that in specific. I think the point is that of course you have to look at the new treaties that you know the percentage of new treaties from a certain date when as of when the 12A was in introduced. But you know it's a good input.

We're here to solve issues on cross border services and the way that we should tax them in the future. And one of the issues that still stands out to me is that there's quite a few countries who don't sign up to tax treaties and the way we should perhaps help those countries if they need any help to decide on these issues. I think we stand ready to try to be that multilateral forum where everyone feels comfortable with the solution. I have stakeholder 2 which is the Committee on Fiscal Studies. Please go ahead.

Thank you very much. Madam Kholid, earlier in the morning you had a separate slide up and you presented about three potential approaches to nexus that was physical payment and economic substance. And I think each one of them has a merit when looked at it in its specific context. And already there's a lot of literature around significant economic presence and also a lot of countries that have begun to implement sep. So there's a lot to learn on that front.

But. But now onto payment as nexus, that's quite striking. It seems to be appropriate where there happens to be a direct cross border service transaction, for example, where a fee is paid for technical Services for management services and consultancy. And in these cases, withholding at the point of payment becomes effective and could actually be the protocol's primary rule. But the digital economy has created service relationships that do not depend on a direct payment from the market jurisdiction.

And I want you to think of it in the sense of a platform that collects data from millions of users in one jurisdiction and then goes ahead to monetize that particular data in a different jurisdiction. And then we've also got search engines that would sell adverts targeted to consumers in one jurisdiction, but then they would invoice the advertiser from a different jurisdiction. And then we also have like a streaming service, Netflix, for example. It would build its entire subscriber base and content strategy around audience engagement in a jurisdiction, but would go ahead and route the subscription payments through intermediary entities from multiple other jurisdictions. Jurisdictions.

So in each of these cases that I've presented, you're going to see that there happens to be sustained economic activity in the market jurisdiction. There is value being extracted from it, but there is no single identifiable service payment flowing out of it on which to impose a withholding obligation. So for these transactions, the protocol requires a different sort of a threshold, one based not on payment, but rather on the scale of the provider's economic engagement with the jurisdiction. So I'm thinking of terms like revenue attributable to users in a particular jurisdiction, the volume of data that is derived from the jurisdiction, the size of active users in a particular jurisdiction that constitutes the user base. These are measurable indicators of economic presence that can actually ground a taxing right where the payment nexus will not be able to.

So I think the protocol should also perhaps think about setting a de minimis revenue threshold, which is tuned to the size of each economy above which the jurisdiction may tax. And also, Madam Kohli, you had also made reference to vpn, explaining that location can be ingenuous engineered. That's a huge problem because in addition to vpn, there are a lot more ways on routing choices that allows multiple firms, multinational corporations, and even individuals to mask where users are and where services are actually delivered. So if the tax rules rely on technical indicators such as the IP address or the billing point or even the service location, they will always be one step behind. Now, the answer then is to kind of anchor nexus in economic dependence.

This is where a firm's profits would rely on sustained engagement with a jurisdiction's user or even the data environment. And data has the potential of giving a lot of information in terms of how to even design an entire tax methodology. And that jurisdiction therefore will have a legitimate taxing claim even if the digital trail is being manipulated. So I think the test should be where whether the business model depends on that market, not whether the firm admits to actually being there. Thank you very much.

Thank you very much for that input. I think my little grey cells are a little bit tired by now. Sorry, but that was very, very interesting, your comments. So thank you very much for that. I now have actually five minutes to go and I think I have.

Jamaica has asked for the floor. So as a member you have priority, of course. Thank you. Thank you, Kohlid. And I'm going to be brief.

I'm just going to add our voice to the issue of physical presence and take each question separately in terms of is any presence sufficient? We believe that there must be an economic presence. And so we align our voice to others who have commented that the presence should be determined by value creation or market presence or other, any other type of next rule that contemplates modern business models, including digital services. In terms of time threshold, we believe that that depends on the type of service and PE style concept. If we interpret this to mean what we currently have in treaties as the permanent establishment rules, then we would agree that those rules are not fit for purpose.

Nevertheless, we believe that there is a place for physical presence rules and that they would be probably more valuable in this where we are now in terms of economic activity. Physical presence would be more valuable as a proxy for countries that may not have the technology to determine using the market presence or value creation. But the current PE rules would have to be updated for them to be useful.

Thank you very much, Jamaica, for that. I think we're going to stop there because I have three more, four more who have asked for the floor from stakeholders. So we start with them tomorrow morning, when we come back for the next session tomorrow at 10 o'. Clock, please. Thank you very much.

Good night and thank you so much for all your input today.