2nd meeting, 33rd Session of the Committee of Experts on International Cooperation in Tax Matters
Meetings & Events
Date: 20 October 2026
Language: English
Transcript: https://transcripts.un.org/zh/asset/k1e/k1ev4cqrdk?lang=en
Transcripts available through this tool are created by using automatic speech recognition and are not official records nor official documents of the United Nations. Official records and official documents are available on the Official Document System of the United Nations.

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Co-Chair [0:09]:

Good afternoon, colleagues. The meeting is called to order. I'm sure we are all much energized now to continue with session we have before us the coordinator for the United Nations manual for the negotiation of tax treaty we are on agenda item 3b and that will be CRP 13 CRP 13. And to lead us in the discussion is Gyan Anis Gang. Gyan, please go ahead.


Co-Coordinator [1:16]:

Thank you, Mr. Co-chair. A warm welcome to everybody. It's nice to see my fellow committee members today and also the different stakeholders. It's always a privilege to meet physically and to exchange, and it's always an exciting week here in Geneva and in New York twice a year. Before I start, maybe I'll introduce Chris Goncalves, who's from Australia. He's new in the UN Secretariat, and with Irving, they both support the manual work amongst other subcommittees and I already thank you very much for your support in preparing the documents and during the work stream meetings. It's much appreciated. So today, we have an hour and 15 minutes to talk about the progress of the subcommittee on the manual for the negotiation of bilateral tax treaties. Our agenda, if we want to go to the slide from the agenda, will be to recap the what the manual is very briefly and our mandate just as background. And then we're going to recap the work we've done since March, the work streams and the timeline and talk about the annex paper presentation where you saw the product of our drafting groups and the changes we are proposing for the manual. I don't think we'll need one hour and 15 minutes for this presentation but that's not a problem because we have some very interesting issues coming up for the rest of the week so and of course as we present this first draft I think the first thing to say is that there's probably a room for improvements so we're very interested in having your feedback and your comments and if you have some To be the most efficient, what works the best too would be some written comments with drafting proposals if you really see something to improve. So the manual was first published in 1978. It was revised in 2003, 2015, 2019, 2023. It's right here. You can see the last version. I think it's a practical tool that's used quite often in the real world. And the goal of the manual is to help, well, developing countries, but also developed countries, but in particular people who are maybe starting or are new to tax treaties. to, in a nutshell, recap the issues for every article, for every issue, and kind of as a introduction and a guide before, to help prepare for negotiations. So we had talked about this already in October a year ago, and we heard the committee who underlined the importance of maintaining the usability of the manual, the practicality and the accessibility, and something that has been mentioned is maybe using visual tools and concise explanations of key provisions on key issues. So you remember we established a subcommittee on the update of the manual and something and there's two co-coordinators. There's myself, Jen Sandri, and there's Carlos Proto from Argentina, a long-standing member of this committee who now is an observer and who couldn't make it to Geneva this year. So Unfortunately, he will not be able to present this with me today. So the subcommittee is composed by current members and also participants, outside participants, many of them who were involved in the discussions for the changes of the the last committee, the 2025 version of the model. So since, maybe we can go to the next slide. So the mandate, well, the mandate of the subcommittee is to make recommendations on the content of the update just from a timeline point of view in October 2028. And we're supposed to report at every session, which this is the session where we're reporting for -- and the 33rd session. You can go ahead to the next one. Did we skip -- I also had that Yeah, just I think we skipped. You can go ahead one more. There, this one. What was the mandate exactly? It was to up that the following principles had to be followed, that the update reflects current version of the United Nations Model Tax Convention and its commentaries. So that's the That is going to become work stream one, and what we're working on, it's adapting all the articles that have changed in the model, and of course you have to change the manual to go with the new version of the model. And then the second work stream, I think work stream is a very popular term in some committees, the second work stream is to pay special attention to the experience of developing countries and reflect the realities, the priorities, try to see where things can be improved in the manual and on different topics and seeing what comes out of feedback we get in capacity development in particular. We can go ahead and flip to So, work stream in March 2026, still, this is still the background of what we're going to talk about today. And just as a reminder, the 32nd session, the committee approved the structure and sequencing of the work consisting of a two-step approach. The first step was to align the UN Manual with the recent changes to the 2025 UN model. And that's the priority. So that's what we've been working on. And then the second step is work stream two, and that will be practical guidance on negotiation challenges. You can go ahead to the next slide. And just from a timeline point of view, you have the We had two virtual meetings on 30 April 2026 and 4 September 2026, two subcommittee meetings to identify the elements to be developed and to follow what was being doing in the drafting group and drafting modalities. And then you had Workstream 1, a small drafting group headed by Carlos and Art Roloffson that many of you know are so longstanding member of this committee. And it made sense that they were guiding the work stream one since it's essentially implementing the articles that they have worked on the previous committee. So we met with work stream or work stream one met on 7 July 2026 and 24 August 2026. And then we had some more discussions for September 2026. So the result of these, the work of work stream one is included in the annex of this report. So I hope those of you who are into the manual were able to read these because we're not going to be able to go through all the details, but you'll have seen the result of work stream one. For work stream two, we have met with the sub, and the two meetings in particular, 4th of September. and we are working on establishing a list of topics and the priorities for this list. We sent out a detailed questionnaire for inputs and discussions, and as planned, this will come as the second step and particular between now and March, where we're going to get into more details regarding work stream two. There'll be more on that coming up. And then finally, from a timing point of view, our subcommittee will be meeting on the 11th of November 2026 for preliminary discussions on work stream two, the results of the input of the questionnaire that from all the different members of our subcommittee. And additionally, well, we'll have to still continue finalizing work stream 11, one, since there's still some work to do there. So maybe we can get into the annex and what there is that I have here. It is a paper smart meeting, but I still print mine out since I'm an old timer. But here you have seen the different updates that need to be made in the manual. We can go to the next slide and list them. You have a new article one, paragraph three, the subject to tax rule. You have the new article 5A, the income from the exploration for or exploitation of natural resources. The revised article 6 on international shipping and air transport. You have inclusion of software in article 12, in the royalties article. The new article 12C on source tax on insurance premiums. and the deletion of article 14 that was also decided by the previous committee on independent personal services, and finally, additions to article 25, the relationship between tax treaties and other agreements. So basically, in the annex, you'll find a proposal for modified commentary on all these articles. There's still one article that we're still working on. We haven't finalized yet. It's the guidance for Article 12 AA, and that we're still working on, and that will be presented in the next meeting in March 20-- or April 2027. as it is also one of the very important changes of last, the last committee. You can go ahead to the next slide. Well, before we dig into the different articles, briefly, I would say, just from a philosophy point of view, what are we trying to do as we are adapting these articles. And I guess one thing we, the goal of the manual is not to just repeat the commentary of the model. So you have to find a balance in being concise and trying to recap what's in the model without repeating what's in the model because we want to keep, I mean, you can compare the size of both both these books, you can see which one is smaller. We want to keep it small. So, that's one of the goals is to be synthetic and quite brief. We also want to be coherent with what exists already. So, we're building on long, as you saw, it's been 20, more than 20 years of work on this manual. So, trying to inspire for how things were said before and do that now for the new articles. We want something to be practical and realistic, so try to, we don't want the person who's reading it to be more confused at the end of reading the paragraphs than before starting reading them, so trying to, something that's going to make sense and that really is going to clarify the different options that the negotiator has. And of course, there's always a political aspect to choosing options. We want to really try to stay as neutral as possible, reflect what is being said in the commentary, but also to be realistic when there's maybe certain solutions that are more difficult to implement, or when there's certain challenges that are tied into some of the options that need to be also maybe brought up. so that the negotiator has all the cards in his hand to make the right decisions. So that's kind of the guiding principles of the text that the drafting group has prepared. So if we go through the articles briefly, you have new article one, paragraph three. That one adds new guidance to the manual on negotiating and applying the STTR. It explains the policy objective and operation of the STTR within treaty negotiations and provides commentary to assist developing countries in deciding whether and how to incorporate the STTR. As you know, the STTR in the UN model is quite broader and quite a very distant cousin to the STTR that was prepared or that applied, I'm not sure how often, but that's included in the pillar two work at the OECD. We can go to the next slide. You have the new article 5A on the income from the exploration for or exploration of natural resources, which is, which establishes a specific permanent establishment in case of exploration It's a topic that we're discussing in other subcommittees as well now, in Article 6 in particular as well, or also the previous presentation also covered the, well, the similar field. So This once again provides the guidance on the allocating the taxing rights over income from natural resources and explains interaction of article 5A with other treaty provisions, including permanent establishment rules, because it's clear that if you're establishing a specific permanent establishment as one of the, I mean, in principle, there's a 30-day threshold within a 12-month period, but there's also an option where you don't need that. So there's lots of implications. How does that work in regard of the old article 8 permanent establishment rules and what has precedence? And so we try to explain that. And then, I mean, for all these articles, there's often a minority view of a minority of committee members that don't think the new article is a good idea. And what the manual usually does is it refers to the commentary and says, You can expect certain countries to disagree with this article in view of the arguments that are in the commentary paragraph so and so. So that's kind of a general comment that you could make for every single, for all the articles, or at least the ones that are somewhat controversial, that we're going to, controversial is maybe not the best word, but not unanimous. So we're not repeating the arguments for and against. We don't want to rehash the whole discussion that already occurred when the articles were established in the previous committee. We can maybe go to the next. Article 8, international shipping and air transport. Also updates the manual to reflect the revised version 2025 wording of Article 8. It revises the commentary on the scope of transfer activities covered by Article 8, since there's been changes, and clarifies treatment of income that falls outside Article 8 and be covered by the other treaty articles. If you remember, There's quite a big change in the sense that you have the OECD residence principle article that used to be option A of the UN model. And now that's been downgraded to option B because in the previous committee, a majority of members preferred the new source tax option. So what we're doing here will be explaining what the-- yeah, referring to the commentary and explaining the option now A, which is the source tax option. And then regarding option B, the residents and the OECD solution, that has now become option B. In real life, it's by far the most used one. So that also has to be said in a certain way and in a realistic way. And it's, yeah, you have to find a balance on trying to, yeah, trying to be as neutral as possible, but to also mention the pros and cons of both options. Once again, for Article 8, we-- for the proponents of Option B, we referred to the-- what is said by the minority group in the committee-- in the commentary to the model. We can go to the next one. The inclusion of software in Article 12, you remember that now It's not only the use of the copyright of software, but the use of software has been included in Article 12. So broaden the scope of the royalties article. And in this regard, the manual has been changed to reflect the new model and the commentary to the new model. And it updates, so it updates the manual's royalty section to address software-related payments. It adds guidance on distinguishing software royalties from other types of payments, and it revises examples and commentary to reflect digital economy developments. So, there's one of the big topics and long discussions in the previous committee regarding this broadening of the scope of Article 12, and here the manual needs to reflect that. Go to the next slide. Same thing for 12C, insurance premiums. This is a new article. There's nothing like it in the OECD model. And so it's a source tax in certain situations on insurance premiums. And here the manual reflect the new commentary and the new article. and to provide guidance on source country taxation of cross-border insurance premiums. And it makes the consequential revisions throughout the manual to reflect the new article, hopefully as accurately as possible. And then the deletion of Article 14, Independent Personal Services, which is less of a material change than a formal change in the sense that it won't really change the allocation of taxing rights, but there's many references, many changes to make, well, there was many to make in the model, and now have those reflected also in the manual. And then I think we have one more, and that's the relationship between double tax treaties and other agreements, particularly GATS agreements. And there again, our manual, our proposal for our manual is to add guidance on the new Article 25 provision dealing with trade and investment agreements, explain how the tax treaty dispute resolution mechanisms interact with other international agreements, and Finally, provide negotiating guidance intended to reduce conflicts between treaty obligations and other dispute settlement processes. So those are the articles that have been treated. We still have, of course, Article 12 AA that we're working on, and I think We'll look forward to hearing comments on the text and if there's anything we missed or anything, your perspective on this first draft. We can go to the next slide, I think, for work stream two. Or do we have a next slide? Okay, oh, sorry, it's over here. Sorry, Sylvia, I was looking the wrong way. I thought the slides were on this side. It only took me about 15 slides to figure that out, but anyway. So, the next steps for the subcommittee, we have the additional work forthcoming on Article 12 AA. We are finalizing these articles. We may have some improvements to make. And then we have work stream two. Just as a reminder, what are the different topics that we had already discussed in March, and in particular, we have the MFN, the most favored nation clause. That's one important topic. There's definitely going to be work on that. We have also combined negotiation of treaty provisions. That's almost a negotiation strategy issue and what articles go together when you negotiate, how do you make packages? That's another of the big topics we're going to be working on. And then you have other issues that are brought up like digital and hybrid negotiations, exploratory talks, bulk negotiations, and renegotiation of existing treaties, which all these points have been touched on in our questionnaire and we're going to try to build on where there's real life problems, not write theoretical paragraphs, but where there really is a need to clarify or to help and to improve the manual. So that's what we're looking forward to in the upcoming months. And I think that's about it for Well, now we can go to the committee discussion. We can go to the next slide. So, the committee is invited to provide comments on the paper included in the annex and progress made on the work streams.


Co-Chair [27:55]:

All right. Thank you very much, again. And Colleagues, I think we've followed the presentation and we have with us the document CRP 13, which has to do with the manual for the negotiation of tax treaties. We have listened to the proposals, both under the work stream one and the work stream two, and also if there are other specific comments or inputs that we may want to provide. Maybe if I start by drawing our attention to the deletion of Article 14. that it was not totally expunged, that it was only remitted to the appendices. And so we may also want to be careful not to totally expunge from the manual, particularly where some countries may still prefer to have it in their treaties. I just thought that we need to look at that possibility. Let me start with Angela, please.


Speaker 4 [29:34]:

And yeah, good afternoon, everyone. I set it as one of my goals in every committee meeting to have the chance to raise my flag before Enrique. So I was looking at him whether he was going to raise the flag and I was like, okay, I get to do it first. So I mark my point. Yeah, this committee meeting, I've met my goal. But please allow me first to commend Jian, Irvin, Chris and the whole drafting group. I think you have done a very good job in being very comprehensive. and delivering the draft that is prepared here. I am into digital transformation, but I also printed hard copies and I have read through. As a treaty negotiator, I do have a couple of points, but do allow me to say first that I appreciate how you recapped the subcommittee's mandate. and the principles that guided the subcommittee in developing on the guide. I think this is critical. I think the points you raised, which resonate with me, is first to be neutral, second is to be practical, and third is to be concise, because you're not going to come up with another manual. And so I would like to highlight just a few points. The first is a technical drafting point on consistency with the UN manual. Under Article 5 of the UN model, a PE is deemed to exist unless the activities do not exceed an aggregate of 30 days. So when I read this in the model, my understanding is if it is 30 days, it is not deemed to be a PE. But I think the language in paragraph 301N uses the term "less than 30 days". So if you do so, it might inappropriately deem an activity existing exactly 30 days as a PE. So I think maybe this is a point to raise. I assure you, I'll give you my written comments as well. I haven't had a chance to type it out, but this is my first comment. The rest of my comments are largely from the perspective of being practical and realistic as a negotiator, and so I will highlight a few based on the specific articles. The first article, Article 1 on STTR, under the UN model, paragraph 3c, It is on STTR exemptions. I would like to suggest to clarify in the manual, paragraph 206G, that treaty negotiators may want to consider what type of exemptions should be excluded. And a useful one, perhaps, could be income that are subject to sector-specific tax regimes. So an example would be the maritime sector, where certain shipping income may be taxed under a tonnage tax regime or any industry-specific basis. And so this could be an example of how the exemptions could apply. My second point is on Article 5A, natural resources. There is a statement in paragraph 301 on ensuring sufficiently wide coverage. I wanted to pick on this point because, Jiayuan, during your presentation, you talk about developing packages, and as a negotiator, that is exactly a lot of what we do. And I thought that it would be useful to elaborate on paragraph 301 on how negotiators can consider alternatives when there is a negotiation deadlock. So I am not sure if this should be covered in the manual or in the second guide, but I just elaborate here. So while sufficiently wide coverage is desirable, the MNO can acknowledge the practical realities and also balance the objective of a comprehensive coverage against the benefit of even reaching an agreement. Because having a treaty of some scope, such as bringing in the relevant activities under Article 5, could be preferable than to not even have any treaty at all. So my third point is on Article 8. Jian, you also mentioned about how this is an article that was heavily debated, and so I support the amendments to keep it brief, that countries should consider their own economic circumstances. But I think it's also useful because I recall that during the committee discussions, there were several developing countries among the observers that were advocating for resident state taxation to promote tax certainty for their international transport sector and to reduce the risk of multiple taxation. This is so that availability of such transport is not affected in their countries. So my proposal is that paragraph 346.2 can be elaborated to highlight this point. that developing countries can consider if exclusive residence state taxation can provide them that benefit. On this point as well, the manual under paragraph 346.9, I hope I'm not overwhelming you with all the numbers, like reading lottery numbers, but 346.9, the manual talks about the instance when there are existing shipping or air services agreements. One thing that I do as a negotiator, as part of my preparation, is I usually would consult my other government agencies. And I think it's useful for the manual to indicate that negotiators could consult relevant government agencies as part of the preparations to ensure, especially for the provisions that have sector-specific implications. And this would be particularly relevant where the country itself has already engaged or committed to certain other obligations and commitments under other agreements. So at least when negotiating, this is considered from a whole of country perspective. And my final point is on Article 12. I understand this is a new article and is not yet maybe applied in any treaties. I think the manual acknowledged that some countries may consider reinsurance in the definition. But I think on that point of creating negotiating flexibility, it could be useful under paragraph XX.8 and XX.18 to acknowledge that treaty partners may wish to adopt differentiated treatment for reinsurance, because reinsurance could result in tax being imposed multiple times with regards to the same risk. And so excluding reinsurance from the scope of Article 12 and subjecting it to tax under Article 7 could be an option that would help negotiators. Yeah, so I think this is my final point, but I wanted, because Matthew talked about the deletion of Article 14 and the point of creating flexibility, I also agree with that point, because a lot of our treaties also include Article 14, and I think it's a good compromise, again, in a deadlocked situation, to still have this as an available option. So these are my comments, thank you. And I promise I'll give you my written comments.


Co-Chair [37:18]:

Thank you very much, Angela. You did beat Enrico. to the timing of your flag. I'm not sure that you beat him to the time you have taken. So let's listen to Enrique first.


Mexico [37:40]:

Thank you, Matthew.

Angela, from now on, I watching you. Hold it up, okay? I will speak in Spanish.

Okay, well, obviously I belong to the subcommittee and given the work I've done myself, I can't be in all of the virtual meetings, but I think that the explanation you've given us always has been very eloquent and clear and it's helped quite a bit. I just wanted to share a comment on that basis and I don't know if you're necessarily applying the other comments we've made already on Article 5A on the tax rules there. But what the manual says, and I think you say this correctly, it shouldn't just be a copy-paste job of comments. And I think, obviously, that's something we've tried to draw from the existing text. But I think maybe that's on the substance. I just want to share it for your consideration if you think it's worth including anything more than that. Angela shared the first comment on the inclusion of the subject to tax rule and I agree with that because I think paragraph 15 of article 1 of the comments, it does for example share the example on extraordinary tax regimes, preferential tax regimes and Extraordinary tax deductions, for example, and in the annex mentions made, I think there's a specific paragraph, I don't remember which it is, but mention is made of preferential tax regimes of specific. tax levers or entities and it leaves it there and I don't know whether or not any, Angela, you think that's too much uncertainty to leave? I think maybe somebody reading that could wonder exactly what that implies, that preferential treatment, and I think it would be good maybe to add some examples and we could put them in this article 15 in the first article perhaps. And then in 5A, under theme 2, because article 5A in paragraph 4, sub-paragraph, particularly, highlights that exploration and exploitation of natural resources is something that it is focusing in, and it lists all the activities that the value chain involves. However, in the manual, three are specifically highlighted in the version that I looked at: mining, abandoning of installations and the rehabilitation of land. That is what is in 5A. then added to, but the manual also involves storage, production, and so on and so forth. But it doesn't specifically highlight those three. And so there's maybe conflict in the text there. And I think it might be a good idea to flesh that out. Although I understood Jan's argument, and maybe we're not here trying to repeat everything, and maybe it's enough to just have the three. But obviously, if you look at the difference between here, 5A, and the other text, I think you could make a judgment. That's the comment I wanted to share. Thank you.


Co-Chair [41:20]:

Thank you very much, Enrique. I'm not seeing... Oh, okay, Alex, please take the floor.


Speaker 8 [41:41]:

Okay. Thank you very much, Matthew, for giving me a floor. My observation, not observation, but the comment will be very general. First of all, I would like to congratulate two co-chairs, the secretariat, and the new member of the designated team. for, uh, such, uh, a good, uh, interim deliverable, and I do believe that, uh, this work will continue, uh, because I see how fundamental basis, uh, was, uh, made for the further development. It's rather difficult to find something new in, uh, the issue which has been discovered all the times. But still, there are a room of new issues to be mentioned in that manual because there are a lot of articles which have been changed and added to a UN model. Not only articles, but the model changed its name. Now it's UN model. That's why the manual, I believe, would be also useful not only for developing countries, but for the countries as well. This is the first comment I would like to make. The second one is that, of course, it is quite interesting to gain new information for the countries which have not been involved in the negotiation process because they didn't have double tax treaty between two of these countries, but it was difficult to start the renegotiation process. That's why I'm very interested in the continuation of this work, especially in the areas which was identified by the subcommittee as a progress for the further development of this manual, and I am especially interested in some deliverables with respect to the part of this follow-up work, which is called renegotiation issues. Thank you very much. But again, I would like to congratulate the team with such a substantial progress in that work. Thank you.


Co-Chair [44:18]:

Thank you very much, Alex. Imon.


Speaker 10 [44:27]:

Thank you very much, co-chair. I have a couple of brief comments. First, I thank Jan, especially, who stepped forward as co-ordinator of the sub-committee. That is greatly appreciated, and I think that the work has been pushed forward very efficiently, and we have the first outputs to be read at our meeting today. And, of course, although he's not here, and he may be joining us remotely, I'd like to also express particular appreciation for Carlos co-coordinating with Jan. As Jan mentioned, ART also assisted with work stream 1. I want to make the comment that it is important, as has been emphasised in the initial presentation, that the manual does not become too large or weighty at home. I think it was good to compare the commentary to the manual. It is a very visual indicator of the accessibility of the manual, so to speak, in its being a shorter document. It would be good if the manual continued to be an approachable document that Negotiators could brief themselves quickly at the outset of their preparation for negotiation by checking the relevant content in the manual on a particular article. However, I think that there is some tension between brevity, which clearly is an objective in relation to the manual, and presenting a range of negotiation considerations. I think that it is perhaps an aspect that we should try to avoid, but it may be difficult to avoid in presenting negotiating considerations. What perhaps ought to be avoided, if possible, although I am not sure whether it is possible, is rerunning committee discussions or debates. Clearly, the committee discussions or debates relate to factors that are likely to arise in negotiations. There is a challenge between brevity on the one hand and setting out various considerations pertaining to the, um, articles concerned. Um, so just a final comment then, uh, in relation to Article 14, and I think Matthew, uh, you mentioned that it is useful and helpful to, countries that still use article 14, that there would be guidance in the manual on that article, and I agree that that's very reasonable, and also perhaps in relation to article 12A, but I think the solution that we arrived at in the last committee in relation to the model was to include article 12A single A and article 14 as an annex to the model. That was for ease of access to those who might still want to consult the commentary. That might also be a good approach in relation to the manual, because, again, it relates to the idea of not presenting articles that have been deleted by the committee as ongoing options that are presented as optional articles, so to speak. In reality, countries may look to them as alternatives, as Angela McLaughlin said, as ways of getting through impasses or roadblocks, and that is absolutely realistic. and the accessibility of the relevant material will be important in that context. Equally, it is important that the manual should not be reopening or revisiting the decisions of the committee.


Co-Chair [49:25]:

Thank you very much.


Speaker 12 [49:32]:

Thank you, chair. I thank Jan McAllister for the presentation. I would also like to thank US co-coordinator and Carlos and Art and the whole drafting group for your excellent work, also the secretariat. I think this has always been a very successful product of the UN Tax Committee and you should be proud of working further on this. We encourage the, I encourage the drafting group to continue ensuring that this manual remains balanced and neutral. It is particularly interesting when you always make the comparison between the OECD model and the UN model also in the manual, for instance, now also on Article 5A and the proposals that are now in the update also. I was just thinking maybe there could also be specifically on article 5A, but maybe also on article 12C, some extra practical examples if it doesn't make the manual too heavy also, because sometimes it says, I just saw like the sentence that says negotiators should seek to ensure that whatever is agreed gives sufficiently wide coverage. These things are maybe still a bit too open and then maybe a practical example could make it more palatable or something. Just an idea, but I think you are doing an excellent job. Thanks.


Co-Chair [51:07]:

Thank you very much, Angie. Basca.


Speaker 14 [51:17]:

Thank you to the subcommittee.


Co-Chair [51:18]:

Sorry, I just missed it. Go ahead, Vasko.


Speaker 16 [51:26]:

Excellent presentation, Najian. And my comments are basically from the experience of a person who's been negotiating tax treaties. Until now, we were finding a balance between the OECD model and the UN model. And now we have to find a balance between the OECD model, the old UN model, and the new UN model. So there are some things that the guys who negotiate tax treaties will tell you is that there will be treaties that we negotiate which will still have the old Article 12A and the old Article 14. And we will still want some, sometimes we will still have situations where insurance premiums will still be part of Article 5. And we will still want carve outs for reinsurance. Article 8 will always remain one of the most debated articles. And as one who has recently had experience in trying to negotiate an STTR article, it has its own problems. and questions. So what I would request, I mean, or I would suggest is that the manual, I mean, provides this rationale as to, or should I say a comparative rationale of using the old articles and the new articles as to what, because sometimes the old article may not be a wrong answer. to the particular problem or the particular situation between two countries. So probably if the manual can explain, and that's where I agree with Eamon, that we have to make this choice of brevity versus giving this explanation as to in what situations we can fall back on the old formulation and in which situations the new formulations can work. So this is something that the manual must, I mean, could take into account because the old formulation is going to stay on for some time. So I don't as of now, I will come back with some specific drafting suggestions of specific suggestions. But this is the thought that came to mind when I looked at your presentation and also heard some of the comments around. So that is my comment right now. Thank you.


Co-Chair [53:58]:

Thank you very much, Oscar. Gidrey, my apologies again.


Speaker 18 [54:04]:

No problem at all. Thank you very much, Matthew. And I would like to at first thank all the subcommittee for really good work, which we had a chance already to read quite in detail. I approach this, contrary to many members, as a non-treaty negotiator, because I work a lot with tax, but I don't negotiate treaties. But this perspective might be also interesting of someone who has just a dossier dropped on the table and has to go to negotiations. And I'm very that this manual exists, I take it and read it. So all the amendments were very clear. I would like to make one comment on the provisions that concerns and special explanation that concerns air transport and shipping, because this is the domain in which I work a lot. And it relates a bit to what my colleague Basar just said about perhaps providing a bit more rationale in which cases we could use the old version of the article and in which cases we could use the new one. You have mentioned, Diane, in the presentation that the, sort of, the old versions, which was based on also OECD article, on the article on air and shipping, which privileges resident taxation. is the most used in international treaty network right now. So I read everything and I didn't see this phrase and I'm not sure if it would be useful to put this kind of facts, which models are right now the most used, because I would feel that then we would need to give a lot of, background on why it was the most used, and then we go into historical explanations and all that, which I am sure were debated when the model was amended. On the contrary, as Angie also noted, I liked very much the notes on the economic situation of every country, and the fact that you should take into account a specific position in the chain of rail, road and air transport. I would suggest that that part is a bit extended. to make it more clear because it's now one paragraph and it would be interesting maybe for a negotiator to know a bit more. Thank you very much.


Co-Chair [56:29]:

Thank you very much. Mohamed.


Speaker 20 [56:34]:

Thank you, Chair. Let me first commend Jian and his team for the very excellent work. I think the second work stream should provide practical assistance to countries during treaty negotiations. In this regard, I think the subcommittee can develop guidance that helps countries assess the revenue implications of treaty concessions and identify the provisions most relevant to their economic circumstances and determine where flexibility may be appropriate. The manual should not simply explain the provisions of the model. It also should help negotiators understand the choices available to them and trade-offs involved and the consequences of accepting a particular treaty limitation. This is especially important for developing countries with limited negotiating and administrative resources. Subject to these considerations, I support the proposed updates and look forward to the further development of the manual and both work streams. Thank you, Chair, for the opportunity.


Co-Chair [57:53]:

Thank you very much, Mohammed. Anthony.


France [58:01]:

Thank you, Chair.

I will speak in French.

Good afternoon, everyone. I just want to share a couple of straightforward comments. First of all, thanks to Jen and the entire team for the excellent work they've done. I don't have any specific comment at this stage in terms of the proposed updates, which I think are very relevant. and I think, indeed, are faithful to the last update of the UN model, bearing in mind, I think it's important, Janine, you mentioned this, to bear in mind that this is a practical guide. So it's not the comments on the model that we need to bear in mind so much as the neutrality and the practical application of it. Obviously, some things can be added, but we shouldn't get bogged down into a mindset where we have to embroider the comments rather than provide a practical guide, and we need to remember that we are updating a practical guide rather than getting bogged down in interpretations of the model which dwells more in the comments than the practical aspect. I have not seen that in the updates proposed, so I am very happy with them, and I will maybe share some written or look at the written comments when I make comments later, but the whole of it looks very good to me. That is the first comment. The second comment relates to work stream 2. I do not know at what stage this sub-committee is with that. There is one point that was mentioned, Jean, and that is the most favoured nation clause. I think that is something that could be advantageous to work on to provide clarifications concerning the application of that clause. in particular in terms of the date when the clause takes effect. I think that's something which isn't necessarily very clear as things stand for some states. That's the case for France, which has experienced some degree of, let's say, uncertainty because there are some treaties that contain that type of clause. and sometimes we are not 100% clear on when the claw should be activated, as of which point in time. In terms of legal certainty for enterprises, for taxpayers and for tax administrations of all countries, I think that that could be very useful. So that's something I think to bear in mind for work stream two. I think it's one of the points at least that would be advantageous to go into more depth on. So there you have it. Thank you very much for your work. And that's it. Thank you.


Co-Chair [1:00:53]:

Thank you very much, Antoni. Azerbaijan.


Azerbaijan [1:01:03]:

Thank you very much, Mr. Chair. First of all, I would like to thank the Subcommittee for its work and support of updating manual to reflect the last changes. Overall, we believe the document covers a wide range of relevant issue. I suggest adding a practical example to help countries understand their choices during bilateral negotiation. From that perspective, I have some specific comments. First of all, the guidance on subject to tax rules may explain what evidence is needed to confirm the tax treatment in the residence country. For example, payment is made during the year, but recipient entitlement to preferential tax benefit is confirmed only at year end. And what documents should payer obtain and how should any additional tax or refund be handled? And also, it would also be better to put comparison with the OECD STR, including guidance on cases where both rules are included in treaty. Second, examples may explain the relationship between provision on software, service and automated digital services. For example, company pays one fee for access to software, technical supports and consulting services. Manual may explain how to identify relevant article and whether payment should be divided between its different parts. Third guidance on Article 5A should explain what happens when activity exceed the 30-day thresholds. For example, foreign contractor initially plans to work for 20 days, but work is extended to 40 days. When must contractor register? And from which date should its profit be taxed? How should tax already withheld be taken into account? I think that a short checklist for each provision would make MNO more useful for developing country negotiators. Thank you very much.


Co-Chair [1:03:11]:

Thank you very much, Azerbaijan. Nigeria.


Nigeria [1:03:22]:

Thank you, Chair. Nigeria, we appreciate the committee for the work done in updating the manual. We've read some of the changes and some of the suggestions, and we are very happy at how the subcommittee has tried to maintain balance. in those views that have been expressed there. But we also need to further remind the subcommittee that this committee is set up to help developing countries and ensure that or to improve source state taxation. So it's important when we are when we are providing those examples and when we are making those comments, we try as much as possible to focus on the key mandate of the committee to help developing countries or source countries to ensure that the they are able to effectively tax income that is generated from sources in their jurisdictions. Also, in paragraph 14, I mean, sorry, in article 14 that have been deleted, we also hear views on having some of it retained or explanation on retention. So while we are looking at that, it's also important that we also highlight some of the challenges challenges of Article 14, especially and reasons those challenges we're having before it was deleted. For instance, the fact that some jurisdictions use it to tax on gross basis, the fact that some jurisdictions use it to tax companies instead of limiting it to dependent persons. are independent persons. Also, the fact that it does not apply or may have a challenge of application when we are talking about non-discrimination. While the non-discrimination article reflects permanent establishment, article 14 is not reflected in the non-discrimination article. Lastly, As observed by Mr. Bhaskar, we have many challenges with the STR. And I think we may make do or we convert more guidance in STR. I will quickly mention two. There are more, but I will quickly mention two. are the first one is the application of STR to Article 7 or income that will come under Article 7. So if there is an income that is paid for a jurisdiction, and I mean a payment from a jurisdiction, and in that jurisdiction, it does not constitute permanent establishment under Article 5, and that payment is eventually not taxed in the in the rest, I mean, the states of the contracting state, I mean, the resident states, what happened with the taxing right revert to the state of payment? Why this is important is because STR provision make use the word income and not payments, unlike what we have under the OECD version that specifically refer to payment, but under the UN model, it refers to income. So in that instance, where there is a payment from a jurisdiction and there's no permanent establishment, will that payment still deemed to be an income for the purpose of SCTR? Then the second challenge is in the, there's no definition of statutory rate. So we may want some guidance on what the paragraph means by statutory rates. For instance, in the domestic law, there may be, because the domestic law is called statute, and in that statute, there may be gross basis tax rate there, and there may be net basis tax rate there. So which of those rates are we referring to? I want to believe is the net basis. So we need some guidance or clarification there. Also, it is important. I mean, it is possible that two countries are negotiating and they want taxes on net basis and the other taxes on gross basis. So in that instance, what rate will be included in the SSCR rule? Will it be the gross, I mean, because both of them now, they have different different one tax on net, one tax on gross. So how will the rates to be included in the STR be arrived at? It's important that we have guidance on that. Thank you.


Co-Chair [1:08:40]:

Okay, thank you very much, Nigeria. Colleagues, I'm seeking your due understanding. We have time almost over running to the next coffee break. We have just five minutes. Uh and so I'm going to draw a line. Um I know that Enrique has raised his flag. I want to seek your indulgence. Uh we take your comments in the written comments. So I will take only these three flags. Um Tanzania, India, and one one minute please. 1 minute. Tanzania please, 1 minute.


United Republic of Tanzania [1:09:26]:

Thank you, Chair. Tanzania congratulates the Subcommittee for the job well done and welcomes the draft report and the proposed updates. On this one, Chair, we have four suggestions to strengthen the manual's practical guidance for developing countries' negotiators. First, Chair, on the interaction between Articles 5A and Article 12A, we suggest expanding paragraphs 301A J, together with paragraph 301 and 301. Many exploration and exportation activities are delivered through services. The manual should therefore clarify how article 12A applies before the 30-day threshold is exceeded, or where article 5A does not apply, and how the treatment changes once a permanent establishment arises. This also has revenue implications, Chair. Depending on the rates, costs, and the profitability, gross-based taxation under Article 12A may generate more revenue than net-based taxation under Article 7. Therefore, we suggest that practical examples would help negotiators understand these outcomes and the applicable coordination rules. And second, Chair, regarding paragraphs 301 and 301, we suggest clarifying when Article 5 can independently establish a permanent establishment where Article 5A's conditions are not met, including through an urgent permanent establishment. This would help avoid interpreting the 30 days threshold as a general exemption from source taxation. Third chair on software royalties and our paragraph 434.1, we suggest guidance on the criteria for choosing differential rates, including revenue applications, administrative capacity, and compliance costs. This should address clarification, disputes and artificial allocation of payments, particularly under contracts combining software, services and other rights. And finally, Chair, Tanzania stands ready to contribute its practical trade negotiations experience to this work. Thank you.


Co-Chair [1:11:43]:

Thank you very much. I also recommend that colleagues could send in written comments. It's going to help us and this subcommittee. India, please.


India [1:11:55]:

Thank you, Chair. Congratulations to the subcommittee. I'll keep it as short as I can. Firstly, taking off on the suggestions regarding the interplay between the old provisions as well as the new ones, especially with regard to reinsurance, insurance and provision of services. I think what the manual, if it's already there, it's great, but if it's not, could you give us some guidance on what the consequences of a certain negotiation would be, that I could negotiate something in a separate insurance article, but that would mean a gross withholding tax, but both the countries might actually want to tax only the income from insurance, and in a loss, in a year when the company is actually making a loss, to leave it a gross-based taxation would lead to an unintended situation. So, the guidance might want to look at situations where the gross has been taxed, there's a loss that arises, but we want to now give a refund. So, could there be an MOU possible between negotiating partners? as to how a foreign company can now claim a refund if it's a loss situation in these separate article situations? Because when insurance was sitting in Article 5 or Article 7, business income was taxed. It was taxed at net basis. So this problem did not arise. The second thing is regarding payments, royalty payments on software. Is there a distinction that you're considering for the type of payer being a retail user of that software Is there any carve out for retail usage of software to not be subject to this article or to be subject to this article? Because that would have widespread ramifications in terms of people subscribing to various online platforms, et cetera. As a retail user, how will that play out for individuals, especially for both countries? Should countries have some sort of language in their treaties to protect individual usage of software. The third thing is, do you have any specific guidance on at what threshold a renegotiation should be done? Because India, for example, has a very wide tax treaty network, and most of our treaties are in place. But if there is any sort of guidance on what is the probable revenue implication, I think one of our colleagues had already spoken about this, but revenue implications for what types of economies would be higher for which type of article. So that would give us an idea as to which kind of treaty or which country's treaty should we push for a renegotiation if that situation comes. Thank you. That's it.


Co-Chair [1:14:36]:

OK, thank you very much. Please, like I said, we ask that you give us written comments in full. We have to break now for coffee. We'll be back in 15 minutes. When we come back, we will take Cyril alone, and if time permits, we will still take Enrique, and then we'll get the co-coordinator or the coordinator to make a response. So it's a coffee break. Thank you. Thank you very much. Thank you very much. Please, let's take our seats, colleagues. I'm going to invite C. Alun.


Sierra Leone [1:30:23]:

Yeah, good afternoon. On behalf of Sierra Leone, I just want to commend the Subcommittee, drafters, and everybody for the wonderful presentation to this afternoon. And I'm here to make the following observations and recommendations. Like for Sierra Leone, we really welcome the proposed inclusion of a clear guidance on the SDTR under Article 1.3. This provision would help countries protect their taxing rights where income earned locally is subject to very low taxation in another country. For Sierra Leone, this is important because payments made to foreign companies may reduce the country's ability to collect revenue. We encourage the Subcommittee to provide simple examples showing how countries can apply this rule, particularly where information about the tax treatment of income abroad is difficult to obtain. And secondly, we agree and support the proposed guidance under Article 5A concerning natural resources. This is particularly relevant to Sierra Leone's mining sector, where foreign companies and contractors may undertake valuable activities for relatively short periods. The provision allows qualifying natural resource activities lasting more than 30 days within 12 months period to create a taxable presence. We welcome this approach because it could help countries profit, it could help countries tax profits arising from activities carried out within their borders. We also support measures to prevent related companies from splitting their activities to avoid taxation. And finally, I also welcome the proposed inclusion of software payments under Article 12 on royalties, as businesses increasingly rely on foreign software and digital products. Clearer rules could help developing countries determine when such payments should be taxed locally. However, I encourage the Subcommittee to explain the distinction between different types of software transactions and to emphasize the need for domestic tax laws to support the tax treaty negotiated in treaties. I thank you.


Co-Chair [1:32:50]:

Thank you very much. Enrique.


Mexico [1:33:00]:

Thank you, Matthew.

I just wanted to highlight and really echo what And when said in terms of the most favored nation clause and the uncertainty that could arise, it was, I think, a issue that was discussed in the subcommittee. Mexico has a number of drafting proposals it had proposed in terms of different ways of locating those clauses and the practical examples that we have in our network of treaties. And so I'm happy to send them if we're considering that. I think it's very important and cross-cutting the most favoured nation clause in terms of how it could be managed or what draftings or what different types of clauses of most favoured nation clause there are and at what moment they are being applied. I think that's what Anton was saying, the moment they're applied is something that we need to consider. Thank you.


Co-Chair [1:33:58]:

Henrik, if, um, Dalingstein, you have a question? Oh, okay. I, I, I see. Okay.


Speaker 36 [1:34:11]:

Mr. Co-chairman and co-coordinators, just a real quick comment, and I guess you might say that, uh, the telling words are in, uh, sub, uh, paragraph 301M on page eight, where it says that, uh, The taxation is likely to catch contractors and subcontractors under Article 5A, subparagraph 2A, but it may also apply to the company itself during the exploration phase. And the reason I'm raising this is, as we've intervened earlier on during the drafting of this 30-day provision, is that there's a real concern on behalf of multinationals that this may deter investment into countries where the period for evaluating whether to make that direct investment is so shortened that they are put in the position of having to begin the burden of preparing returns, filing returns, registering, in some cases going to their corporate management to get authority to establish a presence in the country that not only does it create a burden for them, it creates a burden for the countries themselves who have to then process these, deal with the following on the attendant examinations with no tax benefits whatsoever because we're throwing off losses during this period. So this is the context, this is to consider a submission of comments by ITIC or others to to the effect that we have a carve out or exception for activities engaged in purely to evaluate whether to make the investment into the country. It could be either by specific activities named or a timeline wherein which these activities are undertaken, say up to the point of sanction, up to the point of agreed contract with the government, bright line tests on when that would end. So thank you very much, it's a proposal.


Co-Chair [1:36:17]:

Thank you very much, colleagues. I'm going to give the microphone back to Gyan and his team to make a quick response.


Co-Coordinator [1:36:32]:

Well, thank you. Thank you very much for your many interesting comments and input. It's encouraging to see how, well, one thing that you read and are interested in the work we produced and many good proposals many interesting aspects that you brought up so I've been told I need to be quite brief so I won't have time to go through all the comments I think the number one message is one that Matthew's already done a couple times is we look forward to your written comments summarizing your interventions. That will be very helpful for the secretariat and the drafting group as we move forward. And in general, I guess, I mean, one of the key words here is balance, and that's what we're going to look for. It's balance between staying quite brief and also providing maybe more flesh, more detail when needed. I thought there were many interesting points brought up, in particular that in real life, negotiation is options and you're rarely going to have a complete UN model or OECD. It's compromises in the discussions. And as Bhaskar pointed out, you're not only negotiating between UN and OECD, but it's old UN, new UN. So all that to say that I think we'll think of ways of maybe integrating where compromises can be found. Maybe that's something for work stream two and negotiating different provisions together. I also agree with Eamon that we cannot reopen discussions that have already taken place or undermine solutions that the UN model propose. But we have to balance that. We also have to be realistic in the real world and point out different problems that can occur. So, yeah, it's a bit of -- it's not an easy exercise. And once again, thank you in advance for your written comments. Regarding Article 12A, 12A and A, well, 12A that now is in the annex with Article 14, I agree that it's something that's still going to exist and since it's wasn't -- it wasn't -- we didn't decide to delete it completely but we kept it, those articles in the annex, maybe we can think about as was suggested to keep the commentary, the manual in the annex to the manual, something to think about. And then finally for -- I heard regarding Article 8 that quite a few people maybe thought that option B, there's not enough weight given to option B. It is true that we didn't get rid of option B. It's not like other cases where a new article has replaced the old article. In this case, option B is one of the UN model proposal. So we'll maybe take that on board and think how we can improve the text for Article 8. But once again, thank you so much for your input. And we look forward to continuing our work on this, these issues. And I'd like to thank once again, Carlos and Art and everybody, Eamon and Scott and everybody who's in the drafting group. as for work stream one. I can't name all the members of the subcommittee who will be more active also in work stream two. And of course, Chris and Irving for their invaluable work. So thank you very much.


Co-Chair [1:40:40]:

And thank you very much for stop talking because you have overused your time. You told me you will not exhaust your time, but you actually took extra. So, thank you very much for doing that. So, we'll be glad to see you so that I can have the next team. Thank you very much. But meanwhile, very seriously, we appreciate Jean and the team. That was a very exciting time. that we had um please um for those of us who say have comments and we did not have time to take them uh we are glad to have those written comments uh we'll be happy if we can have those comments um not later than 6th of November uh 2026 so that um um the teams the different teams could begin to uh use them in their meetings and discussions um we'll be glad to have them and you want to send them by e-mail uh let it go to committee at un.org. So we look forward to receiving those recent comments. Thank you very much, Jan. Thank you, Irving. I'm going to invite the next team. We're moving very quickly to item 3D on the agenda, and that is taxation of issues related to the digitalized and globalized economy. and that means CRP 15 and its annex. And so I will invite the co-coordinators, Claudia, Angie, yes, and the secretariat. to be with us. They're going to lead us through the discussion. Incidentally, the immediate past subcommittee have taken 15 minutes of your time, so you have less time now to do this. So please, let's come up very quickly. Incidentally, I am also one of the co-coordinators of the subcommittee. So we'll see about the timing. We'll see about that. All right. And so the subcommittee is going to lead us in the discussion. And they're going to be asking for guidance and also asking for some decisions. So let me invite Angie to lead us as we have the slides from Silvia. Silvia, thank you.


Co-Coordinator [1:43:49]:

Good afternoon, everyone, distinguished members and participants. So I will introduce the evaluation report prepared by the Subcommittee on the Digitalized and Globalized Economy. Before starting my part of the presentation, I would first like to express our sincere gratitude from me and my co-coordinators to Professor Brian Arnold, because with his exceptional expertise, he has made a tremendous contribution to the work of the subcommittee and to this evaluation report. So it has been a privilege and a pleasure to work with you. Thank you, Brian. So my part of the presentation covers the mandate, the structure of the report, and our assessment of the existing provisions of the 2025 UN model. I will proceed in three short steps. First, I will recall the mandate and the background, then summarize the report's assessment of the present framework, in particular the articles 5, 7, 12 and 12. and thirdly, I will briefly identify the options that the report places before the committee. But my remarks stop at the assessment of emerging technologies. The options and the decision points will follow in the presentation done by Claudia. Let me begin with the mandate and the context in which the work was undertaken. At its 31st meeting, the committee gave the sub-committee two connected tasks. The first was to prepare the evaluation report, which had to examine the treatment of services permanent establishments. including the relationship between article 5 and article 12. It also had to assess whether services connected with emerging technologies, including artificial intelligence, machine learning, and the internet of things are adequately addressed by the UN model, especially through articles 12 and 12. But there was also a second task in our mandate, and that is practical. an implementation guide to help countries apply the services-related provisions of the 2025 UN model. The two tasks are very much connected because any substantive changes resulting from the evaluation may affect, of course, the scope and, more importantly, the timing of the guide. So, the Committee members should be mindful of this. The evaluation report concentrates on the provisions that form the core architecture for cross-border services, articles 5 and 7 that deal with permanent establishments and profits attributable to them. Article 12AA, introduced in the 2025 update, deals broadly with fees for services. Article 12B, introduced in 2021, deals, of course, with the income from automated digital services. The report also considers Article 12C where necessary. There's something with the slides.


Co-Chair [1:47:14]:

Go back one slide.


Speaker 42 [1:47:20]:

Next one.

One more.


Co-Coordinator [1:47:30]:

Yeah, and then we can go to the to the next one. Okay, so the report has three layers. First, it explains the policy foundations of the current rules and the relationships among them. Second, it tests those rules against digital business models and emerging technologies. Third, very importantly, it presents three possible options for our future work. Option A would explore a significant economic presence. Option B would improve, clarify, consolidate and simplify the current rules. And option C would be a combination of both tracks A and B. But at this stage, the report is an evaluation rather than a final design exercise, of course. Detailed drafting and further exploration would only follow after the committee gives direction. So, now we come to the assessment of the existing provisions. So, the starting point is the major policy development in the UN model. Traditionally, source taxation of business profits depended largely on the substantial physical presence in the source state, and then the 2021 and 2025 updates updates of the UN model added rules that allow source taxation of certain cross-border service payments without requiring that physical presence. Next slide. It's the-- yeah, OK. So, Articles 5 and 7, they reflect the traditional approach. A fixed place of business generally requires a geographical location and a degree of permanence. Article 5 additionally deems a services permanent establishment to exist when services are furnished in the source state through employees or other personnel for more than 183 days in any 12-month period. So, once permanent establishment exists, the source state may tax the profits attributable to it under Article 7, normally under a net basis at the applicable domestic rates. Article 24 protects the permanent establishment against less favorable taxation than comparable resident enterprises. The trade-off is that profit attribution and Transfer pricing analysis may be demanding for both taxpayers and administrations. Article 12AA represents a different policy choice. It is a broad residual rule for fees for services not dealt with under specified other articles. The source state may tax the gross amount of the fees up to the bilaterally agreed rate, while the resident state must provide relief in accordance with Article 23. So three features matter. First, the services need not be performed in the source state. Second, the provider does not need a permanent establishment or any other physical presence there. And third, There is no treaty threshold based on the amount paid or the duration of the activity. So this makes the rule broad and at the same time, gross basis taxation may create risks, of course, of excessive or double taxation. Next slide. Article 12B follows a similar shared taxation model, but it is specifically designed for automated digital services. Its distinctive feature we can find in paragraph 3. Instead of taxation on the gross underlying payments, the beneficial owner may request taxation of qualified profits, which are a formula-based proxy for net profits. The report notes that this election is unique in the UN model and it may be complex in practice. There is also no treaty experience yet on which to assess its real operation. The report then examines how all the provisions interact, and the central distinction is between gross basis taxation under Articles 12AA, 12B and 12C, and taxation of net profits under Article 7. The throwback rules generally give Article 7 the priority where the relevant income is effectively connected with a PE. So this creates practical issues. For example, withholding may initially be collected under Article 12AA, but if the service provider later crosses the 183-day threshold and is deemed to have had a PE, the final liability must be recalculated under Article 7. So this can produce either an additional payment or a refund. So this is a material implementation concern. The report also examines the priority of Article 12b over the residual Article 12aa and the interaction with Articles 8 and 12c. Next slide. Okay, so finally, the report assesses emerging technologies by their economic characteristics rather than trying to produce a list that would quickly become obsolete. It identifies data-intensive and computational technologies, decentralised and distributed technologies, and automation technologies. The broad conclusion is that Articles 12aa and 12b together already cover payments for services, including services delivered through emerging technologies. If an AI-enabled or other technology-based activity is monetized through an identifiable service payment source under those articles, the existing framework can already apply. But the more difficult gap arises when value is created in a market jurisdiction without an identifiable payment source there. So a platform may derive value from a local user network or user data while advertising or data related payments are made from another jurisdiction. And in that situation, the users contribute to value creation, but articles 12AA and 12B may not provide the market jurisdiction with an effective payment based tax base. So the key limitation is not the remote delivery as such. The difficulty is the absence or geographical misalignment of the payment and, in some cases, the sale of goods or other income falling outside the services payments rule. That finding provides the bridge to the options that we will have for our future work, and Claudia will clarify those.


Co-Coordinator [1:55:15]:

Good afternoon, everyone, and especially the public online that is following our discussion. So I will give a brief presentation outlining the three options presented in the report for the Committee's decision. My goal is to summarize the key trade-off and the technical aspects. of each option, so to facilitate our discussion and decision making. So going to the following slide. the next slide okay the the option a is uh to consider uh an scp so uh you can go to the the the next slide please so this the first option is to explore the introduction of a significant economic presence or scp uh Nexus rules In a sense, this involves determining whether a taxpayer with little or no physical presence in a market can still be treated as having a taxable presence based on economic factors. So instead of asking if a company has a physical presence, so the SEP test ask if there is a significant economic relationship with the market measured by revenues, user interaction, or payment flow. So you can use different thresholds. The ultimate goal is to preserve source countries' taxing rights over income generated within their markets without requiring traditional permanent establishment. Naturally, introducing such a provision would supplement current permanent establishment rules and require adjustment to Article 12 and 12. It's important to mention that the report do not recommend a specific SEP design. So it's something that if we choose this option, it's something that will be in the following work, it will be done by the subcommittee. This slide summarizes the main aspects of choosing these options. In line with the report, it outlines the technical task and substantive work that will need to be undertaken by the Subcommittee if this option moves forward. So in this slide, it's also the work that will have to be taken by the subcommittee in this option. But one important aspect for the committee is that the introduction of an SEP test into the UN model creates potential overlaps with existing provisions, particularly Article 12 and 12. So while both frameworks aim to expand source country taxing rights, regardless of physical presence, Article 12AA and 12B rely on gross withholding tax on cross-border payments, whereas an SEP framework relies on attributing net profits to a deemed permanent establishment under Article 7. So following the traditional priority rules would cause Article 12AA and 12B to prevail, shifting taxation back to, to net profit attribution under Article 7 via, uh, throwback provisions. So this transition presents substantial administrative complexities for tax authority and may reduce source country tax revenues compared to, uh, straightforward gross withholding tax that we have in the Article 12AA and 12B. So the gross basic withholding under those articles, article 12AA and 12B, is far simpler to administer than attributing net profits to an SEP. So adding an SEP provision offers limit value if it only covers service income. An SEP test adds real value in two specific situations when you are talking about remote sales of goods or business models without direct monetary payments. However, because remote sales of goods fall outside the subcommittee's current mandate, the main gap that Article 12aa and 12b cannot address and where an SP provision is genuinely needed is no payment digital business models where companies monetize user data or engagement through third party channels like advertising. So it's an important aspect to be considered in in it's it's also appear in in the one of the decisions that the committee will have to do so uh it's important that adopting an SAP test is only justified if it delivers tangible additional taxing capacity and so for the following slide please I think that we move to option B Option B is the second. It's focused on the existing framework. And rather than introducing a new next rule, this option would seek to clarify, consolidate, and simplify the provisions that were introduced in recent years, particularly to Article 53B, 12AA, and 12B. So the proposal would be to improve coherence, address drafting and interpretative issues, and facilitate practical implementation. So following a slide, it appears, it shows here the work that should be done by the subcommittee on these options. So it's a comprehensive list, as you can see, of the necessary amendment and technical updates that is required for those articles. So I will not go one by one, because we have all of this in the report. So going to the next slide. Here, this slide focus on the main change that were necessary in those two article, 53B and 12AA. So first, in those article, whether to expand or remove article 53B and clarifying how it interacts with article 12AA to avoid overlaps between net taxation and withholding. And second, it proposed technical improvement to Article 12AA, including clear rules and optional net-based tax selection to protect low-margin service. Going to the next slide, it presents the main aspects that the subcommittee will have to work on Article 12 views. So we have the modernizing the definition of automated digital service to explicitly include emerging technology like AI and cloud computing, redrafting the treaty test for better cohesion and clear priority rules. and simplify the net base election under paragraph 3 by establishing clear administrative rules to make it practical for tax authorities and taxpayers. Okay, so for the following slide, the next slide, we now go to the option C. Option C combines option A and option B. So it gives the subcommittees to the subcommittee a mandate to work on both tracks at the same time. So it's important. Please, next slide, too. It's important to mention that this is the option that the subcommittee strongly recommends So we have the support of the subcommittee to follow this approach, this option. Next slide, please. So I'm going to the end of the presentation. So in the decision point that the committee has to take, So the committee is invited to comment on the evaluation report and to indicate which option it would like the subcommittee to pursue, option A, option B, or option C. And if the committee wishes to pursue option A or option C, it's invited to consider whether any future SEP work should be limited to service or whether its scope should be extended beyond service. And third, the Committee is invited to consider whether the selected option would warrant any change to the timeline or scope of the practical implementation guide that is being developed to assist country in applying the service related provision introduced in 2025 UN model. So I think that's all the presentation. I think that next slides, it's appear resume of the committee decision. So, and I give the floor back to the chair.


Co-Chair [2:06:13]:

Thank you very much, Claudia and Angie. and of course, with big thanks to Lorenzo, Chris, and very importantly, Brian Arnold, who had given the Subcommittee very good support in doing this innovative report. Colleagues, you will recall that at the 34th session, this Subcommittee was given the mandate to do an evaluation report as to the provisions relating to PE for services and also relating to emerging technologies. And one of the things that the subcommittee realized in the middle of the work is that those two sub-mandates are actually one, and therefore, all of the issues were resolved in one report. And so you have before you the evaluation report, and this session is the timeline for the subcommittee to provide a report, which you already have with you as part of this annex to CRP 15. and now let me invite, um, just like, um, the subcommittee has, um, required your comments and, uh, inputs on the, um, analysis that was provided in the, uh, report and two, um, your, uh, decision as to whether, uh, the option A, B, or C, uh, should be pursued. And so, the floor is open. Angela, it is Jian.


Co-Coordinator [2:08:34]:

Thank you, Mr. Co-Chair. I have a preliminary question and a remark. My question is, does the subcommittee recommend any of the three options, because it seems to me it would be helpful in general when subcommittees are working on issues and they present options. It turns out that I know the answer to the question because I am in this subcommittee, but in general, it seems to me that some committees should recommend. That's part of their job is to recommend some of the options, but probably some people disagree with that. But And then my remark is option C. In option C, you have either focusing first on option B and then when that's done on option A, SEP, so that's a two-step approach. And you also covered in option C, you have the option of working parallelly in option A and B. For me, those are two fundamental different options. So it seems to me we should have an option C, which is a two step approach and an option D, which is a parallel work of option A and B. So when people are expressing their preferences, they'll both say option C, but you could mean two different possibilities. And since I have the floor, well, I'll express my My preference is to, is option C, but in view of the number one, heavy workload of our committee, and number two, the fact the SEP solution is very complex and would require lots of work and effort in negotiations and figuring out how to attribute profit, and it's a whole change of system. I would strongly recommend option C as a two-step approach to first consolidate what we've done in the field of source taxation before exploring and working on the SEP, which is a whole different ballgame. If I can make a comparison, it seems to me that with all the latest improvements or changes made in the model with the introduction of after 12A in 2014, but 12B and 12C and 12AA, now it's time to consolidate those solutions. We've decided to go in that direction and to all of a sudden attribute lots of resources on on SCP before the rest is consolidated would not seem to me very efficient. It's kind of like if you go to a place, you build a tennis court, you buy all the equipment to play tennis, and just when you're going to start playing tennis, you say, hey, let's go build a swimming pool on the other side of the street and you go off and you haven't played tennis and you're building a swimming pool. So all that to say that I strongly favor a two-step approach and consolidating the solutions that are in the model today. And maybe my last point is, if the recent IMF report regarding SCPs mentioned six countries that have SCPs, so we're going to be doing work We would be doing work if, for instance, we chose, uh, option A, um, on a solution that right now. six countries have agreed in their internal law and it seems to me not the most efficient way forward.


Co-Chair [2:12:45]:

Thank you very much again. I think it's important that we, your point as to prioritization is well taken, but I think for the efficient working of the subcommittee, not just this subcommittee, but all subcommittees, it will be fairer for the committee to provide broad guidance as to what is to be done, but not to tell the subcommittee how to do it. Because the danger in that is that the subcommittee cannot override the decision of the committee. And so if at the end of the day they find the micro instructions difficult to work with, they have to come back to the committee at another session before that could be changed. I understand your point because you are also a member of this subcommittee, but I think we as co-coordinators be happy to just get the instructions or the direction of the committee to do option A, option B, or option C, and then let the subcommittee decide how to deploy its own resources for optimum results. That's what we will plead with the committee to do so that we do not micromanage the work of the subcommittees, not just this DG subcommittee, but all other subcommittees. Thank you very much. Enrique, please.


Mexico [2:14:41]:

Thank you, Matthew. I will speak in Spanish. I understand that this is a very important challenge that we're dealing with and takes a lot of time, but this is the most important point for me, especially in connection with all the other points we review, including the membership, to have a convention to avoid double taxation with the drafting that is contained in Article 5 and its link with Article 7, it is something that will lead to disadvantages to countries that import capital or developing countries. So I'm not sure whether it is necessary, where we can celebrate to have such texts with these provisions, because their country does import capital and a developing country will not be able to capture the relevant taxes. And this is a very important challenge. And I'm hearing the comments that are being made that this is an enormous challenge, that we will be in a situation where we won't be able to find solutions. But we need to start somewhere. We cannot have this anachronistic Articles 5 and 7. We've been looking at this for many years. We have to move forward and, yes, have the courage as a committee. So we have to take that into account. Now, I'm not really convinced with the options, but I have to make a choice, and perhaps we can combine things. I am not fully in agreement with significant economic presence, and I remember Colombia, Nigeria, Kenya, Vietnam, India, this concept was included in their legislation, but perhaps this may be quite complicated to have. We have to land somewhere and will modernize and make relevant Article 5 to talk about presence. And 3b also we heard comments to reduce the number of days. We have to simply delete that. That is no longer used. The same Article 5 in the UN model states that with the advance of the technology, then there's very little presence or no presence at all and very few days of operations. So there will be countries will not be able to capture that because the models provide for presence. Talking about the importance of presence when it is no longer the case. So we have to find a solution, perhaps not significant economic presence, perhaps explore a bit other things and something that was mentioned for a significant digital presence. The European Union tried that. It wasn't approved, but they're continuing to work. We need to find something that will capture entrepreneurial activity without presence. It's not for tomorrow. We are ready. Any country that starts negotiating conventions with Article 5, they'll lose quite a lot because not just presence is required, but it is necessary to have presence and then to declare the revenue. So there are many obstacles for a source country to capture this revenue. And this has been mentioned in different form. We have to find a form to start, at least. I understand the challenges, but let us start. Let's start moving forward, and that should be our priority, and make a combination, and not just simply limit ourselves with strengthening or simplifying as we see option B, because it all involves presence. Until that requirement for presence disappears, this will no longer permit countries to capture these revenues. And with digital technologies, this presence is not really necessary. And sorry for taking so much time. Thank you.


Co-Chair [2:19:32]:

Thank you very much, Enrique. I know that I need this question around PE is going to elicits a lot of reactions. And maybe one of the things that we want us to keep in mind as we discuss the evaluation report before us is that the MTC subcommittee also has in its mandate to look at Article 5 holistically. And I think It's going to be good for us that as we look at this report and we look at the issues, don't let us forget that we're still going to listen to the MTC subcommittee with its own report, with the other aspects of PE. But your comments, in my view, are fair and they are well made, but the issue for us is to find that option, whether it is called SEP or SDP or whatever name it is called, as long as it's able to satisfy the gap that we have currently with nonphysical presence of businesses that are making income in various jurisdictions. I think for me, and I also believe for the subcommittee, that is good for us. It's not about the name, it's about the substance of what is able to deliver. Let me invite Bhaskar now.


Speaker 50 [2:21:18]:

Co-Chair, one of the questions was that which of these three options would be the most workable option. And if I remember the discussions, it was option C was chosen as a kind of middle path in all this. But that said, and probably I also was among the people who said that, but I cannot get over this thought that option C is workable because it includes working on option A. And if you look at this from a very, very technical or a very academic point of view, it is the problem that needs to be solved, as Matthew just mentioned, that the physical presence The nexus based on physical presence does not answer the needs of the digital economy. So that is the problem to be solved. Theoretically speaking, that problem can be solved by looking at Article 5. India is one of the countries which has a significant economic presence in its domestic law, though the fact of the matter is that we have not been able to import it into any of our treaties for various reasons. In fact, the way our significant economic presence law is designed, if that were to be imported into an Article 5, it could wipe out Article 5 as we know it as of today. Now, are we prepared to do that? Probably no, because from the treaty negotiations that I have taken part of, the one that I have heard, probably that appetite is not there as yet. People still want to have different rules for industries which are covered by physical nexus with physical presence and those which require something beyond the physical presence. So probably having a straight SCP kind of article will probably not be very palatable for the want of another word. So that is why probably option C is something that we need to go. But that does not mean that we don't, we have to, confront this problem at some point or the other. There is a question on the board that says that, if option A or C is chosen, should the scope be broader than services? Yes, I assume that it has to be broader than services, because, whatever option we eventually take, it has to deal with different kinds of industries. That is something to do with what we said in the last session, that we eventually have to find a balance for all the different kind of industries that our treaties will have to cater to. Now, option C contains a piece where we have to clarify the scope or make simpler the operation of Article 12A and 12B. That, you see, even today, it is not as if those articles are for two countries who intend to negotiate it, it is not that they are very difficult to administer. I mean, if two bilaterally, it can be a net basis of taxation can be negotiated. So I don't think that even if we go down that path, that is going to solve the problem that we are out to deal with. So, yes, I believe option C is fine as long as option A does not get lost in that mix. So, that is something that I would like to mention.


Co-Chair [2:24:58]:

Thank you. Thank you very much, Vesna. Jan.


Speaker 52 [2:25:11]:

Thank you, Matthew. And thanks to Claudia for that presentation, which I think has very well reflected the discussions in the subcommittee. Well, on the question in the slide, my initial preference would be for option B, as I said in our last committee meeting in New York. But I could see that many fellow committee members have a strong preference for doing something on SAP. So I agree that we can do both option B and option A. whether with a stepped approach or with a parallel approach. But I do think the SEP thing would be a major change to the model convention. And I would strongly like to flag several technical difficult technical issues that we may be faced with and we may have to deal with. One is the profit attribution issue. As I said in New York, I think a virtual PE, because if we find a PE based on the SEP concept, then it's a virtual PE. So a virtual PE, when it comes to profit attribution, should be treated differently from a fiscal PE, especially in terms of how you deal with routine profits. I think transfer pricing people are all aware of that. And then in addition to that, as I commented in one of our subcommittee meetings, There can be double or multiple source taxation. Say, if the payment is out of one state, then the users are in another state, but then the user data are processed in a third state. They're all source states. So on top of the source resident double taxation, we have multiple source taxation already. So, that is another difficult issue we need to deal with when it comes to profit attribution. So, the second technical issue is the coordination, interaction and coordination with 12B, 12AA, et cetera. In addition to the throwing back thing, which Claudia just mentioned, there can be other interactional coordination issues. Say, if, I mean, if, just like, just in the example I just gave in terms of multiple source taxation, so if the payment is out of one state and the user is located in another state. So which, I mean, 12b, because 12b already entitles the payment state to tax. So would 12b come first so that the payment state can have the first bite, or would the SEP provision come first? And I mean, even More difficult to deal with is the scenario in which the payment state and the user state are the same state. So which provision would come first? And then even more complex scenario is when this is a payment state, a user state, so that you can find a virtual PE. And then in this same state, there is also a physical PE. How would you coordinate the application of all these provisions? So that is my--.


Co-Chair [2:29:43]:

Thank you very much, Yan. And maybe just one point to make, and that is the fact that if this work were easy, the 25 of us appointed by the Secretary General to this committee would not have been appointed at all. And that's the reason why we are experts. And I like your analysis because it is telling us what we need to look for, what problem we need to solve. So it might be difficult, and it's because it's difficult, that's why we are members of this committee as experts. And so for me, it is for us to look at how do we solve the problem, because The issue that we have with us is not whether it is SEP or SDP or whatever. It's the problem that business models have changed over the decades. Physical presence is being diminished and getting much more diminished. The question is, should there be no nexus rules developed to capture non-physical presence? For me, that is just a simple question that we are here to solve. So whether we are now solving it by way of SDP or SCP is not the issue. And on the issue of attribution of profit, we also should not make the issue convoluted. Article 5 deals with BEHE. It doesn't deal with attribution of profit. Article 7. this with attribution of profit. So I'm sure that if we have clear rules to define the nexus under Article 5, then we'll come back to the problem of Article 7 of how to attribute profit. I mean, if we take it one step at a time, it helps us so that we are not discouraged from actually embarking on the work. But all your points are clear and they are very useful. They are only pointing us to the things we need to apply our minds to, rather than things that should stop us from moving forward. That's the way I see it. Yes, Jan.


Speaker 54 [2:32:02]:

I'm not saying because of these problems or difficulties, we are not going to do that. But I wanted to flag. These are the issues that we need to consider. Because I do not think we want to, I mean, look at this issue and give a simple solution to a complex issue.


Co-Chair [2:32:28]:

Thank you very much. And because our agenda for this session is actually very packed, we really want to see um how we limit um uh the time we we spend um we want to rely more on our re written inputs um that's going to help us um the secretariat um have explained to the implication when we um overrun the time uh is a lot of financial application for for the secretariat so uh we we please want to seek your indulgence that when we intervene we keep to three minutes. So, so please just bear with us. It's just because we we know that money is tight now for everyone. Uh even for the UN it is tight. Uh so so please Angela please.


Speaker 56 [2:33:32]:

So just to directly answer the question, my preference is for option B. It's good to come after Siong Yian because she articulated a lot of the points that I wanted to say. I think what's key here is not about the work we need to do. I think what is key is as a committee, what do we invest our time because we have limited hours and where should we invest our limited hours? In my view, the work in under option B is already very extensive. I think that the previous committee has done extensive work introducing new articles specifically to deal with the issue of physical presence, so that that doesn't inhibit developing countries to still apply gross withholding taxes, and these are introduced in the new articles. I think the question that I ask myself as a mandate for committee is, do we need, in this committee, to introduce something new? what would help developing countries? Something new has already been introduced. Would it help developing countries if we invest our time to bring clarity and to bring meat, to bring life to something that has been worked on? And to introduce something new, I mean like the tennis or the swimming pool idea, I think that's the part where I am not very clear whether it is, I have hesitations on investing time on option A where the complications would take us longer and it would take away time that is required for the practical implementation guide. So these are my considerations. Thank you.


Co-Chair [2:35:08]:

Thank you very much, Angela. Hector, please.


Speaker 58 [2:35:14]:

Thank you, Co-Chair. And thank you very much. I'll be as brief as I can. Thank you very much for the evaluation report. I found it very useful. It was very well written and very nicely structured. Thank you for putting clear questions to the committee. So I think that's really important in terms of the role of the subcommittee in the committee, and I will simply try and give you my view on the questions. So I think there's actually an option D. So that second point there about is the timeline around the practical guidance too ambitious. So I think what the subcommittee is asking is, can we not do that just yet or right now? So I'm going to call that option D, because a decision not to do something is a decision. And so I'll pick up on the comment that there's limited treaty practice around some of these new provisions. And I think the question for the committee is, well, why is that the case? And so if we think about why that would be the case, then we need to think, well, what option, option A, B, or D is the most effective in addressing that? And option C is not relevant to that because it's option A and option B. I'm indifferent between option A, B, and D, but I just think that I don't support option C because option C is to sort of keep doing more. And I worry that the issues around the adoption of some of these changes are not because there's not enough detail or sufficient complexity in the system, but other reasons. And I think we need to think about addressing those before we sort of advance on all fronts.


Co-Chair [2:37:17]:

Thank you very much. Alexander.


Speaker 60 [2:37:24]:

Thank you, Mr. Co-Chair. We have run out of time. That's why my intervention will be short and will concentrate on three issues I would like to present it for the attention of my colleagues and for the audience. As for the choosing of the option, I agree with the GM that it is not only necessary to provide the vote for the a particular option, but also to provide the techniques, what mechanism we should imply in order just to develop that option. That's why I would like to vote for the option C and to work for this option simultaneously, I mean, on both options, options A and B. The second comment I would like to make is just we need to expand scope of services under the consideration. And the third comment I would like to make with respect to the option B, now we see that subcommittee proposes not only to clarify and consolidate and simplify the current rules on the service income, I believe that with respect to the option B, it should be noted from my side at least that those activities on consolidation, simplifying and other proposals, they are not enough because We have not only to, to, to, to, to, to, to provide, uh, the, the, the, the certain comment with respect to this option, but also to, uh, we need to develop, uh, and supplement, uh, article, uh, 12 AA with the mechanism which allows taxpayer to choose, uh, a particular, um, a particular, uh, taxation option. under certain circumstances. I think that would have also a practical implementation because now in the INC committee we are also involved in the discussion on that issue. So I believe that this issue should be also should be taken into consideration. Thank you very much.


Co-Chair [2:40:07]:

Thank you very much, Alex. Kabengwa.


Speaker 62 [2:40:15]:

Thank you very much, Chair. I think I'll address myself to the last question. I believe when we were establishing the mandate for the UN model and the subcommittee on digital and global economy, the caveat was that we would wait for the reports to be finalized, and then the team under the UN model would be able to proceed to do the work that they need to do under Article 5. So I think that now that the options have been so eloquently put on the table by the DGE team, that the model subcommittee should then be allowed to proceed on its work under Article 5, focusing on issues relating to nexus and permanent establishment, and then the transfer pricing subcommittee can now focus on work that is principally related to attribution of profits and Article 7. So that would be my summary with regards to this. And then if the model subcommittee chooses to pursue the work relating to Nexus, looking at other methodologies and not just the traditional methodologies that exist in the model, I think that should be left up to that subcommittee. Thank you, Chair.


Co-Chair [2:42:24]:

My apologies, colleagues. We're trying to see how to shuffle things because these discussions are very important and we're trying to see where we could get extra minutes so that if we are not able to finish this discussion this evening, we'll be able to continue tomorrow because we really are not happy cutting short your interventions. So sorry about that. Let me invite Wanda now.


Speaker 64 [2:43:00]:

Thank you, Mr. Chair. We are learning in Spanish.

I'll switch to Spanish. Thank you very much to the coordinators mainly and the subcommittee as well for the assessment report, which I think has been drafted in a very rigorous and frank way, making it very clear for us what the options and the ramifications of those options are. I share the conclusion that we are reaching that articles 12A to 12B basically cover everything that needs covering, but that there is still a gap around this issue of whether or not there is a significant economic presence and tax payments to the relevant country. I support what Enrica was saying just now, independently of the option that we choose, and I am grateful to the chair for making this point. We need to think about how we are going to tackle this SEP, of course, but if this is what we are going for at the moment in thinking about option A, I think we need to obviously support the work that can be done in this area to establish the goal that we are seeking here. That is very important, but I have a few comments. I will try and limit myself to the most significant points out of respect for the time limit, and people who want to add something after me. I support option C. As the report says, it is important that we ensure correct tax implementation and that we deal with the different country requirements, above all when we have activities without physical presence in jurisdictions. If option A or C is being considered and we are considering that beyond services, I would understand it to be indeed further and more extensive than services, but we need to think about the resources that are available there, I think. So that was one point. I think it is important anyway to carry out this work and that implementation is also pretty important here and that we can't delay looking at that because there are countries where provisions are available, there are countries that will begin to include it already in their models and start carrying out their negotiations, so we need to make sure that's done. Thank you.


Co-Chair [2:45:51]:

Thank you very much, Wanda. Alvaro.


Speaker 66 [2:46:00]:

Thank you very much, Chair. I will, as you have asked, be very brief. Before I say what my preference is vis-a-vis the suggestions and options put before us by the subcommittee, I think it is important to share a comment, and that is to highlight the relevance that this issue that we are debating has, the problem that underlies this, of course, is very significant, and I think it highlights what is maybe one of the most tricky clauses for particularly developing countries, given the situation around the current economic context, the application of Article 7 rules in combination with Article 5, that is, and that means that in many occasions, developing countries cannot basically generate tax income which is being in fact created in their territories. And given that imbalance, which is basically thrown up by existing models around this area. We need to bear in mind that in recent years, the various members of this committee have managed to make significant steps forwards, first of all around Article 12A and then 12B and then the subsequent Articles 12s, if I can put it like that. but their progress has been limited to the sphere of services. Of course, there is still important work that needs to be done there. We need to double down and be innovative in order to overcome that gap. As a result, I am inclined to opt for option C. I also have quite a bit of doubt about this issue around the concept of significant economic presence, but I understand that the current situation is unviable and we need to get progress one way or the other. In terms of the scope that option C should have, I would personally prefer to be clear that it shouldn't be limited to services and it should indeed include any type of tax yield.


Co-Chair [2:48:59]:

Thank you very much. Anthony.


France [2:49:07]:

Thank you, Chair. So I will be very, very, very brief.

I just want to make three comments, really. The first is that if the model already met the requirements of digitisation, we would not be sitting here, so there is something to correct, I think, clearly, to respond to that challenge. Secondly, I think, as I see it, the key issue here is should we abandon the physical criterion or not in terms of establishing a physical presence. I think that is the nub of the matter. It is the question we need to answer. On that, we have this language, "significant economic presence", but we could use another terminology. The underlying difficulty here, though, is that By introducing that concept, it means a lot of changes, a lot of changes for enterprises and also tax administrations. And it raises the question of profit attribution, because if you don't have any more physical criterion, what do you allocate the criterion on the basis of? This is going to throw up all of those questions. It's not a neutral decision. It will require a lot of investment, a lot of capacity building. We've spoken a lot about capacity building. It's going to be essential because this is a new concept, so it will need to have investment behind it to familiarise ourselves with it. We would need time, I think, therefore, to think about the implications. And that's why in answering the question, I would opt for option C. I think we can work. on this concept of significant economic presence, but we could also talk about non-physical presence, of course, in that context, but we'd need more assessments of the implications because I don't think we have enough distance from it or data in terms of what that implies. We need to identify the existing gaps so that we can respond in a meaningful way to the difficulties that are being thrown up today by the digital world. So there you have my comments. Thank you.


Co-Chair [2:51:39]:

Thank you very much, Anthony. I think that was a good intervention. I think the question you, I mean, one of the statements you made, I think is important for us to be clear. I'm not sure the intention is to do away with physical PE. My understanding is to fill the gap where businesses are able to operate and earn income in a jurisdiction without physical presence. I think that is the gap that this is about. It's not about doing away with physical PE because we will still always have physical PE with us, at least for a very long time to come. Thank you. We have seven minutes before 6:00. and um I want to close this meeting 5 minutes um before 6 I don't know when is 2 minutes enough if not then we take you tomorrow morning would that be good which one do you prefer tomorrow morning okay so we we have noted all the flags um that we have also noted the other in which they are raised um and so um colleagues I want to sincerely thank you because we are having very good interaction and discussions here, which are very deep. And I want to thank Caroline, who has helped us ingeniously find additional time for us to continue this discussion. 00 in the morning tomorrow. My team Thank you, Claudia, Angie, Chris, Lorenzo, Brian. We will continue with this tomorrow at 10 o'clock. Thank everyone of you for the efforts that we have made. Before I close, I will pass the microphone to Caroline for any housekeeping.


Speaker 70 [2:53:43]:

Thank you so much, Chair.

And as the Chair just mentioned, because we will resume this item tomorrow morning, the item on environmental will start just a little bit later than planned, but there'll be ample time for Wednesday's items. A brief announcement, some of you have been asking about the Swiss cocktail. That is not a new bird roaming about the grounds.


Speaker 71 [2:54:05]:

Those are the peacocks.


Speaker 72 [2:54:07]:

The Swiss cocktail is a lovely tradition with great thanks to Swiss.

Government for hosting the members of the committee and observers for reception during the week we are here in Geneva. So this year the reception is taking place this Wednesday night, 15 p.m. until 7:45 or so, and with great thanks to Gian and his colleagues at the Swiss Federal Department of Finance, who are our.

We will help guide you to the location. It will be held as it was last.

Year in the delegates restaurant, which is accessible from the main building via some elevators.


Co-Chair [2:54:50]:

So we'll give some more instructions on that tomorrow. But please, with thanks again to the Swiss government, you are all invited to attend.


Speaker 74 [2:54:58]:

Thank you.


Co-Chair [2:55:01]:

Thank you very much, Caroline. So, colleagues, see you in the morning, but don't do what I won't do.