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South Centre - Statement by the South Centre on the Two Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy

Statement by the South Centre on the Two Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy

The South Centre takes note of the Outcome Statement by 138 member jurisdictions of the OECD/G20 Inclusive Framework (IF) made on 11 July 2023, on the Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy. In this statement the South Centre highlights the inclusion of rules that have the practical effect of reducing the tax payable to developing countries under Amount A, the limitations of Pillar Two and other key aspects of the OECD proposed rules that require attention by developing countries before they decide to be tied up by such rules.

Taxation of Digital Services: what hope for the African States?

Globalization makes it necessary to adapt multinational taxation by taking into account the place of use or consumption of goods and services. “Pillar 1” of the OECD aims to allow States in which multinationals market products or services, or collect data and content from users, to benefit from a portion of their residual consolidated worldwide profit. Since residual profit is a function of the turnover and profit achieved in the jurisdiction, this solution can only be an advantage if, beyond the rules of fair taxation, efforts are made to promote the use of digital services. Internet access is one of the levers that can increase the consumption of digital services. The current situation in Africa according to statistics published by the International Telecommunication Union (ITU) shows low rates of internet access compared to other continents.

La mondialisation rend nécessaire l’adaptation de la fiscalité des multinationales et la prise en compte du lieu d’utilisation ou de consommation des biens et services. Le pilier 1 du projet de l’OCDE a pour objectif de permettre aux États dans lesquels les multinationales commercialisent des produits ou des services, ou recueillent des données et du contenu auprès des utilisateurs, de bénéficier d’une partie de leur bénéfice mondial consolidé résiduel. Le bénéfice résiduel étant fonction du chiffre d’affaires et des bénéfices réalisés dans le territoire concerné, cette solution ne revêt un intérêt que si, au-delà des règles de juste imposition, des efforts sont déployés pour promouvoir l’utilisation des services numériques. L’accès à Internet est l’un des leviers qui permet d’augmenter la consommation de services numériques. Or, il ressort des statistiques publiées par l’Union Internationale des Télécommunications (UIT) que l’Afrique affiche des taux d’accès à Internet qui sont faibles en comparaison d’autres continents.

La globalización obliga a adaptar la tributación de las multinacionales en función del lugar donde se usan o consumen los productos y servicios. El “Pilar 1” de la OCDE pretende permitir a los Estados en los que las multinacionales comercializan productos o servicios, o recopilan datos o contenido de los usuarios, que se beneficien de una parte de sus ganancias residuales consolidadas en todo el mundo. Dado que los beneficios residuales dependen de la facturación y los beneficios conseguidos en la jurisdicción, esta solución solo puede ser ventajosa si, más allá de las normas de equidad tributaria, se toman medidas para promover el uso de los servicios digitales. El acceso a Internet es una de las palancas que puede aumentar el consumo de este tipo de servicios. Según las estadísticas publicadas por la Unión Internacional de Telecomunicaciones (UIT), la situación actual en África indica unos niveles bajos de acceso a Internet en comparación con otros continentes.

Participants at the Tax for SDGs Digital Economy workshop Photo credit: UNDP Sri Lanka

UNDP and South Centre jointly organise Capacity Building Workshop on Taxation of the Digitalised Economy for the Government of Sri Lanka

Policy Dilemmas for ASEAN Developing Countries Arising from the Tariff Moratorium on Electronically Transmitted Goods

This paper examines the policy dilemmas facing developing countries in ASEAN in working within, and participating in, international negotiations toward making permanent the WTO tariff moratorium on duties applicable to electronically transmitted goods. In the context of ASEAN’s countries’ trade-oriented development strategies, the analysis considers the moratorium’s impact on tariff revenues, economic performance, and industrial development prospects.

Submission to the Global Digital Compact Apply Human Rights Online

The Declaration on the Commemoration of the Seventy-Fifth Anniversary of the United Nations, adopted by the General Assembly, which made a call to improve the digital cooperation among all countries and regions of the world, recognised the need to achieve a digital future that, inter alia, allows for the full potential of beneficial 2 technology usage while addressing digital trust and security, with the objective of accelerating the realization of the 2030 Agenda.

TAX COOPERATION POLICY BRIEF No. 29 - Digital taxation under the OECD Amount A and UN Article 12B mechanisms for market jurisdictions in Africa: a comparative analysis

Digital taxation under the OECD Amount A and UN Article 12B mechanisms for market jurisdictions in Africa: a comparative analysis

This Policy Brief examines the need for the evolution and harmonization of international taxation in the face of the digitalization of economic transactions.
Between the OECD proposal for shared taxation of residual profits through the Amount A mechanism and the UN proposal of Article 12B for taxing income from Automated Digital Services on a gross basis through shared but capped taxation, with an optional variant of the taxation of net profits, African States need to make vital political and technical choices.

The strategic negotiations must include regulatory sustainability, the right balance and fiscal fairness between the divergent interests of residence states vs source states (which include almost all African countries), and MNEs in their quest for
profit and expansion.

The Policy Brief carries out quantified evaluation of possible revenue estimates using a case study approach. However,
such an exercise remains difficult for questions of accessibility and reliability of data relating to the activities of multinational companies.
To be realistic, the scope of the study was restricted to a reference company in the digital sector but targeted economies of
different scales. The results of the revenue estimates represent an optimistic case of the impacts on tax revenues of the application of the OECD and UN measures on different types of economies.

Digital taxation under the OECD Amount A and UN Article 12B mechanisms for market jurisdictions in Africa: a comparative analysis

South Centre Comments on the ‘Amount A Draft Multilateral Convention Provisions on Digital Services Taxes and other Relevant Similar Measures’

The South Centre submits the following comments and recommendations to the OECD Inclusive Framework’s Task Force on Digital Economy (TFDE) on the Draft Multilateral Convention Provisions on Digital Services Taxes and other Relevant Similar Measures.

South Centre Comments on ‘Amount B’ of Pillar One under the OECD solution for the taxation of the digitalized economy

Workshop on “the digital economy and other international issues” co-organized by the South Centre and the Foreign Economic Relations Department of the Ministry of Trade of Iraq