Recent international tax policy developments at the United Nations

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Aseem Chawla

ASC Legal, Solicitors & Advocates, New Delhi



The 20th session of the United Nations Committee of Experts on International Cooperation in Tax Matters (Committee of Experts) was held virtually in the months of June and July 2020.

Through this Expert Committee, the UN generates practical guidance for governments, tax administrators and taxpayers, with a special focus on developing countries and others in special situations.

The session advanced progress on updating the Committee's work on the UN Model Double Taxation Convention, the UN Transfer Pricing Manual, and the UN Handbooks on Tax Dispute Avoidance and Resolution and Environmental Taxation.

Other areas of focus included the tax consequences of the digitalised economy, the tax treatment of official development assistance (ODA) projects, tax and sustainable development goals, and related capacity support offered by the United Nations Department of Economic and Social Affairs (UNDESA).

Tax policy and the digital economy: proposed new draft Article 12B in the UN Model Tax Commentary

The Committee of Experts decided to consider adding a new article to the UN Model Tax Convention after examining a paper drafted by the co-coordinators of the sub-committee on tax challenges related to the digitalisation of the economy.

The paper included an attachment, drafted by sub-committee member Rajat Bansal (in his personal capacity), which was critical of the Organisation for Economic Cooperation and Development’s (OECD) Pillar One Unified Approach.

The paper canvasses that there is no sound basis for the unified approach’s allocation of only non-routine profits to market jurisdictions or its use of thresholds other than thresholds based on local revenue. It proposed an alternative approach for taxing the digital economy which can be implemented through a new tax treaty article redefining nexus and profit allocation.

In view of the above, the Committee of Experts decided to task a drafting group to produce a draft proposal for an optional UN model provision for review by the full committee. The drafting group consisted of members solely from developing countries.

On 6 August 2020, the Committee of Experts released the proposed new Article 12B on Income from Automated Digital Services.The objective of this draft provision Article 12B is to appropriately allocate taxing rights and establish a viable method for the imposition of the tax.

Under paragraphs 6 and 7 of the commentary to the draft proposal, an option rests with the company on whether to opt for the gross-based tax or the net income approach on income arising from automated digital services.[1]

Although the draft Article prescribes that the income arising from automated digital services should be taxed on a gross basis, it is proposed to be instituted as a withholding tax which the country of source of such income may impose – with the rate at which the tax will be imposed to be deliberated and arrived at by the contracting states. This principally differentiates it from the OECD’s Pillar One approach, which uses the gross basis method as the default method.

Article 12B addresses the issue of taxing rights and ensures that the source state gets a right to tax automated digital services. Further, it makes the process simpler through a withholding mechanism. It is also beneficial to the owner residing in the other state on account of the elimination of double taxation through a tax treaty. It differs from the OECD’s Unified Approach on account of its simplicity and certainty of revenue.

Paragraph 8 of the commentary to the draft proposal states that this new Article 12B would not require any threshold, such as a permanent establishment, fixed base, or minimum period of presence in a contracting state as a condition for the taxation of income from automated digital services.[2]

The scope of the new article seemingly has a persuasive application, as it does not have the size, profitability or any such thresholds that are envisioned in the OECD’s Pillar One approach.[3] At the same time, it is streamlined: without such thresholds, determination of taxable income in the source country is more straightforward.

With regard to the ambit of term ‘automated’, Paragraph 31 states that a service is regarded as automated when the user is able to make use of the service because of equipment and systems being in place which allow the user to obtain the service automatically, as opposed to requiring a bespoke interaction with the supplier to provide the service.

In determining whether a service requires minimal human involvement, the test only looks to the supplier of service, without regard to any human involvement on the side of the user.[4]

Further, Paragraph 34 clarifies that the following shall be considered under ‘automated digital services’:[5]

  • online advertising services;
  • online intermediation platform services;
  • social media services;
  • digital content services;
  • cloud computing services;
  • sale or other alienation of user data; and
  • standardised online teaching services.

The Committee of Experts often includes provisions in the UN model text, or recognises possible provisions in the model treaty commentary, with the perceived pros and cons outlined. Any such provision in the model would of course need to be negotiated in a particular bilateral agreement.


The proposal on the introduction of a new Article 12B significantly diverges from the OECD’s Pillar One and Pillar Two proposals. The UN proposal seems to be much simpler and more realistic in terms of its coverage and formula when compared with the OECD’s work on this subject.

The question that arises with the UN significantly departing from the OECD’s view is whether a so-called consensus-based approach is really something which one should look forward to, especially when international organisations like the UN and the OECD themselves are miles apart in their approach.

With the United States already opposing a digital business-centric approach and backing out from OECD’s discussion on digital tax[6], the UN approach may not find favour with the US outlook. It would be interesting to see whether the OECD deliberates upon the same as it is scheduled to release the official blueprint of Pillar One and Two at the Inclusive Framework meeting scheduled on 8-9 October 2020.

Irrespective of the outcome, the new proposed Article 12B seems to be an albatross sighted by the emerging market economies.

[2]      Ibid

[3]‘Secretariat Proposal for a “Unified Approach” under Pillar One’, OECD, 5

[4]Supra 1, 8


[6]Jenny Leonard and Laura Davison, ‘U.S. Has Pulled Out of Global Digital Tax Talks, Lighthizer Says’, (BloombergQuint, 18 June 2020), see www.bloombergquint.com/global-economics/u-s-pulls-out-of-global-digital-tax-talks-lighthizer-says, accessed 1 October 2020.

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