How do the OECD and the UN address international tax issues (past, present and future)?

Monday 27 May 2024

Report on a session at the Annual IBA Conference in Paris

Monday 30 October 2023

Session Chairs

Margriet Lukkien, Loyens & Loeff, Amsterdam

Leandro Passarella, Passarella Abogados, Buenos Aires


David Bradbury, Organisation for Economic Cooperation and Development, Paris

Michael Lennard, United Nations, New York

Loren C Ponds, Miller & Chevalier, Washington, DC

Charyana Lakshmikumaran, Lakshmikumaran & Sridharan, New Delhi


Francesco Ricci, Maisto e Associati, Rome


The panel discussed how the Organisation for Economic Cooperation and Development (OECD) and the United Nations (UN) address international taxation concerns, starting with a look at the approach adopted in the past up to the present day (section one), recent developments concerning the OECD’s Global Minimum Corporate Tax Rate (section two), followed by an analysis of the solutions provided by both the OECD and the UN to address the tax challenges arising from the digitalisation of the economy (section three). The likelihood of cooperation between the two organisations was also discussed (section four). The panel also presented the perspectives of India and the United States (US) on these issues. The views expressed by the speakers were presented in a personal capacity.

Panel Discussion

Section one: from the past to the present day

The Past

Margriet Lukkien highlighted mismatches between the OECD and the UN on various tax items (eg, differences on source taxation rights).

Charyana Lakshmikumaran pointed out that India, being a source country, is more inclined to use the UN’s Model Double Taxation Convention as opposed to the OECD’s Model Tax Convention on Income and on Capital. Indeed, in most of its tax treaties, India has agreed higher taxing rights at source in relation to fees applied to technical services, equipment royalties and interest. In addition, based on its domestic law, India has been aggressive about taxing such income, since the country’s domestic rules have a wider scope than the tax treaty rules.

Recent Developments

Leandro Passarella asked David Bradbury and Michael Lennard about the potential impact on the UN and the OECD from the incorporation of developing countries into the OECD.

Bradbury stated that, since the OECD started working with countries to develop standards that may have a significant global impact, new structures had to be set up in order for the OECD to become more inclusive. This really commenced with the creation of the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes (with around 170 member jurisdictions), which essentially eliminated bank secrecy and increased tax-related transparency.

The OECD/G20 Base Erosion and Profit Shifting (BEPS) Project began with OECD and G20 countries, but implementation of the BEPS standards needed a more inclusive body to be globally effective, which led to the establishment of the Inclusive Framework on BEPS. Now, with the two pillar solution, the Inclusive Framework has more than 140 jurisdictions that participate on an equal footing and the decisions, generally, are based on consensus (with an indication of the jurisdictions that were not part of the consensus).

According to Lennard, any improvement in international tax cooperation is welcome. However, the question is how inclusive the Inclusive Framework is, since inclusiveness means full representation without any preconditions in relation to every aspect, namely ‘nose to tail’ inclusiveness. Relying on the UN General Assembly Resolution 77/244, adopted by the General Assembly on 30 December 2022, on the promotion of inclusive and effective international tax cooperation by the UN, Lennard pointed out that the OECD’s Inclusive Framework includes many developing countries, but the majority of the steering countries are still OECD members or their dependencies, which is quite apart from the issue of how members of such bodies are chosen.

Passarella asked Bradbury and Lennard their opinion on the recent rise of regional tax cooperation platforms (such as the Regional Tax Cooperation Platform for Latin America and the Caribbean and the African Tax Administration Forum (ATAF)).

In Lennard’s opinion, this is an important development. For him, an example of the importance of these platforms is the draft UN General Assembly tax resolution presented by Nigeria on behalf of the African nations, issued on 11 October 2023. Currently, the discussion within the UN is very active on this topic. The tax resolution was ultimately adopted by a strong majority of the UN General Assembly on 22 December 2023, as UN Resolution 78/230. The decision is to proceed with an intergovernmental UN process for working on a global framework convention for international tax cooperation, with the possible inclusion of protocols. Even if these platforms adopt different approaches and complete agreement cannot be achieved, they are positive solutions to minimise differences and improve transparency.

Bradbury also expressed a positive opinion on the new regional platforms. He pointed out, for example, that through the Inclusive Framework the ATAF has been able to achieve real gains regarding the two-pillar solution. For example, progress has been made regarding the Pillar Two Subject to Tax Rule (STTR), the substance based carve out and the OECD’s Qualifying Domestic Minimum Top-Up Tax (QDMTT). For Pillar One, examples of progress include Amount B and, in the case of Amount A, certain design features related to thresholds, revenue sourcing and the marketing and distribution profits safe harbour. Without the presence of regional platforms, this progress would not have been made by developing countries. In this sense, the ATAF took the lead and was able to secure significant achievements through the negotiation process. Looking at what the ATAF has achieved, other regions may be able to achieve similar outcomes, if they are able to come together in the same way.

Based on the discussions, in Lukkien’s opinion, the line between developed and developing nations is no longer as clear as it was in the past, and some divergences from the historic approach are accepted today. 

Passarella agreed with Lukkien, highlighting also that an OECD country, namely Canada, had not signed the OECD Outcome Statement on the Two-Pillar Solution, issued in July 2023 (which sets out the moratorium on new digital services taxes). Canada has rejected the one-year extension to the Digital Services Tax (DST) moratorium and may introduce its DST in 2024, with retroactive effect from 1 January 2022.

Section two: Global Minimum Corporate Tax Rate

The OECD Perspective

Bradbury affirmed that 55 jurisdictions have begun to implement the Global Minimum Corporate Tax Rate (or simply the Global Minimum Tax) already. The rules are designed to be mutually reinforcing regardless of whether some countries choose not to implement it. In particular, it should be noted that: (1) low tax jurisdictions (LTJs) that are currently taxing below the 15 per cent effective tax rate (ETR) have the chance to top it up through the QDMTT; (2) if LTJs decide to not to top up the tax rate, then the Income Inclusion Rule (IIR) applies (through the ultimate parent entity or the intermediate parent entity); and (3) at this point if the IIR has not been implemented, then jurisdictions implementing the Undertaxed Profits Rule (UTPR) may levy the top-up tax.

In addition, Bradbury highlighted that many countries, having statutory rates above 15 per cent, may have ETRs below this rate. Based on OECD analysis (not looking at average ETRs), indeed, more than half of the low-tax profit across the world is derived in countries where the average ETR is above 15 per cent (such as some African countries that grant tax incentives or tax holidays that bring the ETR below 15 per cent; now, through the QDMTT, these countries will be able to levy a top-up tax).

Finally, the OECD has estimated, based on the current schedule of implementation and under the assumption that the US and China will not implement Pillar Two, that around 90 per cent of global low-taxed profits of in scope multinational enterprises (MNEs) will be subject to the Global Minimum Tax in 2025. Peer reviews will be very important to assess the consistency of domestic legislation with respect to minimum tax standards.

The US

Loren C Ponds started by introducing the US perspective. The US has mechanisms to tax foreign source income of US resident taxpayers (Global Intangible Low-Taxed Income (GILTI) and the Corporate Alternative Minimum Tax (CAMT)), but no measures that would comport with the Pillar 2 framework (eg, a QDMTT or a qualified IIR). The Biden administration has made efforts to revise GILTI and align it with the OECD’s Global Anti-Base Erosion or GloBE framework under Pillar Two during the ‘Build Back Better Act’ negotiations, but that legislation was ultimately unsuccessful.

Likewise, the CAMT, even with a 15 per cent tax rate, is not the same as a QDMTT. Therefore, the US would require specific legislation to align itself with these global rules, and the current political situation is not easy.

Whether the QDMTT, due to be paid in various countries around the world, would be a creditable tax for US income tax purposes is not yet clear (note that the administrative guidance issued by the Internal Revenue Service at the end of 2023 (Notice 2023-80) states that to the extent a top-up tax does not take into account the tax liability of the direct and indirect owners of the entity subject to a QDMTT, the QDMTT is creditable in the US).

Finally, Passarella asked Ponds and Bradbury their opinion regarding the following two scenarios posed by the Joint Committee on Taxation’s Report on Pillar Two (‘JCT Report’), ie, that (1) US MNEs will shift their operations to jurisdictions with QDMTTs; or (2) US companies will be driven to move their operations back to the US.

For Ponds, behaviour by companies is harder to predict, but added that we also need to consider that non-tax reasons also drive business decisions. Therefore, any scenario could materialise.

Bradbury noted that the JCT Report analyses the potential outcomes in a world with a minimum 15 per cent tax rate. One scenario considers that all the profits currently allocated in various jurisdictions would remain there. Under that scenario, LTJs with QDMTTs collect a large share of the revenue. Another scenario suggests that 75 per cent of the profits of US MNEs currently in LTJs would be booked in the US (as these profits were previously booked in LTJs due to profit shifting). Therefore, this scenario indicates that profit shifting will be unwound, resulting in a more positive outcome. The rationale of Pillar Two is to address profit shifting in jurisdictions where you have low-tax profits and no substance rather than harming trade and investment, as genuine investments benefit from the substance-based income exclusion. Ponds observed that the effect of the international tax framework enacted under the US Tax Cuts and Jobs Act of 2017 has already led many US based MNEs to repatriate their intellectual property and the effect of the GILTI has already resulted in controlled foreign corporation (CFC) earnings booked in LTJs being subject to a rate of at least 13.125 per cent. Thus, the suggestion that there remains a significant amount of US MNEs’ earnings that – absent the Pillar Two framework – would remain subject to low or no taxation is erroneous.


Lakshmikumaran observed that India is not very keen to adopt the IIR due to the limited presence of MNEs headquartered in India. However, the IIR and UTPR will be implemented in the country in the interest of adopting a diplomatic approach, rather than as an ideal solution, because India aims to participate in an effective way in Pillar Two.

Alternatively, India is looking into the STTR with interest because: (1) it would be able to recover income taxed below 9 per cent by the residence country; and (2) it operates on a transactional basis.

The UN

Lennard noted that complexity is still a real concern for developing countries and there is uncertainty whether this complexity will be offset by extra taxes. The ATAF has released guidance, which suggests an approach for drafting domestic minimum top-up tax legislation.

The UN does not have a specific view on Pillar Two, therefore it is for member states to evaluate it and decide on their approach. Nonetheless, the STTR is important for developing countries and the UN encourages the STTR to be developed along more multilateral lines.

Section three: Pillar One, Article 12B of the UN Model Tax Convention and the DST


Lakshmikumaran reported that India has adopted domestically: (1) a DST called the equalisation levy (EL) of 6 per cent on online advertisement services provided by non-residents; (2) an EL of 2 per cent on non-resident e-commerce operators for e-commerce supply, or services made or provided or facilitated by an e-commerce operator; and (3) a new nexus rule related to a significant economic presence.

For a source country like India, Pillar One appears very attractive. The understanding is that Pillar One and Indian domestic rules will lead to similar results.

The US

With reference to DSTs, Ponds observed that US multinationals are the main taxpayers that will be affected by these taxes. Consequently, the US needs some kind of solution that does not disproportionately impact US MNEs; that is the rationale behind the US decision to sit at the Pillar One negotiating table.

The US Department of the Treasury has announced a public consultation on the draft Multilateral Convention for Pillar One (MLC) inviting stakeholders (US Congress and taxpayers) to provide input on key issues that remain under consideration, including the treatment of withholding tax (WHT), as well as transfer pricing and permanent establishment issues.

The public consultation process in the US is crucial, as it gives Congress time to consider whether the proposed rules can be supported. Without congressional support, US ratification of the MLC will not be possible.


Bradbury remarked on the main achievements of the MLC. Specifically, around 140 jurisdictions have reached an agreement on the text (still to be signed, ratified and implemented domestically) that: (1) provides a taxing right to jurisdictions in relation to corporate profits; (2) provides this right without reference to an MNE’s physical presence; (3) takes into account the consolidated operations of MNEs; (4) allocates that taxing right to the applicable jurisdictions; and (5) allocates that taxing right by reference to a formula.

The MLC is the outcome of political negotiations involving around 140 jurisdictions working together. Compromise is necessary because of the number of jurisdictions involved and implementation of the rules by the jurisdictions is essential. Otherwise, it is just an academic exercise, which does not provide a concrete solution to the fragmentation of the current tax system (of which DSTs represent a symptom).

The OECD is working towards reaching a consensus and securing an agreement that includes necessary key countries in order to meet the MLC's required thresholds for its entry into force. Support from the US is important because around half of the in-scope MNEs are headquartered there. Therefore, the OECD has been closely engaging with the US administration.

Ponds observed that in the US, there is tension between the legislative and executive branches of the government. Congress is seeking to reclaim its role as the body that will ultimately ratify any tax treaty to which the US is a party, and the recent public consultation is crucial in this regard. Both Democratic and Republican members of the House Representatives are examining the rules to determine their feasibility and whether there is room for political support. The debate in the US regarding this topic is still ongoing, and any ultimate adoption of Pillar One will occur over an extended timeline.

Finally, as per the question by Lukkien, Bradbury remarked that there is still significant work to do, such as the treatment of WHTs in the context of the elimination of double taxation and double counting. For some countries, WHTs should be considered in the same way as corporate income taxes, although for some jurisdictions they were not part of the equation in October 2021.

There is broad acceptance on considering WHTs for Amount A purposes, even if negotiations are still ongoing on the quantum (a more extended marketing and distribution safe harbour results in less Amount A to be allocated) and certain principles.

Regarding Article 12B of the UN Model Tax Convention, Bradbury observed that there is currently no agreement on implementing it.

The UN

For Lennard, Pillar One only represents a milestone, if anything, in terms of executive statements or decisions made by officials from tax authorities, which do not necessarily commit countries to the final result of the executive-level negotiations. Concerns include the use of an allocation formula for Amount A purposes and its non-application to many smaller (but still very large) companies.

In addition, the recent call for public input made by US Department of the Treasury may indicate a request for changes to Pillar One. Therefore, it is still uncertain whether Pillar One will come into force. Finally, Lennard notes that silence by negotiators was considered consent – there has still not been a signing ceremony – and argued that, in consensus systems, silence does not necessarily imply willingness by countries to sign and ratify, especially when certain countries are not involved in all the discussions.

Article 12B of the UN Model Tax Convention deals with income from automated digital services and it acknowledges that the historical physical presence taxation test is no longer applicable. In this regard, Article 12B offers a clear and pragmatic solution about how to address the digital economy.

Although Article 12B is a relatively new provision (at two years old), it has garnered significant interest from developing countries. Currently, there are ongoing bilateral negotiations (not public) on Article 12B, the results of which are likely to expedite its implementation in a more multilateralised form compared to the more protracted traditional bilateral process.

Passarella concluded that progress on Pillar One has been significant as a result of the MLC release, but it still requires to be signed and ratified by a material number of jurisdictions before its entry into force. Therefore, he asked Bradbury’s and Lennard’s views on the prospects of the MLC coming into effect and what might be expected if this does not occur.

DSTs have had a detrimental effect on international trading relations, according to Bradbury. The OECD’s worst-case scenario estimated that these measures, coupled with potential counterretaliation, could reduce global growth by over one percentage point. In this regard, Pillar One presents a great opportunity to find a solution and build a more stable international framework.

Lennard posited that the problem lies not with DSTs, but with the outdated traditional permanent establishment rules. In addition, Lennard appreciated elements of the recent developments on Pillar One, outlining that a significant economic presence does not necessarily constitute the application of a DST.

Section four: cooperation between the UN and the OECD

Bradbury asserted that cooperation between the UN and the OECD already exists and is significant. The joint ‘Tax Inspectors Without Borders’ initiative is a clear example of such cooperation, where the OECD and the UN are supporting countries, particularly developing countries, to enhance their capacity in regard to countries’ tax audit practices and the protection of their revenue base.

Lennard recalled that there are interactions between the UN and OECD Model Tax Conventions, with each influencing the other. Furthermore, it is necessary for the UN and the OECD to get into the mindset of working together towards inclusive and effective tax systems, which include developing (and developed) countries.