The International Chamber of Commerce (ICC) appreciates the opportunity to provide comments on the follow-up consultation on the UN Model Convention Double Taxation Between Developed and Developing Countries (UN Model Convention) concerning the revised proposal regarding the inclusion of software payments in the definition of royalties.
ICC reiterated key messages from its previous submission to the initial UN consultation on the topic in October 2020 and highlighted additional points on the proposed changes to the definition of royalties vis-à-vis broader changes to Article 12 as well as additional questions raised by the United Nations Committee of Experts on International Cooperation in Tax Matters.
As noted in its previous submission, ICC does not support the proposed inclusion of software payments in the definition of royalties and considers that the proposal does not justify the broadening of the scope of Article 12 and the re-allocation of taxing rights given that the proposal has not sufficiently taken into consideration the proliferation of research and tax policy review undertaken over the last few decades on this topic, the economic impacts on countries or companies, the interaction of the existing legal framework taxing such transactions or the fact that such a proposal will increase tax uncertainty and the potential for double taxation.
ICC believes that there are no principled grounds for altering the division of taxing rights for computer software payments and holds that the existing Article 7 treatment is sufficient in applying a principled division of taxing rights between source and residence states.
ICC fully supports a harmonised approach to ensure that international tax rules remain relevant and applicable in an increasingly digitalised global economy. In this respect, ICC believes that a departure from the existing UN, OECD or EU approach could lead to confusion, the likelihood of double taxation, tax disputes and increased compliance costs.
Furthermore, ICC reiterates that the work of the Organisation for Economic Co-operation and Development (OECD) Inclusive Framework on the taxation of the digitalising economy (which includes many of the members of the UN Committee of Experts) will have an impact on the current tax treatment of digital transactions and intangibles of all types and therefore believes that this work should be completed and the results considered before any separate decisions are made with respect to proposed changes to the definition and the taxation of royalties in the UN Model Convention. ICC remains concerned that the proposed changes to Article 12 present an alternative solution which could undermine and distract from the ongoing efforts within the OECD Inclusive Framework, particularly at this critical juncture when it is ever more prevalent for countries to further extend their collaborative efforts and converge towards a consensus-based solution by mid-2021. In this respect, ICC would respectfully suggest that it would be preferable to await the outcome of the OECD Inclusive Framework process in an effort to maintain the consistency and integrity of the international tax system.
ICC advocates for a consistent global tax system, founded on the premise that stability, certainty and consistency in global tax principles are essential for business and will foster cross-border trade and investment