ICC Comments on UN Tax Committee Discussion Draft

ICC appreciates the opportunity to provide comments on the UN Model Convention Double Taxation Between Developed and Developing Countries (UN Model Convention) concerning the inclusion of software payments in the definition of royalties.

ICC notes 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 believes that changes in software distribution and usage should be carefully considered in deciding the appropriate tax treatment of payments for software particularly when the current UN proposal represents such a fundamental change from the existing law and practice in many countries. ICC suggests that input from industry to understand current and evolving software business and distribution models should be sought and considered in this respect.

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.

The ICC submission highlights a number of risks in pursuing the current proposal for inclusion of software payments in the definition of royalties.

ICC, therefore, 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 – which is contrary to a fundamental intended desire of the consultation.

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.