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U.N. Approves new tax treaty article for taxation of automated digital services

On April 20, 2021, the U.N. Committee of Experts on International Cooperation in Tax Matters agreed to the text of a new article – 12B, and commentary in the U.N. model tax treaty, which would grant additional taxing rights to countries where an automated digital services provider’s customers are located.

Article 12B would allow a contracting state to tax gross automated digital services income earned by a beneficial owner that is resident in the other contracting state and has no local permanent establishment. Article 12B does not specify any quantitative or qualitative nexus thresholds and leaves specific tax rates to be negotiated bilaterally, but it does suggest a “modest rate” of 3 or 4 percent to address concerns about double or excessive taxation, according to the commentary. The next U.N. model tax convention update will be released in late June 2021.

For more information please see the note (PDF 370 KB) from the U.N. Secretariat.

Source KPMG

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