Posts in Digital Economy
Submission to the consultation under Workstream II on the proposed Protocol on Taxation of Income from Cross-Border Services

The present submission was made to the Intergovernmental Negotiating Committee on the United Nations Framework Convention on International Tax Cooperation per their request of input on WORKSTREAM II: DRAFT PROTOCOL ON THE TAXATION OF INCOME FROM CROSS-BORDER SERVICES.

We propose a practical approach that willing countries could implement quickly. The primary method we suggest would combine taxation based on net income by the country where services are delivered with ease of administration through a tax on gross payments.

The tax would be at a rate calculated by multiplying the operating profit margin of the MNE corporate group to which the recipient of the income belongs and the standard rate on profits in the country applying it. This would reflect the actual profitability of the enterprise concerned, taking into account its worldwide expenses and revenues. Profitability rates for services vary widely, and this method should produce a range from 1.25% to 17.5%.

Applying it to payments is the only way to ensure ease of administration. This would enable its immediate adoption by willing states whether acting singly or jointly, based on model rules and procedures for coordination. Alignment with existing incompatible tax treaties could be facilitated through a multilateral instrument.

This method should be coupled with an option for the enterprise concerned to accept a comprehensive methodology enabling taxation, at least once and only once, of its worldwide net income, adjusted for tax purposes, with tax rights apportioned among states based on agreed factors reflecting the location of its real activities (employees, physical assets and sales). This methodology could be based on the rules developed for the proposed multilateral convention for Amount A in Pillar 1 of the BEPS project, although they could be simplified.

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UN Framework Convention, Digital EconomyBEPS Monitoring Grouptaxation of services, tax treatiesComment
Contribution to the to UN INC on the Protocol on Dispute Prevention and Resolution

The BMG has produced comments to the public consultation on the Issue Note of Workstream III negotiating the protocol on dispute prevention and resolution.

The increasing complexity of cross-border transactions has led to a surge in international tax disputes, arising in multiple forums—including mutual agreement procedures (MAPs), investor-state dispute settlement (ISDS), and WTO adjudication. While MAPs under tax treaties aim to resolve double taxation conflicts, they have proven ineffective, particularly for developing countries. Binding arbitration, introduced under the OECD’s Multilateral Instrument (MLI), remains unpopular among developing nations due to sovereignty concerns, with few cases actually proceeding to arbitration. Meanwhile, ISDS claims—constituting 15% of known cases (2000–2021)—pose significant risks, as seen in high-value awards like “Yukos v. Russia” ($50 billion). 

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Unitary Taxation, Digital EconomyBEPS Monitoring Groupdispute resolution, double tax treaties, dispute preventionComment
Contribution to the to UN INC on the Protocol on Taxation of Cross Border Services

The BMG has produced comments to the public consultation on the Issue Note of Workstream II negotiating the protocol addressing the tax challenges of the digitalization of the economy.

The taxation of cross-border services highlights critical gaps in current international tax rules. Services, increasingly central to economic growth, often involve minimal physical presence in market jurisdictions, undermining source-based taxation and favoring non-resident providers. This imbalance discourages local service sector development while enabling multinational enterprises (MNEs) to exploit "double non-taxation" through low-tax affiliates. A new paradigm is needed—one that fairly allocates taxing rights based on real economic activity rather than outdated physical presence tests. 

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Digital Economy, Unitary TaxationBEPS Monitoring GroupUN framework convention, taxation of servicesComment