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UN tax committee: STTR for 3,000 treaties

Delegates talked about how a STTR and other crucial provisions in the upcoming UN Model Double Taxation Convention will support sustainable development objectives.

Enhancing the international tax system for poor nations is a top priority, according to members of the UN Committee of Experts on International Cooperation in Tax Matters, who want to see the sustainable development goals achieved by 2030.

The experts gathered last week, from October 18 to October 21, for their meeting in Geneva.

According to UN Assistant Secretary-General Navid Hanif in New York, committee deliberations must take into account how a STTR and other significant changes like transfer pricing adjustments and environmental levies would effect countries in various phases of development with various tax systems.

"Tax policy solutions should be devised in a way that all countries can easily implement," he added.

He questioned, "So how will draft guidance produced by various subcommittees help developing countries meet their sustainable development goals?"

Regardless of cross-border difficulties, committee members advised residence countries obtain more taxing powers in treaties to defend their business groups.

Members concentrated on strengthening anti-BEPS provisions in the next UN model treaty law, such as a STTR that would let source countries collect group payments with low tax rates.

A director of transactions taxes at EY in London tells ITR that because governments may choose between the STTR offered by the OECD under pillar two and the UN's more comprehensive version, international organizations are similar to service providers.

"The service is achieving government policy objectives… governments should not follow blindly, but they can switch to a different provider when unhappy," he stated.

The UN approach is preferred by many developing countries who want to raise their tax income and achieve important SDGs. In other words, it is believed that these countries' demands are not being met by the OECD's tax structure.

The head of Nigeria's Federal Inland Revenue Service's international tax division, Mathew Olusanya Gbonjubola, stated in Geneva that deliberate efforts must be made to alter international tax principles that grant the greatest taxing authority to developed nations with the greatest concentrations of business headquarters.

"Amid a lot of focus on international cooperation and capacity building, there is important work missing on how the UN's approach [to STTR] will return the tax base to developing countries," he said.

"It is not possible for developing countries to generate sufficient revenues to meet sustainability goals with the present tax rules that are set up to cater to capital-exporting countries," he said.

The UN tax committee is concentrating on crafting a distinct STTR to favor developing countries as the UN's 17 SDGs aim to safeguard the environment and fight illicit financial flows, including tax evasion by multinational organizations.

These countries choose the UN's STTR and other digital tax solutions over the OECD's two-pillar approach because, according to modeling results, the former can generate more tax income.

On October 19, committee members discussed the technical specifics of their STTR. Some committee members suggested that modifications to tax treaties be swiftly accepted through a global instrument created by the UN.

The UN is creating legislation for around 3,000 treaties that adhere to the Model Double Taxation Convention in favor of a larger STTR than the OECD's version to safeguard the tax base in developing countries.

An STTR under the UN treaty model might be built on adjustments similar to those made to the BEPS project, according to Rasmi Ranjan Das, director at the Indian Ministry of Finance, who made the statement in Geneva.

According to him, "there is a lot of support for a broad rule for minimum taxation that is not limited to BEPS concerns, as it would be easier for developing countries to apply."

Das said that because developing countries were unable to engage in all negotiations about the global minimum tax, the scope and context of the UN's STTR varied from those of the OECD's pillar two framework.

Due to corporate turnover criteria of at least €750 million ($738 million), few businesses operating in underdeveloped nations will be covered by the OECD's STTR. However, the UN STTR's purview is currently being examined.

Before countries may implement the rule through treaties, according to some members, private equity exemptions must be included in the STTR, while others are concerned about the possibility of double non-taxation. To present legislation at its next open meeting in March 2023, the committee is now writing it.

"I think we are again creating a trap for developing countries by trying to add exemptions that have little to do with them and forcing reciprocal benefits, which we must avoid," added Das.

Members of the UN committee writing the STTR stated that it is critical for poor nations to have a fast-change mechanism for treaties, similar to the multilateral instrument at the OECD.

"More than 3,000 treaties have been signed… If we introduce an STTR into the model, it might take endless time to get it negotiated," Das said.

To enhance tax systems, the UN tax committee is entrusted with developing recommendations for states, tax authorities, and taxpayers. Some experts disagree, however, and argue that the committee should not rush the process of including STTR in international agreements.