UN Framework Convention On International Tax

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FOI 4214 Document 1

# ICC's response to the INC Co-Leads' Draft Issues Notes

Workstream I

Workstream I of INC/Tax is charged with developing the draft text of the UN Framework Convention on International Tax Cooperation.

- It outlines potential commitments on topics such as fair allocation of taxing rights, dispute prevention and resolution, and support for sustainable development.
- The draft emphasizes the need to agree on foundational tax principles to avoid fragmentation and ensure predictability in global tax cooperation.

## ICC General Comments:

- Emphasises the need to define fundamental tax principles before drafting commitments or protocols. These include:
- Tax certainty for stable investment decisions
- Recognition of taxpayer rights and safeguards
- Concern: Current work plan prioritizes drafting commitments without clearly incorporating these principles, risking an unbalanced framework.
- ICC urges the UN to focus on universal agreement on principles of taxation to ensure predictability and avoid future negotiation deadlocks.

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# Workstream I
## Specific Comments & Recommendations

The ICC specific comments:

- Support inclusion of tax dispute prevention and resolution mechanisms that are fair, independent, accessible, and effective.
- Strongly recommend taxpayer participation in design and implementation enhance legitimacy, provide crucial factual and operational clarifications, and ensure solutions reflect real-world business models.
- Caution against opening broad, undefined debates on “fair allocation of taxing rights”, as fairness is subjective and risks delaying progress.
- Stress tax certainty must be explicitly included as a guiding principle, as it is critical for predictability, investment, and avoiding disputes or double taxation.
- Note any new approach to allocation of taxing rights must be coherent with existing frameworks.
- Propose establishment of a Technical Business Advisory Council:
- 20 business representatives from all UN regions (4 per region)
- Ensures balanced input from developed and developing countries
- Chair of INC should hold consultations and publish reports to maintain transparency.

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Workstream II of INC/Tax is charged with developing the first early protocol, on the “taxation of income derived from the provision of cross-border services in an increasingly digitalized and globalized economy.”

It highlights diverging national practices (e.g., gross-basis WHT vs. net-basis taxation), debates over economic nexus and value creation, and the need for future-proof, administrable rules that balance source and residence taxing rights.

ICC General Comments:
- Reiterate the need to define fundamental tax principles before drafting commitments or protocols.
- Emphasize that policy should foster sustainable growth, job creation, and cross-border investment.
- Express concern over growing complexity in international tax rules, particularly proposals for sectoral taxes and gross-basis withholding taxes (WHT) on services.

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# Workstream II
## Specific Comments & Recommendations

### The ICC specific comments:
- Highlight concerns with sectoral taxes and gross-basis WHT on services:
- Ignores cost/value of services, reducing investment returns and raising double taxation risks.
- Increases upfront business costs, deters reinvestment, and raises consumer prices.
- Disproportionately impacts small companies and startups with thin margins.

### Underscore:
- A need for an economic nexus approach, ensuring taxing rights are grounded in substantial engagement, not mere revenue collection.
- Cost-sharing arrangements without mark-up should be exempted from WHT to avoid unjustified tax burdens.
- Bilateral tax treaties are essential tools preventing double taxation and facilitating trade – they are not barriers to taxation.
- WHT rates require careful bilateral negotiation, particularly for support services between developing countries, due to varied industry margins.
- Reiterates that fragmentation and lack of legal certainty threaten the success of the UN Tax Framework Convention and early protocols.

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# Workstream III

Workstream III of INC/Tax is charged with developing the second early protocol, on the “prevention and resolution of tax disputes.”

- It identifies inefficiencies and inequities in current mechanisms (e.g., limited access to MAP or arbitration), especially for countries with small treaty networks.
- Explores tools like cooperative compliance, APAs, mediation, and the possibility of a universal protocol with optional elements to enhance legal certainty, build trust, and reduce litigation risks.

# ICC General Comments:

- Welcome reference to effective prevention and resolution of tax disputes, recognising it as essential to enhance cross-border trade, investment, and domestic resource mobilisation.
- Strongly agree on the need for mechanisms that are:
- Fair, independent, accessible, and effective
- Designed to resolve disputes efficiently and prevent them from arising through predictability and clarity.
- Note that effective prevention reduces administrative burdens and compliance costs for both taxpayers and tax authorities.

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# Workstream III

## Specific Comments & Recommendations

### The ICC specific comments:

#### Support:
- Advance legal certainty through clear rules and early guidance;
- Cooperative compliance models building trust between taxpayers and authorities;
- Advance Pricing Agreements (APAs) and rulings to prevent disputes before they arise;
- Inclusion of arbitration, mediation, and ADR tools as timely, cost-effective alternatives to litigation.

- Underscore the taxpayer’s critical role in:
- Providing factual clarifications
- Helping resolve disputes efficiently.

- Call for clarity on how new mechanisms will interact with existing ones (e.g. Mutual Agreement Procedure, treaty arbitration, domestic remedies).
- Further clarification on optionality needed to maximise certainty for taxpayers.
- Reiterate proposal for a Business Advisory Council to ensure solutions remain practical and effective in real business contexts.