Advance international public policy issues for the Internet

World Summit on the Information Society (WSIS) follow up will take place in New York on 14 December

In its resolution 2010/2 of 19 July, the Economic and Social Council invited the Secretary-General “to convene open and inclusive consultations involving all Member States and all other stakeholders with a view to assisting the process towards enhanced cooperation in order to enable Governments on an equal footing to carry out their roles and responsibilities in respect of international public policy issues pertaining to the Internet but not of the day-to-day technical and operational matters that do not impact upon those issues.”

The consultations will focus on enhanced cooperation on international public policy issues pertaining to the Internet. The Council further requested that the consultations be undertaken “through a balanced participation of all stakeholders in their respective roles and responsibilities, as stated in paragraph 35 of the Tunis Agenda.” The consultations will consist of two parts: (1) submission of written comments, preferably; and, (2) a face-to-face meeting to be held in New York on 14 December 2010.

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Enhancing cooperation in international tax matters

Sixth Session of the Committee of Experts on International Cooperation in Tax Matters took place in Geneva from 18-22 October

All participants agreed that the meeting fully succeeded in achieving the ambitious objectives of its busy agenda. The main areas of discussion included an update of the United Nations Model Tax Convention, a definition of “permanent establishment”, transfer pricing and an exchange of information on tax matters. Bilateral tax treaties between developed and developing countries, capacity building work in the tax area, tax treatment of services as well tax cooperation and climate change were also on the agenda.

Update of the United Nations Model Tax Convention

The Coordinator of the Subcommittee on the UN Model Tax Convention Update, Mr Robin Oliver (New Zealand), provided an overview of the amendments to both the text and the commentaries, as agreed by the Committee during the last few years (E/C.18/2010/CRP.1). The objective is to complete an update of the UN Model and related Commentaries in 2011. This Model is a centrepiece of the tax work undertaken by the Committee and its Secretariat at UN/DESA. As compared to the OECD Model, it favours capital importing countries, in majority of cases developing countries.

Dispute resolution

Following presentation by the Coordinator of the Subcommittee on Dispute Resolution, Ms. Claudine Devillet (Belgium), and ensuing discussion, it was agreed that two versions of Article 25 will be included in the text of the UN Model – one without binding arbitration and another one including such provision (E/C.18/2010/CRP.2 & Add.1). The arbitration is between countries and does not directly involve the taxpayer.

The Committee also agreed that a Commentary was needed to explain why arbitration clauses may or may not be considered suitable in a particular treaty. This reflects concerns that arbitration procedures might require developing countries to seek extra-budgetary resources in foreign currency to pay for relevant proceedings, as well as concerns that arbitration proceedings might inherently favour developed countries in disputes with developing countries.

Definition of “permanent establishment”

The result of a long-lasting work on a revised Commentary to Article 5 of the UN Model Tax Convention (E/C.18/2010/5 & 6) was introduced by Mr. Ronald van der Merwe (South Africa). The agreed text preserves a strong source country taxation element favoured by most developing countries. Article 5 is the centrepiece of the UN Model Tax Convention, as it indicates the threshold requirement for a State (that there be a “permanent establishment” in that State) before it can tax profits from the economic engagement of persons from its treaty partner. The OECD Model has a higher threshold than the UN Model in many respects, as favoured by capital exporting countries.

Transfer pricing: a practical manual for developing countries

Transfer prices are used by parts of multi-national corporations in their internal dealings. Abuse or mispricing can lead to large-scale tax evasion or avoidance, to which developing countries are especially vulnerable. Based on a draft outline of a manual to assist developing countries in this area, as agreed by the Committee last year, several working draft chapters (introduction, business framework, legal background, transfer pricing capability in tax administration and transfer pricing methods) were presented (E/C.18/2010/CRP.4) by the Coordinator of the Subcommittee on Transfer Pricing, Mr. Stig Sollund (Norway).

It was agreed that new draft chapters will be posted for comments on the Tax Committee website, with a view to completing the manual by 2012. This body of work was suggested to the Committee by the Secretariat last year and has drawn great interest from all sectors.

Exchange of information on tax matters

The Secretariat provided an oral update regarding the consideration by ECOSOC of the draft Code of Conduct on Cooperation in Combating International Tax Evasion, which had been recommended by the Committee at its 2009 session. The Committee again invited ECOSOC to take action, as a matter of priority, on the draft Code.

Revision of the Manual for the Negotiation of Bilateral Tax Treaties between Developed and Developing countries

Following a brief overview outlining the history of the Manual by the Coordinator of the relevant Subcommittee, Mr. Bernell Arrindell (Barbados), several Members of the Subcommittee introduced draft chapters of the Manual (E/C.18/2010/CRP.10 & Add.1). The Committee’s objective is to finalize the revision of the 2003 document by 2012. However, the work on this document has been moving quite slowly, due to its difficult history. Greater focus on a more practical approach to assist developing country treaty negotiators and administrators should lead to speedier progress over the next year.

Capacity building

The Coordinator of the Subcommittee on Capacity Building, Mrs. Ifueko Omoigui Okauru (Nigeria), provided an overview of the various focus areas and actors involved in capacity building work in the tax area (E/C.18/2010/CRP.11). The ensuing discussion focused on ways of improving cooperation between various actors. Several concrete activities were mentioned, including efforts to provide free access in targeted countries to some (online) training courses. A proposed website, developed in the context of a joint DESA/UNDP project on the South-South Sharing of Successful Tax Practices (“S4TP”) was demonstrated for approval of the Committee.

The tax treatment of services

Professor Brian Arnold (consultant) presented a paper (E/C.18/2010/CRP.7 & Add.1) focusing on the increasing importance of the topic, the lack of a clear definition of services and an analysis of the principles underlying the current approach of the UN Model to services. He suggested a comprehensive revision to achieve greater consistency and effectiveness. This area is likely to show intense differences over who should tax the provision of services – either the country of the provider or receiver. Developing countries generally prefer the former approach. This work will likely continue beyond 2011.

Tax competition in corporate tax: use of tax incentives in attracting foreign direct investment

The issue was introduced by Mr. Stefan van Parys, representing the World Bank Group, and comments were made by Ms. Maria Amparo Grau Ruiz, Completense University, Madrid, on the basis of a paper prepared by the Investment Climate Advisory Services of the World Bank Group (E/C.18/2010/CRP.13). The paper provided a framework for evaluation of the effectiveness of tax incentives in developing countries. This work completed the mandate given to the Secretariat and served to re-engage the World Bank in the UN Tax Committee activities.

Tax cooperation and climate change

The Secretariat presented a scoping paper (E/C.18/2010/CRP.12) focussing on areas where greater international tax cooperation might contribute to effective domestic responses to climate change, including issues arising under the UN Model, due to differing characterization and treatment of profits. OECD representative argued that such work in the UN forum was not likely to be productive, based on the OECD experience.

However, the members and observers of the Committee did not support the OECD position. It was agreed that the Secretariat, in cooperation with other interested institutions, will continue to explore this area. This work does not aim to advise on what tax regime a country should adopt, but rather seeks to examine where international tax cooperation can help make such a chosen regime as effective as possible by, for example, discouraging abuse and avoiding double taxation or unintended double non-taxation.

Next steps

As required, the Committee recommended to ECOSOC that its next, 7th annual session take place in Geneva from 24 to 28 October 2011. The proposed agenda will address the 2011 revision of the UN Model Tax Convention and its Commentaries, as well as the revision of the Manual for Tax Treaty Negotiations, the practical manual on transfer pricing, capacity building, taxation of services, cooperation in climate change, and a consideration of other items for future work.

ECOSOC will have before it a full report the Committee on its 6th session, which is due in January 2011. In the meantime, all background papers prepared for the session as well as presentations given at the session are made available on DESA’s Financing for Development website.

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Extending partnerships for e-government projects

First International Conference on Open Government Data took place in Washington D.C. from 15-17 November

DESA’s Division for Public Administration and Development Management (DPADM) delivered a key note plenary address and had several opportunities for collaboration and the development of initiatives in the area of e-government with key strategic partners in the context of the conference.

The Inter-American Development Bank (IDB) invited DESA to partner in a project to assist Latin American countries to develop e-government strategies.

In addition, the General Services Administration, US Federal Government and the US CIO agreed to explore the possibility of co-sponsoring with DPADM the “Americas CIO Forum” in 2011, thus launching an operational regional virtual network. They also agreed to share with DPADM their experience of working with various CIOs.

Sir Tim Berners-Lee, inventor of the www, in commenting on the UN e-Government Survey, noted that he would be keen to eventually see it follow an open data approach. He also expressed interest in having UN Member States join the W3C Consortium. (This would naturally depend on the key issue of national data sovereignty.)

The United Nations University (UNU) expressed interest in undertaking research with DPADM on the links between e-government and sustainable development.

The conference was organized by the US Government and was the first conference of this type. The audience included government officials (mostly from the US, but also from Australia, New Zealand and the UK). DPADM delivered the plenary keynote address on the featured theme “Open Government Data: Towards Adding Value and Measuring Success – Efficiency and Transparency X Privacy and Security”.

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