Countries must agree on new international rules that would allow the taxation of revenues from digital and cross-border services in the countries where markets and consumers are located, and not only where companies are registered. The topic was discussed by representatives of the finance ministries of a number of countries at a meeting in Bangkok dedicated to international tax cooperation within the UN framework.
The focus of the talks is the upcoming UN Framework Convention on International Tax Cooperation, as well as the protocols to it. Among the key issues are the tax treatment of cross-border services and mechanisms for resolving tax disputes between countries.
Russia insists that the convention become the main international instrument for determining the principles of tax cooperation. The country was represented at the meeting by Deputy Finance Minister Ivan Chebeskov.
According to him, digitalization and the transformation of the economy require a change in the way taxing rights are distributed between countries. The existing rules are largely built around the physical presence and place of registration of companies, while digital business allows significant revenues to be generated in a given market without a traditional corporate presence there.
“The countries where value is created, markets are located, consumers operate and income is derived should have the right to tax this income“, Chebeskov said, quoted by the Russian Ministry of Finance. According to him, at the same time, a balance must be maintained with the interests of the countries where the companies are registered.
It is precisely the distribution of the right to tax that has become one of the most complex international tax issues with the growth of global technology companies. A business can provide digital services and generate significant revenue from consumers in dozens of countries without having a traditional office or other form of physical presence in each of them.
The UN process also has broader implications for developing economies, which have been pushing for a greater role in shaping global tax rules for years. Work on the convention began after a decision by the UN General Assembly to create a more inclusive international tax cooperation system.
The negotiations are expected to lead to a framework convention and protocols covering specific areas. Among them is the taxation of income from cross-border services in an increasingly digitalized global economy.
The meeting in Bangkok takes place immediately before the participation of Russian Finance Minister Anton Siluanov in the annual meetings of the International Monetary Fund and the World Bank and in a G-20 meeting between 15 and 17 October.
It is important, however, that the principles discussed do not yet constitute effective international tax rules. They are part of the negotiation process for a future UN convention, and the specific obligations and mechanisms for their implementation are yet to be agreed upon between countries.