On 20 December 2022 the OECD issued for public consultation draft provisions on digital services taxes that would be included in a multilateral convention (MLC) in relation to Pillar One of the two-pillar approach to international taxation.
The OECD’s Task Force on the Digital Economy (TFDE) is working on the implementation of Amount A of Pillar One and is developing an MLC and Explanatory Statement in addition to the Model Rules for Domestic Legislation and the related Commentary.
Parties to the MLC will be committed to remove all digital services taxes and similar measures relating to companies; and will be required to make a commitment not to introduce similar measures in the future. The Article of the MLC requiring removal of existing DST measures will contain a definitive list of the existing measures. The draft MLC provisions would eliminate any Amount A allocations for jurisdictions that impose a DST or similar measure, or do not withdraw an existing DST.
The draft provisions include a general definition of a digital services tax or relevant similar measure. This would include measures that impose taxation based on market-based criteria; are ring-fenced to foreign and foreign-owned businesses; and are not within the income tax system (and therefore outside the scope of treaty obligations). The definition would not include value-added taxes, transaction taxes, withholding taxes that are covered taxes under tax treaties, or rules relating to abuse of existing tax standards.
If a review is required to determine whether a measure falls under the definition of a digital services tax or relevant similar measure, this review would be carried out through the Conference of the Parties of the MLC. The decision-making rules and procedures of the Conference of the Parties are to be developed as the provisions of the MLC are negotiated.
Comments on the draft provisions are invited from interested parties by 20 January 2023.