On 24 January 2023 the OECD published the responses received to the public consultation on the Draft Multilateral Convention (MLC) Provisions on Digital Services Taxes (DSTs) and other Relevant Similar Measures under Amount A of Pillar One. The consultation document was issued on 20 December 2022 and comments invited by 20 January 2023.

The BEPS Monitoring Group (BMG), a network of tax experts set up by a number of civil society organizations researching and campaigning for tax justice, notes in its comments that the proposals would apply only to a very small number of multinational enterprises. The taxing rights would only be re-allocated to a share of their residual profits under Amount A. Other profits of these and all other multinationals would continue to be allocated under the current rules. The international tax rules would be mostly unchanged, with just a limited reallocation of taxing rights in relation to profits of the relatively few multinationals within the scope of the rules. Under the MLC the participating countries would have to withdraw, and not apply in future, digital services taxes (DSTs) and relevant similar measures.

On the positive side the BMG considered that the rules provide a foundation for a new approach to taxation of MNEs, by treating them as unitary enterprises, in line with the economic reality, and allocating taxing rights to countries where they operate, through formulary apportionment. The global minimum tax under Pillar Two would set a limit to tax competition and could even reverse it.

The BMG commented that countries would need to compare gains they could make from the new taxing rights with their potential tax revenue gains from possible alternatives, such as unilateral DSTs and withholding taxes on services. Countries would need to consider the effect of having to withdraw not just DSTs but “relevant similar measures”.

Business at OECD (BIAC), the business and industry advisory council, noted that its members had raised concerns about the absence of further detail in relation to existing DST measures that would need to be removed. The concern was that the proposed definition could potentially result in a number of DSTs being retained. Countries might also introduce new measures that were similar to DSTs but were excluded from the scope of the definition.

The members were also concerned about the proliferation of new nexus standards for corporate income tax, for example “significant economic presence” tests, that are not consistent with Article 5 (permanent establishment) of the OECD Model. The proposals as drafted would still allow these measures where they are treated as income tax under domestic law.

The Digital Economy Group (DEG), an informal coalition of US and European companies providing digital goods and services, was also concerned that the proposed definition of DSTs and relevant similar measures was too narrow. The DEG considered that the Inclusive Framework should consider an approach using “hallmarks” to define DSTs and relevant similar measures, using four or more common features of unilateral measures as a means to identify relevant unilateral measures.

The Business Roundtable, representing more than 230 CEOs of leading US companies, also considered that the draft definition of “DST or relevant similar measure” in the draft convention was too narrow. The definition would still permit certain harmful unilateral measures and the Business Roundtable considered that the definition should be expanded to include withholding taxes on payments for digital services; taxes based on a significant economic presence (SEP) that is not a taxable presence under any other provisions of the relevant country’s tax laws; withholding taxes on digital services and other unilateral measures that have a similar effect.

They also considered that subnational DSTs and similar unilateral measures imposed at a subnational level should be included within the definition of “DST or similar unilateral measure”.

The South Centre, an intergovernmental organization of developing countries with 55 member states, considered that the ban on existing unilateral measures should only apply in relation to companies that are within the scope of Amount A. They also considered that unilateral measures should be allowed to apply to multinationals with an ultimate parent entity in a jurisdiction that has not implemented Amount A.