At the meeting of the UN Committee of Experts on International Cooperation in Tax Matters from 18 to 21 October 2022 the committee heard a report on the work of the extractives subcommittee.

Energy transition

The extractives subcommittee is mandated to review tax policies that can assist the transition from fossil fuel energy to renewable energy, in collaboration with the environmental tax subcommittee. Following consultation, the environmental tax subcommittee is focusing on the consumption of energy (the demand side) whereas the extractives subcommittee is focusing on the production of energy (the supply side). There will be regular consultations to ensure there is no duplication of work.

The extractives subcommittee will draft a chapter on energy transition issues for the Extractives Handbook with a view to presenting a completed draft to the Tax Committee at its 27th session.

The subcommittee notes that the main challenge in many low- and middle-income countries is energy access. Their work will look at the balance between the need for quick access to energy and the need for a transition away from fossil fuels. This will involve consideration of revenue raising measures to help fund transition and consideration of the externalities involved in the transition to cleaner energy. The subcommittee will also consider transition challenges such as tax regimes for renewable energy power generation; expanding renewable energy capacity in developing countries for export potential; direct tax measures such as tax incentives; indirect tax measures and cross-border tax impacts; and tax administration issues.

Trade mispricing and valuation of natural resources

The work plan involves consideration of the importance of product valuation; difficulties in determining fair market value; posted and reference prices; and advance pricing agreements. The subcommittee will look at country specific practices with examples.

The presenter indicated that even the posted prices may need to be subject to complex adjustments. As many countries have limited resources, they may have a problem with providing information for inclusion in the proposed reference base.

The work of the subcommittee in this area requires coordination with that of the Transfer Pricing Subcommittee.

Tax incentives

The Tax Committee approved the workstream on preserving the value of local tax incentives under the proposed global minimum tax rules of Pillar Two of the international tax proposals. The work on tax incentives will be conducted separately from the work on the permanent establishments.

Permanent Establishments

The Tax Committee approved the provision of expert input into the definition of Permanent Establishment in the UN Model covering the taxation of subcontractors, onshore vs offshore, upstream vs downstream, the taxation of employees and service providers, remote operations, shipping and air transport and marketing activities.

The aim is to complete the analysis by the next meeting of the Tax Committee.