First to finish: UN approves Article 12B for taxation of automated digital services | Eversheds Sutherland (US) LLP

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While much of the focus has remained on the efforts of the Organisation for Economic Cooperation and Development (OECD) with respect to digital taxation, the United Nations (UN) has finalized revisions to the UN Model Double Taxation Convention (UN Tax Treaty) that would specifically address the taxation of “automated digital services.” On April 20, 2021, the UN approved the final version of new Article 12B of the UN Tax Treaty, Income from Automated Digital Services. Generally, the approach taken by Article 12B is to permit a withholding tax on gross payments for “automated digital services” made by a resident of one treaty country to a resident of the other treaty country. In order to eliminate the withholding, the recipient can declare a permanent establishment in the payor jurisdiction and instead be subject to tax on its net income from automated digital services. This approach represents a departure from traditional international tax principles applicable to income from the performance of services, which allocate taxing rights to the jurisdiction where the services are performed, rather than the jurisdiction where the recipient of such services is resident. Although Article 12B is not self-executing, it serves as a model for countries to consider in determining their approach to taxation of automated digital services, and may be considered in the context of future treaty negotiations.

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