The Global Tax Landscape: Navigating Cross-Border Service Income
Keywords:
cross-border services,Abstract
This paper, delves into the intricate international tax law issues surrounding the taxation of crossborder services. While the problem of juridical double taxation is well-established, the complexity of tax treaty allocation rules creates uncertainty and facilitates arbitrage, potentially depriving countries of their taxing rights. This is particularly evident in business services, where transfer pricing and dedicated service clauses are employed, each with its own set of advantages and disadvantages. The
study explores the policy dilemma of whether to address these issues through normative refinements, enhanced enforcement, or a combination of both. While transfer pricing offers a more nuanced approach, its resource-intensive nature raises concerns about proportionality, particularly for developing countries. The financial burden associated with building the necessary technical capacity may outweigh the potential tax revenue gains. This raises the question of whether developed countries should contribute more significantly to capacity-building efforts. The analysis begins with a clarification of the concept of "services" and an overview of the international tax nexus. It then examines the structural complexity of tax treaty clauses applicable to cross-border services, before evaluating the merits and shortcomings of withholding taxes and transfer pricing, including their potential interaction.
The study also addresses the critical issue of capacity-building in developing countries, considering whether it should be funded by the developing countries themselves or through increased financial contributions from developed nations. Ultimately, this research aims to contribute to a balanced and informed discussion on global tax reform, seeking solutions that are both legally sound and equitable for all countries, regardless of their level of development. The goal is to identify policy options that promote effective tax cooperation and ensure a fair distribution of tax revenues derived from crossborder services.
References
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168 Para. 32 UN Model: Commentary on Article 12A (2017-2021), art. 12A(2) UN Model (2017-2021).
169 See D.P. Sengupta, Article 14: Independent Personal Services – Global Tax Treaty Commentaries sec. 3.1.1., Global Topics IBFD.
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154 See M. de Wilde, Why S&S Approach as Amount B of Pillar One brings us nothing, at all, Kluwer Tax Blog, 04.03.2024,
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155 Accessible at the following link: https://www.oecd.org/en/publications/pillar-one-amount-b_21ea168b-en/full-report.html
156 Accessible at the following link: https://www.oecd.org/content/dam/oecd/en/publications/support-
materials/2024/02/pillar-one-amount-b_41a41e1e/statement-qualifying-jurisdiction-definitions-section-5-2-section-5-3-simplified-streamlined-approach.pdf
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150See the attachment to section E of the Fourth Chapter of the OECD Transfer Pricing Guidelines where three models of Memorandum of Understanding for the establishment of bilateral safe harbours are presented following the approval by the OECD Committee on Fiscal Affairs on 26 April 2013 [CTPA/CFA(2013)23] and approved by the Council on 16 May 2013 [C(2013)69], on which further infra.
151See Turina, supra n. 136, 325-330
