G-24 Supports Net-Income Taxation for Digital Services Over Gross-Based Withholding Taxes
The G-24 has called for a fairer international tax framework for digital services, emphasizing net income-based profit allocation over gross-based withholding taxes. The organization of developing countries supports a gradual implementation approach, enhanced technical cooperation and adaptable rules. The G-24 outlined these positions in a comment letter submitted on 14 July 2025 as part of the United Nations public consultation on the Framework Convention on International Tax Cooperation.
The G-24 endorses net income taxation as a more sustainable and equitable method for taxing digital services highlighting two primary approaches:
- Fractional Apportionment, as reflected in India's Significant Economic Presence (SEP) rules and Article 12B of the UN Model Tax Convention;
- Formulary Apportionment, similar to Amount A under Pillar One of the OECD's two-pillar tax reform plan.
The G-24 urges the inclusion of the Significant Economic Presence (SEP) concept in the UN tax framework. The SEP allows countries to tax income from foreign companies that have substantial economic engagement in their markets, even without a physical presence. The G-24 also suggests that the work Protocol on Services may also build on the achievements on the OECD Inclusive Framework and the multilateral convention for Amount A.
In addition, the G-24 advocates for using location-based factors such as assets, employees, and sales to simplify tax administration, reduce avoidance and ensure tax is paid where value is created. This would replace the complex and ineffective transfer pricing system, especially for developing countries.
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