Maastricht tax law experts submit input to UN negotiations on international tax cooperation

The Workstream I submission comments on Article 5 of the draft UN Framework Convention, which addresses the fair allocation of taxing rights. It raises questions about the concept of “real economic contribution” and whether it provides a sufficiently clear basis for allocating taxing rights.

The submission argues that the concept lacks precision and may create the false impression that economic analysis can objectively determine how taxing rights should be allocated. It also highlights that the proposed connecting factors are broad, undefined and potentially cumulative, without a clear hierarchy or guidance on how competing connections between jurisdictions should be reconciled.

The submission further points to the omission of residence as a connecting factor, particularly in relation to individuals and the ability-to-pay principle. It argues that Article 5 should provide guidance not only for multinational enterprises and services but also for other areas, including the cross-border mobility of workers.

The proposed approach would replace “real economic contribution” with “personal and economic connections” and explicitly recognise the need to reconcile fair allocation with legal certainty, administrative simplicity, effective implementation and appropriate thresholds. The objective should be to eliminate double taxation while addressing unintended low or non-taxation.

The Workstream II submission addresses the draft First Protocol on the Taxation of Income from Cross-Border Services. It identifies concerns about the introduction of new, vague and undefined terms and multiple nexus rules, which may increase legal uncertainty, complexity and administrative burdens for both taxpayers and tax administrations.

A central concern is the absence of an articulated policy rationale explaining why the proposed nexus rules justify taxing rights. The submission also questions concepts such as “consumer”, “end users” and the location of users or data, as well as the distinction between automated digital services and other services.

Where several jurisdictions may claim taxing rights, the submission highlights the risk of multiple source states taxing the same income. It therefore calls for principle-based, simplified and streamlined nexus rules, appropriate thresholds and a clear hierarchy limiting the number of simultaneously taxing source states. Where multiple source states may tax, the basis for allocating taxable profits should be clearly defined, with full elimination of double taxation.