Article 12B - Income from Automated Digital Services - International Taxation - Income Tax

Article 12B - Income from Automated Digital Services As per OECD Model Tax Convention There is no article in the OECD Model Convention corresponding to Article 12B. As per UN Model Tax Convention Confer Right to tax Income from Automated Digital Services Income from automated digital services arising in a Contracting State, underlying payments for which are made to a resident of the other Contracting State, may be taxed in that other State. [ Para 1 of Article 12B ] Specified Tax Rate However, subject to the provisions of Article 8 and notwithstanding the provisions of Article 14, income from automated digital services arising in a Contracting State may also be taxed in the Contracting State in which it arises and according to the laws of that State , but if the beneficial owner of the income is a resident of the other Contracting State , the tax so charged shall not exceed ___ % of the gross amount of the payments underlying the income from automated digital services. the above percentage is to be established through bilateral negotiations. [ Para 2 of Article 12B ] Exception of Para 2 of Article 12B If the beneficial owner of the income from automated digital services, being a resident of a Contracting State, requests the other Contracting State where such income arises, to subject its qualified profits from automated digital services for the fiscal year concerned to taxation at the tax rate provided for in the domestic laws of that State. If the beneficial owner so requests, subject to the provisions of Article 8 and notwithstanding the provisions of Article 14, the taxation by that Contracting State shall be carried out accordingly. The qualified profits shall be 30 per cent of the amount resulting from applying the profitability ratio of that beneficial owner s automated digital services business segment to the gross annual revenue from automated digital services derived from the Contracting State where such income arises. Where segmental accounts are not maintained by the beneficial owner, the overall profitability ratio of the beneficial owner will be applied to determine qualified profits. However, where the beneficial owner belongs to a multinational enterprise group , the profitability ratio to be applied shall be that of the business segment of the group relating to the income covered by this Article, or of the group as a whole in case segmental accounts are not maintained by the group, provided such profitability ratio of the multinational enterprise group is higher than the aforesaid profitability ratio of the beneficial owner. Where the segmental profitability ratio or, as the case may be, the overall profitability ratio of the multinational enterprise group to which the beneficial owner belongs is not available to the Contracting State in which the income from automated digital services arises, the provisions of this paragraph shall not apply ; in such a case, the provisions of paragraph 2 shall apply. [ Para 3 of Article 12B ] Meaning of Multinational Enterprises Group for the purpose of para 3 of Article 12B Multinational Enterprise Group means any group that includes two or more enterprises, the tax residence for which is in different jurisdictions. The term group means a collection of enterprises related through ownership or control such that it is either required to prepare Consolidated Financial Statements for financial reporting purposes under applicable accounting principles or would be so required if equity interests in any of the enterprises were traded on a public stock exchange. [ Para 4 of Article 12B ] Exception of Para 1, 2 and 3 of Article 12A If the beneficial owner of the income from automated digital services, being a resident of a Contracting State, carries on business in the other Contracting State in which the income from automated digital services arises through a permanent establishment situated in that other State, or performs in the other Contracting State independent personal services from a fixed base situated in that other State, and the income from automated digital services is effectively connected with: (a) such permanent establishment or fixed base, or (b) business activities referred to in subparagraph (c) of paragraph 1 of Article 7. In such cases the provisions of Article 7 or Article 14, as the case may be, shall apply. [ Para 8 of Article 12B ] Meaning of Automated Digital Services . The term automated digital services as used in this Article means any service provided on the Internet or another electronic network, in either case requiring minimal human involvement from the service provider includes especially (a) online advertising services; (b) supply of user data; (c) online search engines; (d) online intermediation platform services; (e) social media platforms; (f) digital content services (g) online gaming; (h) cloud computing services; and (i) standardized online teaching services. [ Para 5 6 of Article 12B ] Exclude if the payments underlying the income from automated digital services qualify as royalties or fees for technical services under Article 12 or Article 12A as the case may be. [ Para 7 of Article 12B ] Income deemed to be arise in Contracting State Income from automated digital services shall be deemed to arise in a Contracting State if the underlying payments for the income from automated digital services are made by a resident of that State or if the person making the underlying payments for the automated digital services, whether that person is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the obligation to make the payments was incurred, and such payments are borne by the permanent establishment or fixed base. [ Para 9 of Article 12B ] Income from automated digital services shall be deemed not to arise in a Contracting State if the underlying payments for the income from automated digital services are made by a resident of that State which carries on business in the other Contracting State through a permanent establishment situated in that other State or performs independent personal services through a fixed base situated in that other State and such underlying payments towards automated digital services are borne by that permanent establishment or fixed base. [ Para 10 of Article 12B ] Excess payment taxable by specified Rate of Tax In case special relationship between the payer and the beneficial owner the income from automated digital services or between both of them and some other person, the amount of the payments underlying such income, having regard to the services for which they are paid, exceeds the amount which would have been agreed upon by the payer and In case absence of relationship between the payer and the beneficial owner the provisions of this Article shall apply only to the last-mentioned amount (specified in Para 2 of Article 12B) . Taxability of such Excess Payment The excess part of the payments underlying such income from automated digital services shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Convention. [ Para 11 of Article 12B ]