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WorkingPaper181

AreTradeRules

UnderminingTaxationoftheDigitalEconomy

inAfrica?

KarishmaBanga

andAlexanderBeyleveld

February2024

Z

instituteof

developmentstudies

BILL-MELINDA

Norad

GATESfoundation

UKInternational

Development

Parnershp

!PregressIPrasperty

1

ICTDWorkingPaper181

AreTradeRulesUnderminingTaxationoftheDigitalEconomyinAfrica?

KarishmaBangaandAlexanderBeyleveld

February2024

2

AreTradeRulesUnderminingTaxationoftheDigitalEconomyinAfrica?

KarishmaBangaandAlexanderBeyleveld

ICTDWorkingPaper181

FirstpublishedbytheInstituteofDevelopmentStudiesinFebruary2024

OInstituteofDevelopmentStudies2024

ISBN:978-1-80470-173-7

DOl:10.19088/ICTD.2024.007

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3

AreTradeRulesUnderminingTaxationoftheDigitalEconomyinAfrica?

KarishmaBangaandAlexanderBeyleveld

Summary

AfricancountriesarecurrentlyconsideringprovisionsintheAfCFTAandattheWTOto

liberalisedigitaltrade.Astheyfacemountingfiscalpressures,itisimperativethatthey

bewaretheimplicationsofdigitaltradeprovisionsfortheirabilitytotaxtheirdigitaleconomy.Inthispaper,wedevelopacomprehensiveframeworkforanalysingtheimpactoftraderulesontaxregimesinthedigitaleconomy,withafocusonKenya,Rwanda,andSouthAfrica.Weexplorehowtraderulesostensiblyshapetaxpoliciesandtheirimplicationsforrevenue

generation.Byexaminingrulesregulatingtradeinservicesandtheimpositionofcustomsdutiesonelectronictransmissions,weidentifyhowtheserulesmaydirectlyimpacttax

policiesandlimitrevenuegenerationpossibilities.Moreover,digitaltraderules,suchas

thoserelatedtodataflows,localisation,andsourcecodesharing,havethecapacityto

producebothindirectandadministrativeeffectsontaxmeasures.Theserulescanaltertaxstructures,taxationrights,datacollection,andthecapacitytomonitorandimplementtaxmeasures.Ourfindingsshedlightonthecomplexinterplaybetweentraderulesandtax

measures,highlightingpotentialchallengesandopportunitiesforrevenuegenerationfromthedigitaleconomyinAfricancountries.

Keywords:digitaltraderules,taxation,digitaleconomy,customduties,Africa.

KarishmaBangaisanEconomistandResearchFellowintheDigitalandTechnologyClusterattheInstituteofDevelopmentStudies,UniversityofSussex.

AlexanderBeyleveldisaSeniorResearcherintheMandelaInstitute,SchoolofLaw,UniversityoftheWitwatersrand.

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Contents

Summary

Acknowledgements

Acronyms

Introduction

1.1Definingthedigitaleconomy

1.2EstimatingdigitaltradeinAfricancountries

1Measuringthedigitaleconomy

2Evolvingapproachesinthetaxationofthedigitaleconomy

2.1Traditionaltaxinstruments

2.1.1Corporateincometaxes(CITs)

2.1.2Valueaddedtaxes(VATs)

2.2Newtaxinstrumentsforthedigitalage

2.2.2Customsdutiesonelectronictransmissions(CDETs)

2.2.1Digitalservicestaxes(DSTs)

3Possibletraderuleconstraintstotaxingthedigitaleconomy

3.1Traderulesonservices(WTO/PTAs/FTAs)

3.2TraderulesonETs(WTO/PTAs/FTAs)

3.3Digitaltraderules(PTAs/FTAs/JSl)

3.3.1Rulesoncross-borderdataflowsandthelocationofcomputingfacilities

3.3.2Rulesonsourcecodeandalgorithms

3.4Taxationprovisionsandexceptionsintradeagreements

4lKenyacasestudy

4.1Traditionaltaxinstruments

4.2Newtaxinstruments

4.3HowtraderulesconstrainKenya'sabiltytotaxthedigitaleconomy

4.3.1Traderulesonservices

4.3.2Rulesoncustomsdutiesonelectronictransmissions

4.3.3Digitaltraderules

5Rwandacasestudy

5.1Traditionaltaxinstruments

5.2Newtaxinstruments

5.3TheextenttowhichtraderulesconstrainRwanda'sabilitytotax

thedigitaleconomy

5.3.1Traderulesonservices(WTO/PTAs)

5.3.2Rulesoncustomdutiesonelectronictransmissions

5.3.3Digitaltraderules(PTAs/FTAs/JSI)

6SouthAfricacasestudy

6.1Traditionaltaxinstruments

6.2Newtaxinstruments

6.3HowtraderulesconstrainSouthAfrica'sabilitytotaxthedigitaleconomy

6.3.1Traderulesonservices

6.3.2Rulesoncustomdutiesonelectronictransmissions

6.3.3Digitaltraderules

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7Conclusion,recommendations,andfutureresearch

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7.1Summaryandconclusion

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7.2Limitationsoftheresearch,andfutureresearch

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Appendices

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Appendix1RevenuegenerationundertheVATsystem

33

Appendix2Netexportsindigitisableproducts,USDmil.

33

Appendix33GATScommitmentsindigitalrelevantsectors

34

References

35

Table

Table4.1Expectedrevenuegenerationfromtaxationofthedigital

economy(USDmil.)21

Figures

Figure1.1DDSexportsandimportsasa%oftotalservicestrade10

Figure3.1Aframeworkontraderulesandtaxationofthedigitaleconomy14

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Acknowledgements

Thepaperhasundergoneadouble-blindpeer-reviewprocess,andwewouldalsoliketothankourreviewersfortheirthoroughandinvaluablecommentsthathaveshapedthe

paper.WewouldalsoliketothankMartinHearsonandMbakisoMagwapefortheirfeedbackandsuggestions,whichhavehelpedstrengthenthepaper.

Acronyms

ADS

Automateddigitalservices

AfCFTA

AfricanContinentalFreeTradeArea

BEPS

Baseerosionandprofitshifting

B2C

Business-to-consumer

CDET

Customsdutiesonelectronictransmissions

CIT

Corporateincometax

CRS

Computer-relatedservices

DDS

Digitallydeliverableservices

DEPA

Digitaleconomypartnershipagreements

DST

Digitalservicestaxes

EPA

Economicpartnershipagreement

ET

Electronictransmissions

FTA

Freetradeagreement

GATS

GeneralAgreementonTradeinServices

GATT

GeneralAgreementonTariffsandTrade

G20

Groupof20

IF

Inclusiveframework

IP

Intellectualproperty

JSI

JointStatementInitiative

KDPA

Kenya'sDataProtectionActof2019

MFN

Most-favourednation

MLC

Multilateralconvention

MNC

Multinationalcorporation

MNE

Multinationalenterprises

NT

Nationaltreatment

OECD

OrganisationforEconomicCo-operationandDevelopment

POPIA

ProtectionofPersonalInformationActof2013(SouthAfrica)

PTA

Preferentialtradeagreement

RRA

RwandaRevenueAuthority

SARS

SouthAfricanRevenueService

SDGs

Sustainabledevelopmentgoals

STIP

StrategicTradeandInvestmentPartnership

UJDTA

US-JapanDigitalTradeAgreement

USMCA

UnitedStates-Mexico-CanadaAgreement

VAT

Valueaddedtax

WTO

WorldTradeOrganization

7

Introduction

Digitalisationistransformingproduction,trade,andbusinessmodelsacrossallsectorsoftheeconomy.Ithasacceleratedthespreadofglobalvaluechainsledbylargemultinational

corporations(MNCs)whichnolongerhavephysicalpresenceinthejurisdictionsinwhichtheyoperate(Hauge2023).TheactivitiesoftheseMNCsinvolvethecross-bordersaleoftraditionalordigitalgoods,deliveryofservicessuchastargetedonlineadvertisingor

algorithmictrading,ortheminingandsaleofdataitself,withtherevenuegeneratedthroughtheseactivitiesbeingchannelledtolow-taxjurisdictionsaspartofeffortstopaylittleornoincometax(Kelseyetal.2020:76-79).Further,digitalisationisincreasinglycharacterisedbythespreadofnewbusinessmodelsthatrelyondata,intangibleassets,andnetwork

effectstocreatemonopolisticoroligopolisticmarketstructures(OECD2018).Such

characteristicshavemadeitincreasinglydificultforgovemmentstoapplytaxmeasures

suchascorporateincometax(CIT),whichhastraditionallyreliedonthephysicalpresenceofanenterprise(Mpofu2022;Elliffe2021:chap.3).Thecontinuouslygrowingvolumeofgoodsandservicespurchasedonlinebyprivateconsumersfromforeignsuppliershasalsomadetheimplementationofvalueaddedtaxes(VAT)morecomplex(OECD2014).Theallocationoftaxingrightsonincome,generatedfromcross-borderactivitiesinthedigitalage,hasbeenidentifiedasakeyissueinAfricaneconomies.Thisiswell-demonstratedinthecaseofUber,whichhasregisteredlocalsubsidiariesinfourAfricancountriesthatprovideadministrative

servicesbutneitherownanyintellectualproperty(IP)norreceiveanyrevenuefromusersofUber(Ndajiwo2020).TheIPisownedbytheUberafiliateinNetherland,whichreceivesthepaymentsbutpaysminimumtaxesasitistreatedasincomeforthelicensingoftheIPrights

(ibid).

Inthefaceofnewdigitalbusinessmodels,countriesarefacingapoliticalandtechnical

choiceofadaptingtheexistingtaxationinstrumentsofcorporateincometax(CIT)andvalueaddedtax(VAT)orcreatingnewones,suchasdigitalservicestaxes(DSTs)andcustoms

dutiesonelectronictransmissions(CDETs),whichcansubstitutefor,orcomplement,

traditionaltaxinstruments.Countrieshavethepotentialtotaxthedigitaleconomythroughacombinationofatleastthesefourmeasures,whichcanbeincorporatedintotheirindustrialpolicyandrevenuecollectionstrategies.TheseobjectivesarecriticalfortheachievementoftheUNsustainabledevelopmentgoals(SDGs),particularlythepromotionofinclusiveand

sustainableindustrialisation(SDG9.2),strengtheningrevenuemobilisation(SDG17.1),andrespectingeachcountry'spolicyspaceandleadershiptoestablishandimplementpoliciesforpovertyeradicationandsustainabledevelopment(SDG17.5)(seefurtherKelseyetal.2020:9-19;seealsoJames2019).Further,taxingthedigitaleconomyiskeyfortherealisationofhumanrightsthroughtheattainmentoftaxjustice(see,forexample,DeSchutter,Lusiani,

andChaparro2020),whichiscriticalforpost-pandemicrecovery(seeBaker2022).

Inthispaper,wearguethattheextenttowhichcountriescanusethesemeasures,ora

combinationofthesemeasures,totaxthedigitaleconomyiscriticallyshapedbytraderules,includingdigitaltraderules.Ourpaperbroadlyrelatestotwostrandsofliterature:first,onthetaxationofthedigitaleconomy,andsecond,onthedevelopmentimplicationsofdigitaltraderules.Anascentstrandofliteraturehasemergedatthenexusofthetwo,analysingthe

interactionsbetweentaxandtradepolicyinthedigitaleconomy.Thisincludesananalysisofhowdigitaltraderulescouldimpedetaxationofthedigitaleconomy(Kelseyetal.2020),

taxationofdigitalservicesintradeagreements(NoonanandPlekhanova2020),anti-

developmentimplicationsoftax-relatedprovisionsinproposeddigitaltraderules(James

2019),andthelegalissuesontaxationofthedigitaleconomyundertheGeneralAgreementonTradeinServices(GATS)agreement(PirlotandCulot2021).Wemakeourfirst

contributiontothisstrandoftheliteraturebydevelopingacomprehensiveframeworkthatilustratesthecomplexwaysinwhichtradeanddigitaltraderulesaffecttheabilityof

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countriestotaxthedigitaleconomy.Wemakeoursecondcontributionbyapplyingthe

frameworktothecasesofKenya,Rwanda,andSouthAfricatodemonstratewhatisatstakeinpracticaltermsforAfricancountries.Acasestudyapproachlikeoursisimportantfor

unpackingtheheterogeneityindigitaltaxanddigitaltradepoliciesacrosscountriesaswellastheirinteractions.Further,ourchoiceofcountriesallowsforaninterestingcomparativelens.BothKenyaandSouthAfricaaremajorplayersindifferentregionaleconomic

communities(RECs),'andwhileRwandaisnotfarofffromKenyageographicallyandshares

membershipofsomeRECs,?itaddsadifferentperspectiveasaleastdevelopedcountry(LDC)thathasshownsignificantengagementwithdigitaleconomyregulatoryissues,

includingtaxation.Thesecountriesalsohavealsoattainedvaryinglevelsofdigitaldevelopmentandparticipateinthedigitaleconomytodifferentdegrees.

TheAfricancontinentisataparticularlycriticaljuncture.Intheinternationaltaxcontext,

discussionsfacilitatedbytheOrganisationforEconomicCo-operationandDevelopment(OECD)andtheGroupof20(G20)inclusiveframework(IF)onbaseerosionandprofit

shifting(BEPS)ledtothedevelopmentofaTwo-PillarSolutiontoAddresstheTax

ChallengesArisingfromtheDigitalisationoftheEconomy'in2021,whichhasimportant

implicationsfortaxationwithinthedigitaleconomy(Avi-Yonah,RanandSam2022).Some

Africancountriesareinvolved.3In2023,theUnitedNationsGeneralAssembly(UNGA)alsoadoptedAfricaGroup'staxresolutiononthePromotionofInclusiveandEffective

InternationalTaxCooperationattheUnitedNations'tofosterintergovernmentaldiscussionsoninternationaltaxcooperation(seeUnitedNationsGeneralAssembly2023).4Inthe

internationaltradecontext,theAssemblyofHeadsofStateandGovemmentoftheAfrican

UnionhavemandatednegotiationsontheProtocolonDigitalTradetotheAfrican

ContinentalFreeTradeArea(AfCFTA).SevenAfricanWorldTradeOrganization(WTO)

MembersarealsopartoftheJointStatementInitiativeonElectronicCommerce(the'E-

CommerceJSl'orsimplytheJSl)asofFebruary2023,5whichreflectsthesharedintentionofagroupof89WTOMemberstocommencenegotiationsontrade-relatedaspectsof

electroniccommerce'(WTOn.d.).Atthesametime,Africancountriescontinuetopursuetheirindividualpreferentialtrade/freetradeagreement(PTA/FTA)agendas.Withmountingfiscalpressures,itisimperativethatAfricancountriesshouldbewaretheimplicationsof

digitaltradeprovisionsfortheirabilitytotax.

Section1attemptstodefineandmeasurethedigitaleconomy.Section2examinesthe

evolvingapproachestotaxingthedigitaleconomy,withaspecificfocuson(1)CITs,(2)

VATs,(3)DSTs,and(4)customsdutiesonETs(CDETs).Basedonaliteraturereviewandsecondarydatasources,Section3developsaframeworktoillustratehowcurrentandfuturetraderulesmayconstraintheabilityofcountriestotaxthedigitaleconomy.Sections4,5and6applytheframeworktothethreeAfricaneconomiesunderstudy.Section7concludeswithbriefrecommendationsandquestionsthatrequirefurtherresearch.

KenyaispartoftheEastAfricanCommunity(EAC),theCommonMarketforEasternandSouthernAfrica(COMESA),theIntergovemmentalAuthorityonDevelopment(IGAD),andCommunityofSahel-SaharanStates(CEN-SAD).SouthAfricaispartoftheSouthemAficanDevelopmentCommunity(SADC).

RwandaispartofCOMESAandtheEAC.ItisalsopartoftheEconomicCommunityofCentralAfricanStates(ECCAS),whichKenyaisnot,and,unlikeKenya,isnotpartofIGADorCEN-SAD.

Asat15November2023,theAfricancountriesthathavesignedonare:Angola,Benin,Botswana,BurkinaFaso,CaboVerde,Cameroon,Congo,Cotedlvoire,theDemocraticRepublicoftheCongo,Djibouti,Egypt,Eswatini,Gabon,

Kenya,Liberia,Mauritania,Mauritius,Morocco,Namibia,Nigeria,Senegal,Seychelles,SierraLeone,SouthAfrica,

Togo,Tunisia,andZambia.ThismeansthataroundhalfofallAfricancountrieshavenotsignedon.Forpurposesofthispaper,itisnotablethatKenyaandSouthAfricaaresignatories,butthatRwandaisnot.

TheresolutiontabledbyNigeriaonbehalfoftheAfricanGroup(A/C.2/78/L.18/REV.1)initiatedtalkstocreateaUNframeworkconventiononinternationaltaxcooperation,andcalledspecificallyforaprotocolonthetaxationofincomederivedfromtheprovisionofcross-borderservicesinanincreasinglydigitalizedandglobalizedeconomy'.

TheseareBenin,BurkinaFaso,Cameroon,Cotedlvoire,Kenya,Mauritius,andNigeria.

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1Measuringthedigitaleconomy

1.1Definingthedigitaleconomy

Itshouldbenotedthatmanyofthetermsusedinthispaperlackgloballyagreedupon

definitions,aswellasdefinitionswithinaparticularlegalorinstitutionalsetting.Therefore,asageneralproposition,wetrynottoascribedefinitionstotermswheretheseneedtobe

agreeduponbysignatoriestolegalinstruments,ormembersofinternationalorganisationssuchastheWTO.Inseveralinstances,theextenttowhichthetypesoftaxmeasuresunderdiscussionherewillbeaffectedbytraderuleswillbecontingentontheseyet-to-be-definedterms.Thisisfarfromideal,giventhatthelegaluncertaintywhichthiscausesmayinandofitselfdetercountriesfromfullyconsideringcertaintypesoftaxationmeasures.Itisforthisveryreasonthatweshouldunderstandwhatisatstakeattheintersectionoftaxmeasuresandtraderulesinthedigitaleconomy.

Theterm'digitaleconomy'isonewhichcanbe-andis-definedinamulitudeofways.Inthispaper,wedonotadoptarigiddefinitionofthisterm,savefordefiningitsuchthatit

encompassese-commerce'and'digitaltrade',whichiswhereourcurrentinterestlies.Thesetwotermsareoftenusedinterchangeably,but(partsof)tradelawscholarshiprecognises

distinctionsbetweentheterms.Alschner,forexample,arguesthattradelawyersshoulddraw'systematicdistinctions'betweendigitally-enabledtrade,whichhelabels'e-commerce',andtheexchangeofpurelydigitalassets,whichhelabelsdigitaltrade'(Alschner2023).Whileotherdefinitionsappeartoacceptthatdigitaltradeisabroaderconceptthatsubsumes'e-

commerce'asunderstoodbyAlschner,amongotherthings(see,forexample,Lopez

GonzálezandFerencz2018:9),weagreethatthedistinctionismorethansemanticinthatthereisan'expandingfocusoftraderulesfromdigitally-enabledtradeinanalogassetstotradeindigitalassets',whichmakessensebecausee-commerceanddigitaltradecoverfundamentallydifferenttransactiontypes,giverisetodistinctpolicyconcerns,andare

subjecttodifferentrules(Alschner2023:1).

Insofarastaxmeasuresareconcerned(hereweusetheword'tax'broadlytoinclude

customsduties),wearepredominantlyinterestedinthefourtypesofmeasuresthatwehavealreadyidentifiedabove,i.e.,(1)CITs,(2)VATs,(3)DSTs,and(4)customsdutieson

electronictransmissions(CDETs).Thus,whenweusetaxationofthedigitaleconomy'orsimilarphrases,wegenerallymeantheapplicationofthesefourtypesofmeasurestothatpartofthedigitaleconomythatentailsdigitaltrade,specificallyitscross-borderforms,i.e.,thetypesofdigitaltradethatare,orwouldbe,regulatedbyinternationaltraderulesas

containedinWTOcoveredagreementsandPTAs/FTAs.

1.2EstimatingdigitaltradeinAfricancountries

Whilethereisnoconsensusonhowtodefinedigitaltrade',thereislittledoubtofitsgrowth,globallyandinAfrica,overthepastdecades(UnitedNationsConferenceonTradeand

Development2019).Acommonwayofmeasuringasignificantpartofdigitaltradeisthroughestimatingproductionandtradeofdigitallydeliverableservices(DDS).6DDStradeisvaluedatmorethanUS$24billioninAfrica(R.BangaandK.Banga2022),highlightingthe

significanceofnegotiationsontradeandtaxrules,bothintermsofrevenuegenerationandforkick-startinganAfricandigitaltransformation.However,therearesignificantdifferencesacrosscountries-DDSexportsaccountedfor60percentofSouthAfrica'stradeinservices

AsdefinedbyUNCTAD(2015),DDSaretypicallyanaggregationofinsuranceandpensionservices,financialservices,chargesfortheuseofintellectualproperty,telecommunications,computerandinformationservices,otherbusiness

servicesandaudio-visualandrelatedservices.TheseareservicesthathavethepotentialtobedeliveredoveranICTnetwork.DDSformspartofthedigitaleconomy'asdefinedearlier.

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DDStradedivide

in2021comparedto32percentinKenyaandlessthan10percentinRwanda(Figure1.1).ThegapbetweenRwandaandtheothertwoeconomiesinthecaseofDDSimportsasa

shareoftotalservicestradewasalsostark(Figure1.1).

Figure1.1DDSexports(left)andimports(right),asa%oftotalservicestrade

Source:Authors,constructedfromUNCTADstat.DDS=digitallydeliverableservices.

2Evolvingapproachesinthetaxationofthedigitaleconomy

Inresponsetoincreasingdigitalisation,countrieshavesoughttoreformtherulesapplicabletoexistingtypesoftaxes.Forexample,taxingcorporateincomeofdigitalserviceprovidersand(possible)excessprofitsunderCITsorlevyingaconsumptiontaxonservicesof

electronicgoodsandservicesthroughVAT.Theyhavealsoadoptednewformsoftaxes,

mostprominentlyDSTs-aformofproxytaxwherenonexusmayhavebeenpresentunderCIT-orarecontemplatingapplyingcustomsdutiestoelectronictransmissions.Webrieflydiscusscertaindevelopmentsinrelationtoeachofthefourformsoftaxesbelow.

2.1Traditionaltaxinstruments

2.1.1Corporateincometaxes(CITs)

SomecountrieshaveadaptedtheirdomesticCITframeworksbybringingcertaintypesof

digitalservices,suchasOvertheTop'services,intothetaxbase,orbyexpanding/clarifyingtheirdefinitionofpermanentestablishment(suchasNigeria).?Someothershaveadoptedawithholdingtaxoncertaindigitalservices.8Suchatax,ongross-basis,canaddressthetax

InNigeria,forexample,theCompaniesIncomeTax(SignificantEconomicPresence)Orderof2020(SEPOrdern,

issuedbytheMinisterofFinance,BudgetandNationalPlanningin2020intermsoftheFinanceActof2019,clarifiesthatanon-residentdigitalserviceproviderwillbeconsideredpermanentlyestablishedifitexceedsagrossturnoverthreshold,usesthengdomainname,orhasapurposefulandsustainedinteractionwithpersonsinNigeriaby

customisingitsplatformtotargetpersonsinNigeria.SeeSEPOrder,paragraph1(1).

UnderKenya'sFinanceAct2023,forexample,incomepaidto'digitalcontentcreators'issubjecttoawithholdingtax.Residentsaresubjecttoa5percentwithholdingtax,whichwilleitherbeafinaltaxorcreditableagainstCIT.Inthe

caseofnon-residents,however,therateis20percent,andisalwaysleviedasafinaltax.Thisisthegeneralposition,butdifferentrulesmayinprincipleapplyincaseswherethematteris-orwillinfuturebe-regulatedbyadoubletax

treaty.

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tobeappliedbetweentwocountrieswhoaimtomodelthisapproach(Avi-Yonahetal.2022:

challengebytreatingincomefromsomeeconomicactivitiessimilarlytopassiveincome(e.g.,fromroyalties)ratherthanactiveincomefrombusinessprofits(OECD2018).

Internationally,138countrieshavesignedtheStatementona'Two-PillarSolutiontoAddresstheTaxChallengesArisingfromtheDigitalisationoftheEconomy',steeredbythe

OECD/G20'sBEPSProjecttofacilitatemarketjurisdictions'intaxingthedigitaleconomy

throughmodificationtotheexistingrulesonprofitallocationandnexusthataffectCITs(seeOECD2023).Itisoftendubbedasthe'multilateral'orconsensus-based'approach(see,forexample,PirlotandCulot2021).TheOECDhasassertedthat'PillarOne'oftheStatementwillensureafairerdistributionofprofitsandtaxingrightsamongcountrieswithrespecttothelargest[multinationalenterprises(MNEs)],includingdigitalcompanies',that'[i]twouldre-

allocatesometaxingrightsoverMNEsfromtheirhomecountriestothemarketswheretheyhavebusinessactivitiesandearnprofits,regardlessofwhetherfirmshaveaphysical

presencethere',andthat'[u]nderPillarOne,taxingrightsonmorethanUS$125billionof

profitareexpectedtobereallocatedtomarketjurisdictionseachyear'(OECDn.d.).Whilethereallocationoftaxingrightsinrelationtothedigitaleconomyiscertainlyalaudablegoalinprinciple,therehasbeena'slowdemolition'ofPillarOne'sscope(seeCooper2021:536-40;seealsoAvi-Yonahetal.2022:289-95).EarlierworkhadshownanintentionforPillarOnetobeapplicabletoallautomateddigitalservices(ADSs)andconsumer-facing

businesses(CFBs),whereastheStatementnowisonlyapplicabletoMNEswithglobal

turnoverinexcessofE20billionandprofitabilityabove10percent,andalsoexcludesMNEsintheextractivesandregulatedfinancialservicessectors(seeAvi-Yonahetal.2022:295).Assuch,PillarOnewouldonlyapplytosmallpartsoftheprofits-theso-calledresidual

profits-oflessthan100MNEsworldwide(seeBEPSMonitoringGroup2022:1;Starkov

andJin2022:13).Correctly,thereareconcernsthattheBEPSapproachwillnotfullycapturetheincomegeneratedbythedigitaleconomy(Rukundo2020).Subsequently,therehave

beenproposalsfortheadoptionofasingleglobalthresholdruletocoverallMNEsthatgenerateglobalsalesrevenueaboveacertainamountandthereallocationofprofitsasaportionoftheMNE'stotalprofitsinsteadofresidualprofits(ATAF2021).

AnotherCITdevelopmentcomesfromtheapprovalinApril2021ofArticle12BoftheUnited

Nations'modeltaxconventionbetweendevelopedanddevelopingcountries(UNModel

Convention),whicheliminatesthephysicalpresencerequirementandexpandstheabilityof

marketjurisdictionstotaxincomefromADS.9AnadvantageoftheModelConvention's

thres