In a resolution dated December 22, 2023, the UN decided to work towards promoting inclusive and effective international cooperation in the field of taxation and created an intergovernmental committee tasked with developing a new model entitled the United Nations Model Tax Convention on International Cooperation in Tax Matters.
While a UN model tax convention already exists, this initiative adds a discussion project between states on international taxation. The overall framework, known as the “Terms of Reference,” was adopted at the end of November 2024 with the European Union abstaining and nine countries voting against, including the United States, which withdrew after President Trump took office, the United Kingdom, Australia, Canada, and Japan.
The Terms of Reference confirm the upcoming projects: the drafting of a framework convention and two protocols, one on the taxation of cross-border services and the other on the prevention and settlement of disputes. The timetable is very ambitious, as work must be carried out simultaneously on all three texts with the aim of completing them by the end of 2027.
Three working notes were published on June 27, 2025, for comment and serve as a basis for discussion. The first meetings began this summer in New York, where two sessions were held in August.
It is interesting to examine the protocol on the taxation of cross-border services, as it could have a significant impact on businesses, with the positions expressed by the majority of emerging countries leading to a major upheaval in the current principles contained in the OECD model convention.
The UN approach proposes a fundamental change by challenging the principle of primary taxation on a net basis in favor of extended taxation at source on gross flows. The OECD model convention favors the principle of taxation in the service provider's country of residence, which, by design, is taxation on net profit after expenses. The approach proposed by the UN amounts to favoring taxation in the source state based solely on the service provider's invoicing. Furthermore, the criterion of physical presence would no longer be relevant. For example, the Africa Group and Brazil have reaffirmed that the criterion of physical presence is outdated in a world where services are increasingly digital and provided remotely, and that the focus should instead be on the place where value is created. There is a desire to create other criteria for taxing services than permanent establishment, more closely linked to market contribution and the place of consumption/users.
Taxation on gross revenue is presented as the simplest method to implement. Brazil, for example, points out that its conventional policy is to tax technical services at source, even if the service provider has no physical presence in the country. Furthermore, taxation at source on gross revenue makes it possible to secure the tax base of emerging countries and compensate for the limited resources of their administrations. To the objection that taxing low-margin services on a gross basis would lead to confiscatory taxation (since the tax at source cannot be credited against the income tax in the service provider's country of
residence), the Africa group responds that it is sufficient to set rates low enough so that they do not erode the right of the country of residence to tax.
This approach, which combines a criterion of taxation linked to the customer/user with taxation at source, is not shared by developed countries.
France has also made its position known: it opposes taxation on a gross basis, which would compromise the profitability of many service companies, advocates distinguishing between automated digital services and customized professional services, and is very reluctant to apply a criterion of “substantial economic presence,” as advocated by Colombia, since it is not clearly defined. France believes that the administrations of emerging countries need to be supported and strengthened so that they are able to establish a reasonable tax base in their countries.
The United Kingdom takes the same line and gives a very telling example that is worth quoting: an architect provides services from his country of residence to a client located in the source country. He charges the client $1,000 and incurs $500 in costs. He is subject to a 10% withholding tax and therefore pays $100 in the source state. In his state of residence, he pays tax at a rate of 25% on his profit, i.e., a tax of $125, from which he deducts the $100 paid in the source state. As a result, the State of residence receives only 20% of the total tax levied (25 out of 125), even though the architect uses the resources of his State of residence (infrastructure, education, health, etc.) directly and indirectly to carry out his activity. The allocation therefore seems totally unfair, especially since the architect does not use any resources in the client's country. The mere fact that the client uses his services in his country does not create a strong connection that justifies allocating such a large proportion of tax to that country. The United Kingdom therefore considers that, while a market-based allocation key is conceivable, it can only be applied to large companies, particularly those providing digital services, and is ill-suited to more traditional situations involving services provided remotely.
With regard to implementation, discussions are focusing on the creation of a multilateral instrument that would allow tax treaties to be amended without the need for bilateral negotiations. Brazil considers that the multilateral instrument should be seen as a minimum standard, which would not prevent countries from going further! France, for its part, considers that the provisions of the Protocol can only be optional and must instead be discussed bilaterally.
Discussions will continue in November and then throughout 2026. It will therefore be important to closely monitor developments in this UN initiative.
If the project is successful, the impact on service companies in developed countries could be very significant. On the one hand, it could lead to systematic taxation in the country where the service is provided or used, regardless of the concept of permanent establishment. On the other hand, it creates a high risk of double taxation: taxation on gross income would reduce the profitability of the service, since the tax levied locally could not be fully credited against the tax on the profit generated by the service. In addition to the platform-based service sectors, many industrial sectors could be affected (engineering contracts, technical studies,
consulting of all kinds, turnkey projects, or any contracts that can be broken down into a local portion and an “offshore” portion that could become systematically taxable in the customer's country).
In this regard, the interests of tax authorities and businesses in developed countries are fairly aligned.
