Submission to UN Call for Inputs Workstream I

The Co-Leads’ Zero Draft of Article 5 represents a significant step forward, provided that its purpose is to guide the future allocation of taxing rights rather than merely to confirm jurisdictions’ existing sovereign taxing powers. However, important technical and interpretative questions remain, particularly concerning the meaning of “real economic contribution”, the connecting factors listed in the provision, and their relationship with the principles underlying the allocation of taxing rights and fairness considerations. More specifically, Article 5 does not make clear why particular connections should justify an allocation of taxing rights or how competing connections should be reconciled. We propose replacing “real economic contribution” with a reference to “personal and economic connections”, which more clearly accommodates both residence-based and source-based taxation without implying an objectively measurable basis for allocating taxing rights. Article 5 should provide principled guidance taking into account both substantive principles and practical considerations such as legal certainty, administrative simplicity and effective implementation. It should further be able to guide the allocation beyond services, such as in the area of global mobility. The overall allocation should seek to eliminate double taxation and address unintended low or non-taxation, with mechanisms to ensure that not every economic connection gives rise to taxing rights. It is hoped that the observations and recommendations in this submission will contribute constructively to the ongoing work. The Maastricht Centre for Taxation and its members would be pleased to continue the dialogue and to provide further academic input as the negotiations progress and future work is developed.