The UN Tax Committee has reached a decision: the proposed Article 12B (on the taxation of income from automated digital services) will be included in the UN Model Tax Convention.
I remain doubtful whether this provision will actually make it into any real-life tax treaties, especially those treaties that matter where such income is concerned. For example, the United States (typically the residence state for the largest digital businesses) is unlikely ever to agree to such a provision in its tax treaties.
Also, the provision can only have proper effect if the treaty partners actually have domestic legislation taxing this income. The treaty itself cannot give a right to tax if such income is not taxable in the jurisdiction of the treaty partners.
And even if the treaty partners do have domestic laws taxing ‘digital income’, it depends further on the particular type of tax regime in place. This Model treaty provision applies only to ‘payments’ for automated digital services. As such, it won’t affect taxing rights that apply where a payment has not been made. For example, where the country levies a tax on the ‘value created’ (within its jurisdiction) by the non-resident company, even if there has been no actual ‘payment’ (from its jurisdiction) to that company.
Still, considering the slow progress over at the OECD, one must not quibble over this development. It’s a start. Although one does rather wonder at the point of including (in a Model treaty) a provision that has scant likelihood of ever being used.