Updates from the UN Framework Convention on International Tax Cooperation

Following the formal conclusion of Session 1 last week, which covered Workstream I—fair allocation of taxing rights and mutual assistance, the second session shifted attention to:

• Protocol 1 (Workstream II): taxation of income derived from the provision of cross-border services in an increasingly digitalized and globalized economy; and
• Protocol 2 (Workstream III): prevention and resolution of tax disputes.

The second session opened on 11 August with general statements from Member States. The European Union bloc reaffirmed its commitment to multilateralism, while maintaining the Protocol commitments as optional.

The Africa Group emphasized that, with respect to Workstream II, the Protocol must be future proof with simple administrative and multilateral rules, covering a broad range of services—including digital and emerging sectors, while upholding the principle of taxing where economic activity and value creation occur.

The session continued with a presentation by the Co-Leads on Protocol 1, identifying areas requiring possible new approaches, such as:

• possible new nexus rules;
• continued role of physical presence;
• net vs gross basis taxation;
• different rules for different types of services; and
• taxes covered.

Following the presentation, three questions were posed for the INC plenary discussion:

1. does the Issues Note comprehensively describe the current rules for taxing services and the reasons for change, or are there additional considerations;
2. what considerations are most important in developing new rules for taxing services; and
3. how should the workstream define the Protocol's scope in terms of taxes and services covered?

Delegates then engaged in technical discussions. The positions of key blocs remained consistent with those expressed during 2024 and early 2025 (see UN Ad Hoc Committee for Framework Convention on International Tax Cooperation: Second Week of Second Session Highlights and Updated Draft ToR (12 August 2024)), but stressed the potential for an instrument to fast-track the implementation of the Protocols.

Stakeholder contributions focused on key elements still under discussion, including:

• replacing the outdated nexus of physical presence with the concept of significant economic presence, including market jurisdiction taxing rights and other factors such as assets and personnel located outside it;
• ensuring that Workstream II's scope remain broad and focused on taxation of income, rather than rules unrelated such as certain digital taxes that resemble indirect taxes; and
• establishing a new nexus for taxation of digital services based on agreed baselines such as significant economic presence.

Further reports will follow as the second session progresses. You can acess all via our Tax News Service.