handbook-tb

Protecting the tax base in the digital economysome countries, 72 but “business profits” in others. 73 What is clear isthat the traditional tax base under the royalty or technical service feewithholding taxes is ill-suited to capturing payments for new digitalproducts or services.3.4.4 Determination of profitCurrent international tax norms are silent or unclear about attributingvalue created from the generation of data through digital products andservices, such as the “free” information provided by customers to suppliers.For example, the tax base defined by Articles 5, 7 and 14 of theUnited Nations Model Convention and Articles 5 and 7 of the OECDModel Convention does not acknowledge the role that consumer dataplay in generating profit for MNEs, let alone capturing such profit.In the digital economy, data gathered from various sources isoften a primary input into the process of value creation. As pointed outby the OECD Action 1 — 2014 Deliverable, the “expanding role of dataraises questions about whether current nexus rules continue to be appropriateor whether any profits attributable to the remote gathering of databy an enterprise should be taxable in the State from which the data isgathered, as well as questions about whether data is being appropriatelycharacterised and valued for tax purposes.” 74 The reliance of MNEs onintangibles accompanied by the increasing importance of data in theglobal value chains put additional pressure on transfer pricing rules. 7572China, State Administration of Taxation, Circular [1998] No. 201,which was upheld by Chinese courts in PanAmSat International Systems,Inc. (2001). For further discussion of the PanAmSat case, see Ge Tan, “TaxTreaties’ Interpretation and Application under the Challenges of the DigitalEconomy — Issues Raised by the PANAMSAT v. Beijing Tax Bureau,” (2006)Vol. 16, No. 1 Revenue Law Journal, at 99; Jinyan Li, “The Great Fiscal Wallof China: Tax Treaties and Their Role in Defining and Defending China’s TaxBase,” (2012) Vol.66, No. 9 Bulletin for International Taxation, at 463-4.73In India, for example, the courts held that such payments do not giverise to “royalty” for treaty purposes. See Asia Satellite Communication Co.Ltd. (332 ITR 340) (Del) and Skycell Communications Ltd. (251 ITR 53) (Mad).74OECD, Action 1 — 2014 Deliverable, supra note 3, at 130.75It is beyond the scope of the present chapter to discuss transfer pricingissues.433