With profound regret to lack of a better alternative to Simon Beaufoy of the 2017 classic between Bobby Riggs and Billie Jean King for titular adaptation, in the current context, it impresses on the impost vigilant mind that the revenues of jurisdictions at large are now engaged in what can be effectively termed as a prelude to of no less than the Star Wars classic “The Empire Strikes Back”.

From the middle 1990’s academics (a particular mention to Prof Arvid Aage Skaar and his classic “Permanent Establishment: Erosion of a Tax Treaty Principle” ) and forward thinking practitioners alike had been propagating the advent of the e-commerce juggernaut and in particular the impact of the same on its capacity to hit ability of source countries to tax transactions within their jurisdictions.

The essential paradigm that followed was that companies based physically in a totally different legal and residential jurisdiction could bypass the taxation system of source countries and still provide goods and services in those countries. The common critical question arising out of such flow of business was to “how bring such cross border transactions within the ambit of taxes?”.

The Westminster Principle (Inland Revenue Commissioners v. Duke of Westminster, http://www.bailii.org/uk/cases/ UKHL/1935/4.html) elicited by Lord Tomlin of the High Court of Justice in England, notwithstanding, it was clear that there was an attempt to bring a systemic change in the way commerce was being and was to be conducted globally.

From the processes arising, about the “fin de siècle” jurisdictions started reconfiguration of the base framework of the OECD:OCDE and after much deliberation, subsequent to the OECD:OCDE conference in Turku in 1997, came up with the Ottawa Taxation Framework 1998, which emphasised more particularly on the application of traditional income tax laws and guiding principles to tax cross border ecommerce transactions as well as traditional transactions.

2008, brought to fore events that would cause a seismic cataclysm to the propositions in the Ottawa Taxation Framework 1998. Sovereigns ran huge fiscal deficits trying to shore up their respective economies. Governments lost revenue steadily owing to contagion caused by the financial sector seeping into traditional business and individual incomes alike, with witness of a gradual but exponential increase in e-commerce activity picking up. Despite substantial co-ordinated efforts by the G20 and OECD:OCDE nations it became clear by 2013 that there had to be a paradigm shift in the ways tax policies were designed. The problem was more exacerbated by the fact that the existing framework was not only woefully inadequate to address the aggressive tax planning of digital and semi digital MNE but also fell short at addressing concerns of source countries to which goods and services were supplied via digital platforms. It follows that the most glamourous of the lot, the FAANG (Facebook, Amazon, Apple, Netflix, Google) were found to be the forerunners in matters of aggressive tax planning. Your attention is invited to the following video of Public Accounts Committee Hearing (12/11/2012) on Taxation of Multinational Corporations, witnesses: Matt Brittin (CEO, Google UK), Troy Alstead (Global CFO, Starbucks), Andrew Cecil (Director Public Policy, Amazon) (http://www.parliamentlive.tv/main/ player.aspx?meetingId=11764) p a r t i c u l a r l y intriguing as well as raising some important issues camouflaged within the parameters of morality. Chairperson British MP Margaret Hodge very clearly outlines “We are not accusing you of being illegal, we are accusing you of being immoral.” It could be gauged therefore that it was only a matter of time before “morality” was translated into “legality”.

At this point the author would invite a reading of Millar, Historical View of the English Government (1789) bk. ii, chap. 7, and of the North Caorlina Law Review Vol 23 Number 3, of a perspective of circumstances in which morality translates effectively into legality. (https:// scholarship.law.unc.edu/cgi/viewcontent.cg i?article=1651&context=nclr&hx0 03E;). The underlying intentions being very clear, and as famously attributed to Denis Healey, former UK Chancellor of the Exchequer who once said “The difference between tax avoidance and tax evasion is the thickness of a prison wall.”, the dimensions of the wall getting blurry with MNE tax avoidance schemes.

Authors Riley Carpenter and Shaun Parsons (Wilson, Amy & Carpenter, Riley & Parsons, Shaun. (2016) in The effect of electronic commerce on the erosion of tax bases – Developing appropriate taxation laws in South Africa) have argued that there needs to be an overhaul of taxing systems around the globe in order to meet the taxation challenges in particular caused by the ecosystem around and parallel to the FAANG, and while not radically different the structure of the South African Taxation system needs to be in sync with proposed legislation in counterparts.

For the Indian scenario, India has advocated the its own strategy to counter the reduction of the resulting tax base on account of digitalisation by incorporating changes in the Finance Act 2018. In the G20 meeting at Osaka in June 2019, India advocated that its approach (equalisation levy and proposed Tax Collected at Source) be adopted by the OECD:OCDE as a possible resolution of the digitisation quagmire (https://pib.gov.in/PressReleasePage.aspx?PRID=1573765).

Ukraine has as of June 2020 amended its tax laws via the Tax Bill 1210 to bring into alignment with the BEPS project and has introduced CFC aspects into its domestic legislation.

Events such as outlined above have led to a knock-on effect by sovereign governments to act in order to protect their own interests in revenue by means of either significant economic presence tests, withholding taxes, transaction taxes (e.g., equalization levies and digital services taxes), and minimum taxes (e.g., diverted profits taxes) (Walter Hellerstein, Jurisdiction to Tax Income and Consumption in the New Economy: A Theoretical and Comparative Perspective, Georgia Law Review (2003)). Imperatively, sovereigns now under significant financial and political pressure are finding it a compulsion under nationalism to go it alone and adopt means to protect their revenue. (Desperate times, desperate measures)

Discussing a few of the measures becomes imperative

1. Economic Presence Tests: Significant economic presence tests either qualitative or quantitative offer as of the date of publication a good view of taxation of revenue on source. Academics like Arvid Aage Skaar, Luc Hinnekens, etc argue in favour of the economic presence tests. Stimulatingly, in 2013 there was an attempt by the French authorities to tax revenue attributed to social media platforms even though none of them had any presence in any territorial jurisdiction governed by France(https://convention-s. fr/wp-content/uploads/2014/06/ Taxation_Digital_Economy_Jan2013_ France.pdf). In a characteristically amusing case in the Tax Tribunals in India it was held that social media profiles of employees could be a trigger for determination of a permanent establishment (GE Energy Parts v. Addl Director of Income Tax). In a way it might be argued there is a general trend towards dilution/modification of the permanent establishment principle (Article 5 of the OECD/UN Model convention). Whether MLI alone would be sufficient to dilute the said, is a fact that would unravel in the coming times. There are some other Quantitative Economic Presence tests being proposed like GAAR and SAAR rules being automatically applicable on above a certain threshold.

   The OECD:OCDE came up with a report titled OECD:OCDE/G20 Base Erosion and Profit Shifting Project, Tax Challenges Arising from Digitalisation – Interim Report 2018 (https://www.oecd.org/ctp/ tax-challenges-arising-from-digitalisation- interim-report- 9789264293083-en.htm), in which it has taken into account the significant dilution proposed by sovereign jurisdictions of Article 5 of the OECD:OCDE model convention (The PE principle) (Similar to the UN model convention) . In particular mention has been made in pages of the significant modification of the PE principle with respect to Israel (Significant Economic Presence), Slovak Republic(fixed place of business or digital platforms) and India(Significant Economic Presence).

   Effectiveness of the afore is again subject to private international law interpretations. The US-Canada tax treaty automates the application of a services PE with the 183 days rule. (However, see Tech Mahindra vs Commissioner of Taxation 20 ITLR 70(Australia) and Satyam Computer Services Ltd vs Commisioner of Taxation 21 ITLR 274 (Australia) and some conflict in Mistubishi Corporation India Pvt Ltd vs Deputy Commissioner of Income Tax Circle 6(1), New Delhi ITA 5042/DEL/11(India))

   The author is of the opinion that Quantitative Significant Economic Presence tests might be a possible solution to the quagmire considering that private international law has generally been in favour of “there is no equity about tax”.

2. Withholding Taxes: Yariv Brauner and Andres Baez in their research paper argue in favour of a globally standardized withholding tax rate of 10% on all transactions impacted by base erosion movements in favour of source jurisdictions. The alternatives to nexus based and election are left open, in opposition to the IBFD position of nexus based solution being superior to the withholding tax regimen. (https://www.ibfd.org/sites/ibfd.org/ files/content/WithholdingTaxesintheSer viceofBEPSAction1-whitepaper.pdf ). For the uninitiated reader a reading (Richard Doernberg, Electronic Commerce and International Tax Sharing, 16 TAX NOTES INT’L 1013) is also recommended on Doernberg’s arguments on imposition of withholding taxes on electronic commerce resulting transactions. Some countries have actually incorporated a broadened definition of their parameters of SAAS, (Software As A Service), sharing of music and content (http://www.ifa-luxembourg.lu/download/237/withholding-tax-in-the-era-of-beps-civs-and- digital- economy-presentation-report-30112017. pdf ) for example Greece and Malaysia. Withholding taxation on Collective Investment Vehicles(CIV) is again a controversial topic and Luxembourg wherein most of these vehicles are situated has implemented withholding tax treaties with many counterparts. The problem is exacerbated further by the fact that some of the CIV’s are treated as fiscally transparent entities in Luxembourg and not so in other jurisdictions.

3. Transaction Taxes: Although we are not anymore living in the era of infamy of the “bit” tax, transactional taxes have become very important especially in jurisdictions where FAANG and “clone” business models have significant presence. And in thus current Covid -19, scenario the impact of FAANG on supply chain has been undoubtedly universal. France and Hungary take the pole as far as imposition of transaction taxes are concerned, for example in France the turnover tax governs the delivery of online content in accordance with its proposal to tax online content. In Hungary the online delivery of advertisements is taxes according to its targeted demographic. India and Italy have very recently introduced their own versions of the equalisation levy for bring under the tax fold transactions by MNE who do not have a permanent establishment (with a baseline threshold). The author although admits it would be interesting to see how the economics of operation work out in cases of UBER and “clones”. The United Kingdom has the Digital Services Tax which came into operation on 1st of April 2020.

4. Threshold Taxes: Jurisdictions over the world are attempting to make models similar to the GILTI (Global Intangible Low Taxed Income) and the Tax Cuts and Jobs Act in the United States for Outbound Foreign Investment and other versions of diverted profits taxes for Inbound Foreign Investment. Australia has imposed the Multinational Anti Avoidance Law; India has very recently imposed a TCS on outbound ODI transactions. CFC rules in many jurisdictions have been made to identify the ultimate beneficiary and hence tax passive foreign income on the ultimate beneficiary. The case of the GILTI and the TCJA in the United States deserve a mention since FAANG are situated in the United States and its brings into its fold the CFC regime and applies corporate tax on the excess of shareholders CFC income over and above the returned Income.

5. Measures for countering “gig economy”: A recent paradigm is now witnessed whereby focus of jurisdictions is now targeted at “gig” operations rather than the long term employment market. In fact, countries are slowly opening up to the “gig” labour market in which there is a demand based employment rather than long term contractual obligations of employment of labour. OECD:OCDE has of very recent in the month of July 2020 come up with model rules with respect to the “gig” economy (https://www.oecd. org/ctp/exchange-of-tax-information/ model- rules-for-reporting-by-platform- operators-with-respect-to-sellers-in- the- sharing-and-gig-economy.pdf). For instance, the Baltic states(Lithuania, Latvia, Estonia) have been at the forefront of pushing for the nomadic gig economy for expats, and the Nordic countries are evaluating a similar proposition. How and where does the PE and the value addition principle for taxation apply in such a case.? In such cases its relatively easy for a person to have a nomadic jurisdiction less approach, while in particular cases the person still might be liable depending on his nationality. India for its part has as of this year introduced a hybrid residence- nationality based taxation system wherein a “stateless” person would be taxed as an Indian citizen and would be liable for taxes in India(Finance Bill 2020, Insertion of Section 6(1A) into the Income Tax Act 1961.). The United States has a citizenship based approach to taxing worldwide income of Citizens (Cook v. Tait, 265 U.S. 47 (1924)) and doesn’t apply the residence notion IRC 1. Norway applies the quantitative test method for determination of residence status.

Undoubtedly the afore five considerations of taxes denigrate basic principles of both Capital Import Neutrality and Capital Export Neutrality (on which most jurisdictions are supposed to be based), and are rather tending towards National Neutrality as a matter of International Tax Policy. As a consequence, it seems that the market for cross border trade and transactions would be leading to a blurring of tax treatments and also distorting an already set paradigm of income classification. Tax planning would engage in a far more complicated scenario and countries would be vying for their “fair” share of revenue and MNE’s would have to re-align their tax strategies including that of Hybrid Mismatches. This could also potentially lead to a scenario where tax offsets are relegated to such a level that this in itself leads to a trade barrier (see discussion on gig economy supra) to sharing of resources. International double taxation avoidance is the result of almost a century of hard work and negotiations since the days of 1920’s compromise, and any disruption would likely have a spiralling effect, which could be totally unwarranted.

Governments developing their own taxation frameworks and presenting them on an international arena unilaterally would lead to an unfair playing field at the cost of MNE’s

who are providing benefits of economies of scale while not engaging in aggressive tax planning. The paradigm to make a jurisdiction more lucrative by providing for tax benefits is overtaken by attempts to garner a bigger chunk of the pie. An indirect implication of this entire scenario is the additional burden of statutory compliance put on firms both MNE’s and alike.

Another challenge posed despite the stated objectives of the OECD:OCDE 2015 BEPS report, is that the current system of taxation is geared towards taxation of value addition and not as at source. So will it involve a complete overhaul? Also pertinently, even in the current system where there is a limited “gig” economy, there is no homogenous definition of value addition.

The Indian construct is defined u/s 9 of the Income Tax Act 1961 and has to be read in conjunction with Bilateral treaties more particularly with reference to Articles 5 & 7 in the general form and also reference to BEPS article 7 with particular emphasis on artificial avoidance of PE status. Courts in India have generally leaned towards interpretation of Articles on the Bilateral framework. Guiding principles being provided by the Vienna Convention on the Law of Treaties subsequent to the landmark in Ram Jethmalani v. Union Of India (Writ Petition (Civil) No. 176 Of 2009). It might be noted that India although has not ratified the convention, adjudicative law in India has nonetheless used the guiding principles therefrom. Courts have also on occasion had the instance to go beyond the define treaty and the Act to render adjudicative law. (ABB FZ, LLC v. Deputy Commissioner of Income Tax I.T (TP)

http://www.kluwertaxblog.com/wp-content/ uploads/sites/59/2017/08/Bangalore-Tribunal- Ruling.pdf).

Private International Law assumes significance as countries might be prone to adopt a particular manner of interpretation of principles of international taxation to suit their own needs and hence might create a no win scenario for the business as such (see ABB FZ LLC supra). The apparent conflicts in the Dell Products cases, wherein in one jurisdiction since Dell Products Norway was accorded not a PE since did not have authority to bind the principle and in the other case it was deemed a PE on totally different grounds. (See Spain vs. Dell, June 2016, Supreme Court, Case No. 1475/2016 and Dell Products v. Staten v/Skatt ost, Case HR- 2011-02245-A, See also France vs Zimmer Ltd CE 31/03/2020 304715)

Academics like Cockfield (Reforming the Permanent Establishment Principle through a Quantitative Economic Presence Test, 38 CAN. BUS. L. J. 400 (2003)) argue in favour of Quantitative Economic Presence Permanent Establishment test for MNE’s on a worldwide basis, so that the hitherto sacrosanct principles of Capital Export and Capital Import Neutrality be kept sacrosanct. Although there are some arguments in favour of Qualitative tests (See South Dakota vs Wayfair Inc 138 S.Ct. 2080 (2018) which overturned the ruling in Quill Corp. v. North Dakota (1992), See also Direct Marketing Ass’n v. Brohl particularly the commentary by Justice Kennedy) , by and large the administration of such a test could lead to a administrative nightmare and overhauling the established frameworks under the Convention on Mutual Administrative Assistance in Tax Matters.

There has to be made a fine distinction between MNE’s operating on a bigger scale who are actually able to hurt revenue jurisdictions materially and MNE’s operating on a much smaller scale who don’t have a material impact on revenue. Primarily owing to the fact that significant exercise on the latter might not be in favour of smaller business and start-ups who would anyway be constrained by resources for application. And secondarily conducting such a costly exercise might not provide a favourable cost benefit exercise for Revenue.

An incremental change in fiscal as well as international tax policy of the comity of nations is possibly the only way forward in the interest of business as well as growth of revenue of jurisdictions. The way forward from value addition to source would pave the way to reducing harmful tax conflict and also juridical double taxation, which would be undoubtedly harmful to business in the short run and revenue in the long run as competition intensifies all around the globe. The OECD/ UN model double taxation convention and the BEPS 2.0 framework particularly that on Pillar 1 (Although the United State posed some objections on Pillar 1 especially with reference to GILTI and TCJA) although have a consensus of almost 129 countries (excepting notably the United States), the way forward into multilateralism and nationalism in taxes at least is challenging and fraught with interesting negotiations and trade deals.