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In brief

On Tuesday, 20 December 2022, the OECD released a highly anticipated consultation document on Digital Services Taxes (DSTs) and relevant similar measures. This consultation document provides draft articles for inclusion in the Multilateral Convention (MLC) to implement the agreement reached by members of the Inclusive Framework with respect to DSTs and relevant similar measures.

In more detail

The agreement to withdraw existing DSTs and relevant similar measures and to not implement new DSTs — sometimes referred to as ‟standstill and rollback” — is a key building block of Pillar One and a crucial piece of the political bargain amongst members of the Inclusive Framework. This agreement is critical also to the business community, whose support for Pillar One broadly speaking is contingent on the Inclusive Framework agreement regarding standstill and rollback. Shifting taxing rights to market jurisdictions under Amount A has been characterized as a trade-off for the withdrawal of unilateral measures that have destabilized the international tax framework and spurred, in part, the Inclusive Framework project. Thus, the agreement to withdraw DSTs and relevant similar measures reflects a critical component of the delicate balance between the reallocation of taxing rights to market jurisdictions and the stabilization of the international tax framework as a whole.

The consultation document includes two draft articles for inclusion in the MLC — one for the removal of existing measures, and the other to foreclose any Amount A allocation to a member state that has a unilateral measure. Draft Article 37 contains the obligation to withdraw all existing DSTs and relevant similar measures, which will be defined by reference to a list included in Annex A of the MLC. The consultation document did not include a draft list and noted that the list is part of the continued negotiation of the MLC. We anticipate that this negotiation will be politically charged and potentially protracted, meaning that we likely will not see the definitive list until much later in the MLC negotiation process. The consultation document notes that the list itself will not be open to stakeholders for consultation. The non-inclusion of a measure in Annex A, however, does not mean that such measure would not be considered a “DST or relevant similar measure.” This is significant, because Article 37 includes language that will allow parties to the MLC to challenge existing measures under the mechanism established in Article 38, a forward-looking provision that establishes the penalty for imposing new or existing DSTs and relevant similar measures. 

Draft Article 38 provides that if a party to the MLC is found to be imposing a DST or relevant similar measure, that party shall not be allocated Amount A income, and may not exercise the taxing right under Amount A. Paragraph 2 of Article 38 establishes the much-anticipated definition of DSTs and relevant similar measures. The definition includes three criteria, all of which must be met, as well as a list of exclusions in Paragraph 3 of Article 38.

The first criteria requires that the application of the tax, or the amount of tax imposed, be determined primarily by reference to the location of customers or users, or other similar market-based criteria. The second criteria requires that the tax is either (1) applicable by its terms solely to non-residents or foreign-owned businesses; or (2) applicable in practice exclusively or almost exclusively to non-residents or foreign-owned businesses. This second element of the second criteria can be shown by the use of revenue thresholds, exemptions for taxpayers subject to domestic corporate income tax, or restrictions of scope that have the effect of exempting from application of the tax substantially all residents supplying comparable goods or services. The third criteria requires that the tax not be treated as an income tax under the domestic law of the party imposing the tax, such that it is outside the scope of tax treaties.

Paragraph 3 of Article 38 specifically excludes (1) anti-abuse measures, such as permanent establishment anti-avoidance rules; (2) value added taxes, goods and services taxes, sales taxes, and similar taxes on consumption; and (3) generally applicable transaction taxes.

Whether a party has imposed a DST or relevant similar measure will be determined by the Conference of the Parties. The consultation document notes that the procedures for the Conference of the Parties to make such a determination will be developed as part of the MLC negotiation process.

The Task Force on the Digital Economy (TFDE), the subsidiary body responsible for Amount A, has requested comments on the technical design of the provisions. Comments are due no later than 20 January 2023.


Erik Christenson practices in the area of general international tax planning for businesses.
Erik is a member of the steering committee for the Northern California chapter of the International Fiscal Association (IFA), and he is on the Permanent Scientific Committee for IFA USA. Erik is the liaison to Baker & McKenzie's Global Tax Practice Group for the Technology Media and Telecom.


Alexandra Minkovich is a partner in Baker McKenzie's North American Tax Practice with more than fifteen years of experience handling a variety of tax, tax controversy, and legislative and regulatory matters. She also brings significant experience representing clients with respect to domestic tax issues, particularly in the life sciences, pharmaceutical, retail, and manufacturing industries, and is well versed in administrative law. Immediately prior to joining the Firm, Ms. Minkovich served as Associate Tax Legislative Counsel with the US Department of Treasury, Office of Tax Policy. In that role, Ms. Minkovich advised the Assistant Secretary (Tax Policy) and General Counsel regarding tax policy considerations in regulations and Internal Revenue Bulletin guidance, provided advice on tax legislative proposals, and provided litigation advice regarding the validity of Treasury and IRS guidance. She also provided technical comments on tax legislation to the Senate Committee on Finance and the House Ways & Means Committee, as well as to individual members’ offices. Ms. Minkovich speaks regularly at seminars and writes on a variety of topics related to legislative and regulatory developments, and administrative law.


Katie Rimpfel is an associate in Baker McKenzie’s North America Tax Practice Group in Washington, DC. Katie practices in the areas of tax planning, tax controversy and transfer pricing. She advises major multinational corporations and individuals on US federal income taxation matters.

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