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Submission to United Nations on discussion draft on inclusion of software in definition of royalties

Blog: NASSCOM Official Blog

During the 20th session of the United Nations (UN) Tax Committee (Committee) meeting held online from 22-26 June 2020, it was recommended by members that the Committee should focus its attention on amending the current definition of royalties included in Article 12 of the United Nations Model Double Taxation Convention Between Developed and Developing Countries (Article 12 of UN Model).

Accordingly, the term “computer software” is proposed to be added in the definition of term “royalties” in paragraph 3 of Article 12 of UN Model. In order to solicit views from stakeholders, UN has released a Discussion Paper inviting inputs.

Based on inputs received from our members, NASSCOM made a submission to the Sub-committee on United Nations Model Tax Convention between Developed and Developing Countries.

Summary of our response is provided below:

A) All software payments cannot be generalised and characterised as “royalty”.

B) Characterization of software:

C) If we analyse the existing term ‘royalty’ as defined in the tax treaty, we find that the intent of royalty is to include the ‘copyright’ and not the ‘copyrighted article’. Accordingly, if the word” ‘computer software’ (which is a wider term) is added as proposed in the existing definition under Article 12 of UN Model, the intent of the term ‘royalty’ which includes “copyright’ and not the ‘copyrighted article’ will be defeated.

D) Interplay and need to address overlaps of proposed taxation of software payments: Interplay and overlaps of proposed taxation of software payments under Article 12 with taxation of digital economy under Organisation for Economic Co-operation and Development’s (OECD) Pillar 1 and 2 guidance and unilateral measures of some countries as well as proposed Article 12B by the UN Committee on Automated Digital Services need to be addressed.

E) Administrative difficulties: There would be difficulties to implement the proposal such as considering characterisation issues in case of software embedded in products or mixed contracts or administrative issues such as imposing withholding tax obligations in cases of individuals purchasing computer software for personal use. These would need to be addressed to maintain consistency.

Our detailed response is attached for your reference.

For any feedback, please reach out to Tejasvi at

The post Submission to United Nations on discussion draft on inclusion of software in definition of royalties appeared first on NASSCOM Community |The Official Community of Indian IT Industry.

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