Work at the OECD on global tax reform will become a reality next week. The inclusive framework on BEPS will adopt its work programme at its meetings on 28 and 29 May, before it receives political approval at the G20 Finance level in June in Fukuoka.
Last January, the 127 countries involved in the work on tax base erosion and profit transfer (OECD/G20 Inclusive Framework on BEPS) agreed to find a long-term solution by 2020, based on two main pillars: modalities to tax the digital economy at the international level and modalities to establish an effective global minimum corporate tax rate.
“What will be presented next week at the OECD will allow us to move on to something more concrete”, a French source said on Thursday 23 May.
The 30-page work programme describes the architecture of possible solutions, identifies the issues to be solved and compares the solutions, she explained. It should also detail the implications of the different solutions, for example, whether or not they require treaty change.
On the revision of the rules on profit distribution and linkage, in response to the challenges raised by the digitisation of the economy, three approaches are currently under discussion at the OECD.
First, there is the criterion of “significant economic presence”, which is based on the observation that the digitisation of the economy renders obsolete the rules on the link and distribution of profits that currently apply.
The user participation approach, supported in particular by France, focuses on the value created by certain companies with a strong digital component through the development of an active and invested user base from which the company collects data and content.
The United States, for its part, supports an approach based on “intangible marketing assets”. Like the user participation approach, it provides for a revision of the rules on profit distribution and linkage. But it is not intended to apply exclusively to a subset of companies with a strong digital component and would aim at a broader scope in order to address the more significant consequences of the digital transformation of the economy.
“In any case, all three approaches try to converge towards a goal of simplicity and provide more security”, explained this source. France wants above all to solve the problem of taxing digital giants, but would not be hostile to the American approach. “The debate has progressed quite a bit and many countries are ready to open the wider debate on digitisation”, she said.
The issue of effective global minimum taxation, tabled by Germany and France, is part of the second pillar. Here, the debate is simpler, according to this source, because what is proposed looks like things that already exist, but in a coordinated and orderly way. This will not force countries that do not want to tax more to increase their rates, but it will reduce the tax incentive to move to a country that, in her opinion, taxes little.
On the EU side, the European Commission is pushing Member States to coordinate their positions in these negotiations in order to speak with one voice and thus have a real impact on the debate (see EUROPE 12256/4). Several countries such as Sweden, Ireland and Lithuania have already defended their right to contribute individually to these negotiations (see EUROPE 12257/2).
“The main principles must meet the consensus of all; it will not be a solution of one against the other”, the source said. Although the OECD does not operate under the unanimity rule, it will nevertheless require a “heavy majority of countries”.
Decisions will be taken at G20 and OECD level, but France already wants to give political impetus to the G7, of which it holds the presidency (see EUROPE 12176/11). It will focus on this at the G7 Finance Ministers' meetings on 17 and 18 July in Chantilly. (Original version in French by Marion Fontana)