Negotiations at the OECD on international tax reform are back on track. After two days of meetings, on Wednesday 29 and Thursday 30 January, the OECD's Inclusive Framework on BEPS agreed to continue negotiations on the basis of a unified approach to digital taxation (Pillar I) and reaffirmed its commitment to reach an agreement before the end of 2020.
The 122 jurisdictions present at the meeting adopted a political declaration, a note on "the outline of the architecture of a unified approach to Pillar I" accompanied by a revised work programme and a note on progress on minimum company taxation (Pillar II).
Speaking to the press on Friday 31 January, Pascal Saint-Amans, Director of the OECD's Centre for Tax Policy and Administration, described the package as a real "step forward", although several major issues remain to be resolved.
The approach taken by the Inclusive Framework on Pillar I is largely inspired by the proposal for a unified approach published by the OECD Secretariat in October 2019 (see EUROPE 12345/11). The approval of this unified approach is an important step, as three competing proposals have been on the table so far, he explained.
Compared to the Secretariat's proposal, the document provides more detail on the scope. It states in particular that this will apply to undertakings in direct contact with consumers and to automated digital services.
It excludes extractive industries such as mining, but also indicates that most financial services activities would not be covered by the new tax duty, as they are not necessarily directed at consumers.
Pillar I: a list of points to negotiate
The statement cites a number of difficult political issues that will need to be resolved in order to reach agreement, including the US proposal to give businesses a choice as to whether or not to apply the new system set by the OECD ('Safe Harbor').
"Many members of the Inclusive Framework are concerned that implementing Pillar One on the Safe Harbor basis could raise major difficulties, increase uncertainty and fail to meet all the policy objectives of the overall process", the statement said.
Nevertheless, the inclusive framework agreed to explore the issue and included it in the list of remaining work, but any final decision was postponed until the architecture of the first pillar was agreed upon, explained Pascal Saint-Amans.
The OECD is waiting for more information from the United States on what this concept means in practice, he added. Asked whether a consensus could be reached on the US proposal, Mr Saint-Amans said that the chances were "extremely low, even close to nil", since "a very large spectrum of countries" had expressed concerns about it.
Other thorny issues, mentioned in the declaration, concern the binding nature of the dispute prevention and resolution mechanisms, or the suggestions of some Member States to proceed with 'digital differentiation', taking into account the degree of digitisation between business activities, or with 'regional segmentation' by taking into account regional factors in the calculation and allocation of certain amounts.
Some members of the Inclusive Framework also expressed concerns about the continued application of taxes on digital services at the national level, the text points out.
Asked at a press conference about the factors that made it possible to reach an agreement this week at the OECD, Pascal Saint-Amans acknowledged that the prospect of a possible trade war generated by the proliferation of digital taxes around the world - as illustrated by the dispute between Paris and Washington over the French 'GAFA' tax (see EUROPE 12409/15) - had undoubtedly favoured the search for compromise.
Pillar II. The Inclusive Framework also welcomed the progress made in the technical design of Pillar II on minimum business taxation, while noting that more work remains to be done.
The note on Pillar II contains little new information and merely indicates that work is continuing. It should be noted that the declaration stresses that any agreement will depend on "further concurrent work on both pillars".
Next steps. The OECD's work will be presented at the next meeting of G20 Finance Ministers and Central Bank Governors in Riyadh on 22-23 February.
The next major step is expected on 1 and 2 July in Berlin, where the inclusive framework hopes to "reach agreement on the key policy features of the solution that would form the basis for a political agreement".
See documents: https://bit.ly/2tgYzpH (Original version in French by Marion Fontana)