An agreement at the OECD on pillar I (digital taxation) and pillar II (minimum taxation) of international tax reform would be far preferable to any other alternative, said Benjamin Angel, Director for Direct Taxation in the Commission’s Directorate-General for Taxation (DG TAXUD), before MEPs on the Committee on Economic and Monetary Affairs (ECON) on Monday 13 July.
The EU has a “tactical interest” in keeping the two pillars in one package, he said. This would, in his view, be “the best way to keep the Member States aligned”.
Indeed, while some EU countries strongly support pillar I, others have a stronger commitment to pillar II. Maintaining the package would thus ensure that all EU Member States continue to support the process at the OECD, he explained.
Indeed, economic impact assessments reportedly argue in favour of this. Since some EU Member States lose out under pillar I and all Member States win out under pillar II, this would, in his view, make it possible to compensate.
Another argument put forward was that an isolated agreement on pillar II would risk reducing any incentive for the US to conclude an agreement on pillar I, Mr Angel recalled.
In the view of the Director of the OECD’s Centre for Tax Policy and Administration, Pascal Saint-Amans, an agreement only on pillar II this year, while pillar I would be postponed until 2021, is not to be ruled out, however.
“Both pillars have been linked politically”, but “technically they are two very different things”, he said. Pillar II could therefore technically be the subject of a separate agreement.
Not a tax on digital services, but “another way”
MEPs’ questions focused on what the European Commission will do if international negotiations at the OECD fail.
The Commission is working on two back-up plan, Mr Angel said, one on pillar I and the other on pillar II. “The difficult question is when is the right moment to move with a plan B”, he added.
The Commission’s ambition to put a European proposal on the table by the end of 2020 is somewhat disrupted, as the EU cannot activate its plan B while there is still hope for plan A, namely an agreement at the OECD, he explained.
Asked about the nature of a possible European proposal, Mr Angel said the Commission would not propose a second tax on digital services, which is intended to be only a temporary solution, but would propose an “alternative route” as a “permanent solution”. This solution will of course be based on the work of the OECD, he said.
Without an agreement at the OECD, moving forward in the European framework will be difficult, he warned, referring to what he calls the “tax curse”, i.e., the unanimity voting rule in the EU Council. (Original version in French by Marion Fontana)