In the absence of agreement, the OECD's Inclusive Framework on the BEPS adopted, at its last meeting on 8-9 October, detailed blueprints on the two pillars of international tax reform (see EUROPE 12565/19). The OECD has therefore set itself a new deadline - mid-2021 - for reaching an agreement.
“We agree to swiftly address the remaining issues with a view to bringing the process to a successful conclusion by mid-2021 and to resolve technical issues, develop model draft legislation, guidelines, and international rules and processes as necessary” reads a statement by the 137 members of the Inclusive Framework issued on Monday, 12 October.
The broad outlines of the detailed plans were already known, as they had leaked to the press a few weeks ago (see EUROPE 12553/16). The documents, which reflect the convergence of members’ views on a number of issues and identify the points still open, are open for public consultation until 14 December.
For the Director of the OECD's Centre for Tax Policy and Administration, Pascal Saint-Amans, “the glass is half full” as the detailed plans nevertheless provide “a solid basis” for a future agreement, even if the deadline of the end of 2020 could not be met.
Already delayed by the Covid-19 pandemic, the negotiations had suffered a further setback with the United States’ request to resume negotiations after the presidential elections of 3 November (see EUROPE 12509/17).
“All countries have participated, without exception”, OECD Secretary-General Angel Gurría said at a press conference. He said there is “a bipartisan will in the United States to move forward” so the results of the U.S. election should not disrupt the negotiations.
Mr Gurria, whose term of office will end in June 2021, further assured that the change in the Secretary-General of the organisation would have absolutely no impact on the negotiations.
The detailed plans will be presented and discussed on Wednesday 14 October by the G20 Finance Ministers. In their communiqué, they acknowledge the lack of agreement but consider it a good basis for progress.
New economic impact assessment
On Monday, the OECD also published a new economic impact assessment of the combined effect of the two pillars as currently envisaged.
The analysis - which still does not present the potential gains on a country-by-country basis - shows that the implementation of the global minimum tax under Pillar II could result in a 4% increase in total corporate income tax revenues, or $100 billion per year.
As for the taxation of the digital economy under Pillar I, the analysis concludes that it could result in the redistribution of $100 billion to jurisdictions. On average, low-, middle- and high-income economies would all benefit from increased revenues, while investment centres would tend to lose tax revenues, according to the paper.
Furthermore, the analysis points out that the Covid-19 crisis is likely to reduce the revenue gains expected from the first and second pillars, at least in the short term, as it impacts on the profitability of many multinationals, even though some of them with high levels of digital have managed to maintain or even improve their profitability since the beginning of the crisis.
The threat of a trade war
The only alternative to an international agreement would, in any case, be a trade war, because of the range of national solutions, Mr Gurría highlighted.
“A trade war is always bad. But now, in the time when we are planning for the recovery of Covid-19 it would inflict a very very serious setback”, he said.
According to OECD estimates, a global trade war of this nature could indeed cut global GDP by more than 1% per year.
However, the postponement of a possible solution at the international level until 2021 raises many questions, particularly with regard to American sanctions in retaliation for the French GAFA tax.
Last January, Paris agreed to take an important step towards Washington by proposing to postpone until December 2020 the payment of the advance payments due in April on the digital tax in France. In return, Washington undertook not to take trade sanctions against France during the same period (see EUROPE 12410/3).
Pascal Saint-Amans said that the subject had not been directly raised at the meetings, but that both countries had expressed their support for international discussions.
“The work carried out at the technical level provides a solid basis for a political decision. All countries must continue to work to make a decision quickly”, was the response from a source at the French Ministry of Finance.
The OECD Secretary-General hoped that countries that have adopted national digital taxes will allow sufficient time for the OECD process to move forward, as the solution is “close”.
Impatience on the European side
For its part, the European Commission called on all global partners to continue the work without delay.
“We cannot keep on postponing. The new deadline of mid-2021 must be the final one. And the earlier, the better," said a Commission spokesman.
Although an international agreement remains its preferred option, the Commission has repeatedly indicated that it will propose European measures in the event of failure at the OECD. Any action at EU level will have to take into account the end point of the current global discussions, the spokesman said.
The Independent Commission for the Reform of International Corporate Taxation (ICRICT) considered that the OECD proposals were “not up to scratch”. It called on countries to take unilateral measures to promote increased revenues while reforms are blocked by key members of the Inclusive Framework.
See the report on Pillar I: https://bit.ly/3iNntAN; on Pillar II: https://bit.ly/3lBLKM7 and the economic impact assessment: https://bit.ly/3nHrxWW (Original version in French by Marion Fontana)