• International Tax Reform: next step – G20 meeting

    B.M.R. On

    Just published: the OECD Secretary-General’s Tax Report to G20 Finance Ministers and Central Bank Governors.

    The Report has been published in advance of the G20 meeting scheduled for 9 and 10 July in Venice.

    Among other things, it gives an update of the work of the Inclusive Framework, i.e the Two Pillars proposals. From the Report, we learn that one more IF member (Peru) has signed up to the agreement published on 1 July. The Secretary-General is ‘confident’ that the other eight members (who did not sign up) will also come on board. (I’m far less optimistic on this point.)

    So far, no solid reasons given for the hold-out from Nigeria and Kenya. We’ll find out soon enough.

  • Inclusive Framework agreement – some thoughts

    B.M.R. On

    The Inclusive Framework has agreed (broadly) on the future framework under Pillars One and Two. Here is the official statement.

    Of the 139 Inclusive Framework member countries, 130 signed up to this agreement.

    Nigeria and Kenya are among the nine that did not sign up. Thus far, no reasons given for the decision of both countries not to join the seemingly happy consensus. The OECD has stated, however, that, broadly, non-signature does not necessarily imply non-agreement; some countries had not managed to obtain political sign-off back home, in time for the announcement. In such cases, the expectation is that those countries would later sign up. Perhaps that is the situation with Nigeria and Kenya? We shall see.

    That aside, Ireland has made it clear that its own non-signature was actually down to non-agreement, specifically on the matter of the 15% rate for the proposed global minimum corporate tax rate. Apart from that significant point, Ireland broadly supports the proposals.

    Even so, it’s not all harmonious singing from the 130 countries that did actually sign up. For instance, despite having signed the agreement, Switzerland has expressed “major reservations” with the agreement, even going as far as telling us that it is not alone in feeling this way. Switzerland states that it is offering “conditional” support, for the sake of moving the project forward.

    Away from the Inclusive Framework members, and coming closer to Africa, ATAF is not exactly jumping for joy, either. As to Pillar One, the Inclusive Framework did not accept ATAF’s recent proposal for allocation to be based on a portion of MNE total profits, rather than on residual profits. ATAF was also not best pleased about the agreement on mandatory binding arbitration. And as for Pillar Two, ATAF had been looking for a global minimum tax rate of at least 20%. Even so, they can live with the agreed 15%, at least as a starting point.

    On a wider note, though, what next for the two Pillars?

    Do I still think Pillar One will go nowhere? Well, it is difficult to be pessimistic these days, especially now that the United States has climbed firmly onboard. However, I still see significant hurdles ahead.

    For example, of the nine countries that held out on signing, three of them (Estonia, Hungary, and Ireland) are Member States of the European Union. Given that any future tax rules will have to be implemented in the EU via a Directive (therefore requiring unanimity among Member States), the hold-out of these three countries makes that process particularly troublesome. Also, there could be potential problems with Pillar Two and EU law, particularly given the jurisprudence of the Court of Justice of the European Union in the Cadbury Schweppes case.

    I’m also thinking of Switzerland’s heavy hint that all is not harmonious behind the scenes, i.e. that there are other countries also harbouring major reservations. I have a sense of the whole thing being held together by fraying consensus. The coming months will reveal what we don’t now see.

  • Pillar One – a prediction

    B.M.R. On

    The G20 Riyadh Summit concluded today. On international taxation, there was (as expected) broad support for the work of the OECD Inclusive Framework.

    The G20 Leaders expect that the work will be concluded (as earlier promised by the OECD) in mid-2021.

    Well, I don’t think this will be achieved. The outstanding technical issues are a big obstacle, moreso as any agreement would require the unanimous approval of the members of the Inclusive Framework.

    As far as digital taxes are concerned, here is my prediction: over the next few months, there will be an increase in unilateral measures to tax digital businesses. Countries that have held back up till now will begin to introduce these new taxes. While many countries had held back, waiting instead for a ‘global solution’ from the OECD Inclusive Framework, there is an understandable impatience in the air. Countries don’t want to miss out on tax revenues, and the recent delay (by the Inclusive Framework) is already prompting some countries to introduce their own measures. In this, they would be joining those other countries that had earlier on decided not to sit back and wait for a global solution, but rather to introduce their own rules in the meantime.

    And this will, of course, lead to double, and even multiple, taxation across jurisdictions. Eventually, countries will negotiate bilateral agreements to reduce or eliminate this double taxation.

    This is most likely how the digital taxes issue will be resolved. We will also likely see common features emerge in the various unilateral digital taxes being introduced, making it easier for there to be standard treaty provisions for double tax relief.

    This ‘organic’ approach will render Pillar 1 redundant. The combination of unilateral (taxing) measures and treaty provisions (for double tax relief) will see to that.

    I think this is the way that things will go. I would be very surprised if Pillar 1 ever saw the light of day as a concrete plan.

    And as for my prediction for Pillar 2, I’ll leave that for another blog post.

  • Inclusive Framework Blueprints – the main points

    B.M.R. On

    Last week, the OECD published the blueprints for both Pillar 1 and Pillar 2. Of course, as curious as we all are, not everyone is keen on wading through hundreds of pages.

    And who can blame them? Anyway, here’s some good news. The good folks at TaxSutra have performed an almighty public service. For Pillar One, at least. They’ve put together a useful highlights document, setting out the main takeaways. You can access it here.

    I haven’t seen something similar for Pillar Two. Must be there somewhere. If not, I might have to create it myself.

  • OECD Tax Talks – what next?

    B.M.R. On

    Yesterday, the OECD gave us an update on the work of the Inclusive Framework on Pillars I and II. No agreement on the final package, but here’s what we got, anyway …

    We got the official reports on the Pillar I and Pillar II Blueprints (see here and here). Much of the content had been heavily leaked beforehand, but there you go.

    We also received the impact assessment. This time around, it includes full details of the methodology used. The previous one had been criticized for not including such details.

    And we also get a chance to comment on the Blueprints – public consultation opened yesterday, and runs till 14 December 2020. Here is the condoc.

    So no agreement; didn’t stop the OECD trying to put a positive spin on things, though – lack of agreement not withstanding, the Blueprint provides a ‘solid foundation for a future agreement’. I suppose we can take that.

    The Inclusive Framework now has a few more months to secure that elusive agreement. The new target is mid-2021.

    I’m still not banking on an agreement being achieved. Rather I foresee a proliferation in unilateral measures across countries. Expect more digital services taxes. This could then lead to a harmonization effort across the board, and perhaps also a treaty solution for allocating taxing rights, and relieving double taxation. A role perhaps for the recently proposed Article 12B of the UN Model? Interesting if things actually turn out that way.

  • Inclusive Framework documents leaked – again

    B.M.R. On

    Another fortnight, another leak. This evening, the latest sets of leaked Inclusive Framework blueprints are once again merrily making their way across the internet.

    These versions are dated 2 October. They’ll definitely contain a lot of what we will hear during next week’s Tax Talks session.

    I’ve had a quick look at both documents, but I’m not going to delve any deeper into them. Given how close we are to the Tax Talks session, it’s wiser to wait for the official report. No point ploughing through almost 500 pages of text that may or may not be changed by the time the Tax Talks session comes round.

    That said, I’m sure some of you would prefer to get the juicy details upfront. Fair enough, I say. So, for the curious (and impatient) among you, here are the leaked Pillar One and Pillar Two documents.