The OECD is “still in a 2020 time frame” to try reaching consensus on digital taxation, but some issues remain to be negotiated, officials said Thursday.
Leaders from Group of 7 and Group of 20 countries are asking the Organization for Economic Cooperation and Development to stick to the original 2020 deadline for the project despite the coronavirus pandemic, said Achim Pross, head of the International Co-operation and Tax Administration Division at the OECD’s Center for Tax Policy and Administration.
“From where I sit I would not mind having more time,” Pross said on a webcast hosted by Bloomberg Tax & Accounting. “But I think the political masters that run the overall timeline are still very much in an overall 2020 timeline.”
Finance ministers had less time to devote to the digital tax project at the beginning of the Covid-19 crisis, but now “politicians are turning back their attention to this because I think no one wants a trade war at a time when the economy has been so badly disrupted,” said Pascal Saint-Amans, director of the OECD’s Center for Tax Policy and Administration. He was speaking Thursday on a webcast hosted by the Tax Policy Center.
The OECD is trying to find agreement among nearly 140 countries on a global tax overhaul to address how multinationals—particularly tech giants—are taxed in the countries where they have users or consumers.
OECD officials said May 4 that some elements of the project could carry over into 2021. A meeting of country representatives negotiating on the project that was originally scheduled for July has been moved to October because of the pandemic.
Meanwhile, a growing number of unilateral measures are ratcheting up the pressure on a multilateral solution, as more countries advance digital taxes of their own while waiting for global agreement.
“We’re working flat out to try to think what we can do, how we can advance,” Pross said.
Progress on Pillars One and Two
The OECD project is organized into two pillars: Pillar One aims to simplify and rewrite the rules that determine how multinationals’ profits are allocated among countries where they do business, while Pillar Two would ensure multinationals pay a minimum global tax rate.
On Pillar One, there has been “great progress” on technical work including revenue sourcing, scope, nexus, and the tax base determination for business line segmentation, all of which will be presented for public consultation at some point, Saint-Amans said.
“We’ll see whether October is realistic,” on Pillar One, he said. “More time may be needed.”
Remaining challenges include resolving a U.S. proposal late last year to make part of Pillar One a safe harbor, under which companies could elect whether to have the new rules apply to them, Saint-Amans said.
There’s a “fair chance to see something very significant” on Pillar Two by October, Saint-Amans said. While China and a number of low-tax jurisdictions have concerns, “the narrative on Pillar Two is stronger than ever.”
Saint-Amans also said he assumes countries will agree to grandfather in the U.S.'s own, somewhat similar minimum-tax rules—the global intangible low-taxed income measure—so they are acceptable under Pillar Two.
Certainty Under Amount A
Part of the project—“Amount A” of Pillar One—seeks to reallocate a portion of the profits of multinationals that are large, profitable, and digital or consumer-facing to countries where companies have users or consumers.
Countries agree that Amount A should be designed to be administratively simple, Pross said.
“We need a collective, ideally upfront process to make sure that we’re doing this consistently and so that there is not 40 countries that say you’re in scope and 60 countries that say you’re not in scope, and different countries see a different Amount A,” he said.