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OECD Hoping for ‘Blueprints’ of Digital Tax Plan by October

July 13, 2020, 9:29 PM

The OECD is aiming to have blueprints on both parts of its global tax overhaul ready by October, and hoping for political agreement on one portion this year, the organization’s tax chief said.

“Technically, the work is advancing to the point where we hope to have blueprints on both Pillar One and Pillar Two ready for October,” Pascal Saint-Amans, director of the Organization for Economic Cooperation and Development’s Center for Tax Policy and Administration, said Monday. “Politically we hope that if there is no agreement this year on Pillar One, there could be an agreement on Pillar Two.”

The OECD is working to overhaul global tax rules and agreements to address how big technology companies are taxed. Pillar One of the plan—which has proven to be more politically fraught—would reallocate some of multinationals’ profits to the jurisdictions where they have users or consumers, while Pillar Two would establish a global minimum tax to address tax competition between countries.

A political conversation must take place between now and autumn, including at meetings of the Group of 20 finance ministers in July and October, Saint-Amans said. “And for sure, we should have all the elements to make an agreement possible by year-end ideally,” or after the U.S. election, at the end of 2020 or into 2021. He was speaking Monday at a hearing of the European Parliament’s Committee on Economic and Monetary Affairs.

The group is working under mounting pressure to finish technical work and find political agreement among nearly 140 countries on the new plans. A growing number of countries, impatient with the lack of an international solution, are poised to or already pushing ahead with unilateral measures to tax digital companies—creating logistical and double-tax burdens on the companies, and heightening trade tensions with the U.S., which has threatened sanctions over the measures.

The OECD had initially targeted July for reaching consensus, but the coronavirus has extended the timeline—as has international politics.

Treasury Secretary Steven Mnuchin told a group of EU finance ministers in June that he wanted to pause the work during the pandemic, and warned that negotiations had reached an “impasse.” And last winter, he called for making Pillar One rules an option for companies.

That “safe harbor” proposal has been a hurdle in the negotiations, said Benjamin Angel, director of the unit on direct taxation and tax coordination in the European Commission, the bloc’s executive arm.

“Other countries are not willing to take the risk of putting in place a taxation system whose grounds would be optionality,” Angel said, speaking at the same hearing.

Contrary to some reports, the U.S. has not stepped away from the negotiations this summer, Saint-Amans said.

Question of Scope

Saint-Amans said at the “core of the negotiation” is a discussion about whether the scope of the digital tax should be extended beyond online companies to all large consumer-facing multinationals.

The European Union has supported applying Pillar One broadly, to consumer-facing companies, but a number of EU member states have recently proposed applying the rules only to digital companies in a first phase, Angel said.

Broadening the scope of the rules would lead to a significant uptick in the number of companies affected, causing practical implementation issues, he said.

If the Pillar One rules apply only to digital companies, the number of companies for which tax administrations would need to find agreement would be “probably double-digit, maybe triple-digit,” but if the scope was widened to large consumer-facing companies, the number could rise to 7,000 to 8,000, Angel said.

Starting with digital companies would “allow everyone to gain experience,” and then subsequently “move to the wider spectrum,” he said.

To contact the reporter on this story: Stephen Gardner at correspondents@bloomberglaw.com; Isabel Gottlieb in Washington at igottlieb@bloombergtax.com

To contact the editors responsible for this story: Meg Shreve at mshreve@bloombergtax.com; Yuri Nagano at ynagano@bloombergtax.com

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