The 20th OECD Forum was held 20-21 May in Paris. This year’s theme was World in EMotion, which “aimed to reflect on how globalisation and digitalisation are stirring perceptions, emotions and responses that are reshaping the global, political and socio-economic landscape”. It covered a wide variety of topics, ranging from promoting so-called ‘inclusive growth’ and gender equality to understanding issues around the Future of Work, an OECD initiative looking at the impact of globalisation, technological progress and demographic change on labour markets.
The 2019 OECD Ministerial Council Meeting was held immediately after on 20 to 23 May. It focused on ‘Harnessing the Digital Transition for Sustainable Development’. In his opening remarks, OECD Secretary-General Angel Gurría called for “a new type of growth”, because market liberalism is “leaving many people behind and putting unbearable pressure on the earth’s natural resources”. He wants a replacement “that is more inclusive, more sustainable, greener, and more human”.
Taxing digital companies
Following the Policy Note published in January and the subsequent public consultation held in March, the OECD announced at the end of May that the Inclusive Framework on BEPS agreed to a road map to address digitalisation. The Programme of Work to Develop a Consensus Solution to the Tax Challenges Arising from the Digitalisation of the Economy calls for a consensus-based solution to be delivered in 2020. The work plan was submitted to the G20 for their endorsement at the June ministerial meeting in Fukuoka, Japan, and the Leaders’ Summit in Osaka, Japan, where it received the expected strong support.
The Programme of Work will examine proposals under the two pillars identified in the Policy Note. To recap, Pillar 1 addresses nexus and profit allocation rules, while the Pillar 2 approach involves a global minimum tax and a tax on base-eroding payments.
The first phase of the Programme of Work is a Secretariat-led analysis of the revenue, economic, and behavioural implications of the proposals to take place over the remainder of 2019. This is a significant change from past OECD practice, as technocrats have typically paid little mind to the economic consequences of their proposals. The Programme of Work further details the outputs to be delivered by subsidiary bodies, and to meet the deadline, “outlines of the architecture will need to be agreed by January 2020”, according to the G-20.
The many potential combinations of options that could be adopted remains a major source of uncertainty for multinational companies and jurisdictions alike. Reaching a consensus among the 130 members of the Inclusive Framework under such an aggressive timeline could pose a significant, and perhaps insurmountable, challenge. Pascal Saint-Amans, director of the OECD Centre for Tax Policy and Administration, acknowledged that the timeline is “extremely ambitious and may prove difficult”. However, the prospect of continued unilateral action and the chaos it may cause for business is creating pressure to reach an agreement.
For instance, a June 27 post on the Google blog said the company would “support the movement toward a new comprehensive, international framework for how multinational companies are taxed”. But they note: “As this multilateral process is advancing, some countries are considering going it alone, imposing new taxes on foreign companies. Without a new, comprehensive and multilateral agreement, countries might simply impose discriminatory unilateral taxes on foreign firms in various sectors.”
For its part, US officials continue to signal support for the OECD-led effort, with a Treasury official suggesting that certain exporting and headquarters jurisdictions may have to accept modest loss of taxing rights to other jurisdictions, and slightly higher overall global tax burdens, to reach a consensus. However, they also want to avoid significant new foreign taxes on America firms and are urging nations pursuing digital services taxes, like France and the UK, to defer action until the expected conclusion of the OECD process in 2020.
The IMF and OECD jointly prepared and released in June the 2019 Progress Report on Tax Certainty. It highlights a shifting focus from dispute resolution to dispute, as well as the need for improvements to the efficiency and accountability of tax administrations. The OECD also published a new Money Laundering and Terrorist Financing Handbook for Tax Examiners and Tax Auditors with updated money laundering indicators and new material aimed to increase detection and reporting of terrorist financing.
New treaty members
Since the last OECD Watch update, more nations have joined the various OECD tax initiatives. Dominica and Serbia became the 128th and 129th jurisdictions to join the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, the primary instrument for implementation of the AEOI standard.
Albania and Morocco became the 88th and 89th jurisdictions to join the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting, which allows jurisdictions to integrate results from the BEPS Project into their existing networks of bilateral tax treaties. The United Arab Emirates, the Russian Federation, and India deposited instruments of ratification for the same. And Gibraltar became the 130th jurisdiction to join the Inclusive Framework on BEPS.
This news illustrates an interesting dynamic regarding the OECD’s many tax initiatives.
Currently, there are projects that are decades old that still require developing nations to devote significant resources toward compliance. At the same time, new projects are being undertaken every few years, the latest of which promises a dramatic reordering of the global tax system. Keeping these overlapping initiatives from conflicting will get ever more complex as their numbers increase, as will the costs for developing nations seeking greater participation in the global economic community. Eventually, something may have to give.