We have submitted comments to the OECD on the consultation draft proposals to provide tax certainty for Amount A of Pillar One.

10 June 2022

Summary

The best way of achieving tax certainty is to formulate rules that are simple, clear and objective. The design of Amount A is a major step forward, since it will allocate a portion of the global consolidated profits of multinational enterprises (MNEs) by a formulaic method, in contrast with the current rules. However, Pillar One is designed as an exceptional system that would apply to only a small part of the profits of only around one hundred of the largest and most profitable MNEs, retaining the current defective transfer pricing rules for all other purposes.

For Amount A itself, the small number of MNEs likely to be in scope should make it easier to roll out the system through administrative arrangements coordinated among the tax authorities concerned. Its design makes it easier to provide certainty through administrative arrangements that could and should involve only tax officials. We support the composition suggested in this draft for Review Panels, as well as the Government-Only option for Determination Panels, which provides an appropriate balance of officials from states that would benefit and those that would lose from an Amount A allocation. It is inappropriate, unnecessary, and we believe detrimental to include non-governmental experts, who would inevitably and overwhelmingly be current or retired business advisers who could not be truly independent.

Uncertainty will nevertheless be created in the short run because of the novelty of the system. It should now be recognised that the timescale for Pillar One has been far too ambitious, and to recalibrate the process. The proposals have been developed at great speed and largely under strict secrecy, and they require more effective participation of tax officials particularly from poorer countries, and much greater public scrutiny. A more careful process should aim to design the building blocks for a new approach to taxation of MNEs that could eventually be applied much more widely.

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We have submitted comments to the public consultation on the Implementation Framework for the Global Minimum Tax.

Summary

The agreement on measures to end international tax competition is a historic feat of international cooperation. However, its main component, the global anti-base erosion tax (the GloBE) has serious flaws. Implementation must respect states’ tax sovereignty, and each country must decide after a full democratic debate whether to adopt the GloBE, and if so how to incorporate its rules into national law. In our view most low-income countries will not implement the GloBE itself, partly due to its complexity, but above all because of the bias in its rules in favour of the home countries of multinational enterprises (MNEs). This gives lowest priority to taxation of profits at source, where they arise, by MNE host countries, disadvantaging low-income countries which generally are only hosts to MNEs.

Nevertheless, adoption of the GloBE could benefit all countries, provided that it is not implemented in a way that reinforces this unfair bias. Ensuring that all profits will be taxed at least at the minimum rate should enable and encourage all countries to end unsuitable tax incentives to MNEs and adopt appropriate measures to strengthen source taxation. These measures should not be limited to those provided in the GloBE itself. For those participating in the scheme, they need only be compatible with the GloBE outcomes, while those not participating should be allowed and encouraged to adopt any measures they consider suitable, particularly to prevent the shifting of profits out of countries that are hosts to MNEs. The aims of the GloBE should be clearly stated as enabling MNEs to be taxed where they have real economic activities, and ending the secular decline of corporate taxation that damages all countries in the long run.

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We here publish the comments we submitted on the draft model rules for tax base determinations released by the OECD Secretariat on 18 February 2022 for public consultation, in the continuing work to address the tax challenges of the digitalised economy by the Task Force on the Digital Economy (TFDE) set up by the G20/OECD Inclusive Framework on BEPS.

While technical in nature, these rules have potentially far-reaching policy implications. Although the scope of application of these new rules is currently very small, limited to the 100 largest and most profitable multinational enterprises, they provide building blocks for new rules that could finally ensure taxation of multinational corporate groups in accordance with the economic reality that they operate as unitary enterprises. The tax base determination rules would establish an agreed approach for adjusting the consolidated accounts that MNE corporate groups already produce for financial accounting to make them suitable for tax reporting purposes.

Hence, it is important that they should be designed to enable the eventual more comprehensive global adoption of this new approach, and that there should be adequate public debate of the design of these new rules. Since the intention is to ensure adoption of these rules by a large number of countries with little or no further opportunity for modification, it is particularly important that these public consultations should be conducted in a way that facilitates wide participation before the rules are finalised.

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We here publish the comments we submitted on the draft model rules on nexus and revenue sourcing, released by the OECD Secretariat for public consultation, in the continuing work to address the tax challenges of the digitalised economy by the Task Force on the Digital Economy (TFDE) set up by the G20/OECD Inclusive Framework on BEPS.

These detailed technical rules for identifying the source of sales would be used in determining which countries would be eligible for an allocation of taxing rights, in respect of around one hundred of the biggest and most profitable multinationals, over so-called Amount A, which is 25% of the ‘residual’ profits, defined as profit in excess of 10% of revenue.

18 February 2022

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At this critical moment in negotiations to reform international tax rules, the G24 lower-income countries have published their views on the proposals, which we consider state what is needed for an acceptable and durable agreement to be reached. Our analysis of the key components of a possible final package shows the importance of the points made by the G24, and why lower-income countries should not be pressurised into accepting rules that would damage them, and prevent any further progress towards more comprehensive and effective reforms.

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We provide here our analysis of the proposals in the Statement published 1 July 2021 by the OECD from the Inclusive Framework on BEPS for addressing the tax challenges arising from digitalisation of the economy. We hope that this will help inform public debate and the continuing negotiations.

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We publish here a statement made to the FISC Subcommittee of the European Parliament made by Sol Picciotto. coordinator of the BMG. It outlines how a strong global corporate minimum tax could benefit almost all states, including all EU member states, by increasing corporate tax revenues and ending the beggar-thy-neighbour race to the bottom in corporate tax rates.

It urges all states, and the EU as a bloc, to support the proposals from the Biden administration for such a strong tax, at a minimum rate of at least 21%, which could be ensured by modifying the OECD proposed global anti-base-erosion tax (GLOBE), to allocate undertaxed profits fairly between states based on a formula reflecting each multinational’s real activities in each state, as outlined in our proposal for a minimum effective tax rate for multinationals (METR). A new paper on the METR includes economic impact assessments for countries, showing that almost all would benefit, losses would be limited to a few with average per capita GDP over $40,000.

Implementation by the EU should follow the dual approach proposed by the Commission in 2018, applying this formulaic minimum tax to non-EU countries while introducing within the EU a common consolidated corporate tax base (CCCTB).

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We have submitted comments to the UN Tax Committee’s consultation on a discussion draft to revise the Royalties article to clarify its application to software. Unfortunately, in our view the draft is seriously defective, since it is based on and would perpetuate a confused and misleading understanding of copyright introduced in 1992 in the OECD Commentary. This interpretation was rejected by many states, many of which have chosen to clarify their actual treaties by including a specific mention of computer programs as examples of copyright work. This draft proposes a different approach which could have retroactive effects on these treaties and deprive many states of taxing rights. We urge the Committee to adopt instead a simple clarification of the model based on these existing treaties. To contribute to a rapid conclusion of this work we provide a draft for five paragraphs of Commentary to accomplish this task.

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