Daily Tax Report: International

Details of OECD Digital Tax Plan Taking Shape (Corrected)

July 22, 2020, 4:34 PM; Updated: July 23, 2020, 2:16 PM

The OECD’s digital tax overhaul will address corporate losses as well as profits, an organization official said.

“There’s a very broad support for computing these rules applying the same types of computational rules to both profits and losses,” Grace Perez-Navarro, deputy director of the OECD’s Center for Tax Policy and Administration, said in a Wednesday webcast hosted by the organization.

The announcement is welcome news to the businesses that have fretted that plans under development wouldn’t acknowledge their losses, a concern that is especially acute amid the coronavirus-induced downturn. Profit-allocation rules would attribute a slice of corporate profits to the market jurisdictions where companies have users or consumers.

The Organization for Economic Cooperation and Development has been trying to get nearly 140 countries to agree to a rewrite of how the digital economy is taxed. The effort is driven by concerns that multinationals, especially tech giants like Facebook Inc. and Amazon.com Inc., aren’t paying enough taxes in the countries where they have customers and users.

Pillar One of the plan—which has been the most politically fraught—would reallocate some of multinationals’ profits to the jurisdictions where they have users or consumers and simplify existing transfer-pricing rules. Pillar Two would establish a global minimum tax to address tax competition between countries.

Countries are also trying to reach agreement on and considering “how to treat profit shortfalls, how to treat pre-regime losses, and how far losses can be carried forward,” Perez-Navarro said.

On Amount A, “the big political questions are the scope and the quantum, so those decisions will come much later,” she said.

Dispute Resolution Panels

The OECD is moving forward on another area of concern for companies: How to ensure the resolution of disputes between countries and companies over how much tax is owed in a jurisdiction under the new rules.

The OECD is developing a “two-phase process, using panels with an initial determination process,” where a second panel will make the decision if a first panel isn’t able to agree, Perez-Navarro said.

The aim is “to ensure there will be finality and a binding decision,” she said.

Binding dispute resolution is another of the politically contentious issues in the new rules: Some developing countries oppose it, while companies and some large economies say it must be built into the new rules.

Next Steps

The OECD will present “blueprints” by October, Pascal Saint-Amans, the OECD’s top tax official, said on the same webcast.

Those blueprints “will provide the technical details of features of the unified approach for Pillar One and Pillar Two,” he said. “These should be as close as possible to the document to be agreed by the ministers.”

The G20 finance ministers—who met last weekend—told the OECD the G20 remains committed to reaching a solution by the end of 2020, Saint-Amans said.

But he cautioned that reaching consensus wouldn’t be easy.

“I think we need to be realistic,” Saint-Amans said. “As much as we welcome the G20 telling us that they hope to have an agreement by year-end, and they aim to have an agreement by year-end, we have to recognize there are a number of pending issues,” including how broadly Pillar One will apply, he said.

—With assistance from Hamza Ali.

(Corrects Perez-Navarro's comments in first paragraph of July 22 story.)

To contact the reporter on this story: Isabel Gottlieb in Washington at igottlieb@bloombergtax.com

To contact the editors responsible for this story: Meg Shreve at mshreve@bloombergtax.com; David Jolly at djolly@bloombergindustry.com

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