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Daily Tax Report: International

OECD Roundup: Global Tax Rewrite Focus Moves to July Deadline

Jan. 31, 2020, 8:35 PM

This is a roundup of Bloomberg Tax’s coverage of this week’s negotiations on an Organization for Economic Cooperation and Development-led effort to revamp the global tax system.

The OECD is pushing ahead with an effort to overhaul how the digital economy is taxed, according to a statement today from the nearly 140 countries involved in the process.

The plan, which could upend decades-old rules that have determined how multinationals are taxed, is driven by concerns that multinationals, especially tech giants like Facebook Inc. and Amazon.com Inc., aren’t paying enough taxes or in the right countries.

The OECD will ask the Group of 20’s finance ministers to endorse today’s plan at a meeting next month in Saudi Arabia.

Negotiators are eyeing a July deadline to start filling in some key details as they work to reach agreement by the end of the year.

“We have a very ambitious timeline to develop all of this technically by July,” Pascal Saint-Amans, director of the OECD’s Center for Tax Policy and Administration, said at a press conference in Paris.

The OECD gave hints on where the technical discussion is going. Negotiators handed some industries early assurances they’ll be exempt from parts of the plan, and the U.S. also got a promise that countries will revisit a controversial U.S. proposal to create a “safe harbor.”

Tensions over a U.S.-France fight over a 3% French digital services tax are on the back burner for now but Saint-Amans made it clear that the OECD’s work is coming at a critical moment. If negotiators can’t agree to a plan, countries will continue to pursue unilateral measures.

Saint-Amans acknowledged that the talks were moving rapidly, but said the situation was urgent. “What is at stake is a massive trade war,” he said.

French Finance Minister Bruno Le Maire, a vocal critic of the U.S.'s safe harbor proposal, said he was pleased with the OECD’s progress so far, but called for an ambitious final agreement by the end of the year.

Read more about the political stakes.

Financial Services Exemptions

Some industries got a big promise Friday: They won’t get hit by a part of the plan aimed at giving more countries the right to tax the profits of multinationals with consumers and users within their borders.

The OECD in October proposed applying part of Pillar One known as Amount A to only “consumer-facing” companies—a move that could impact a wide range of industries because the term isn’t clearly defined. Businesses have warned they could be unintentionally hit.

But the countries agreed that the plan should exempt financial services—like insurance and possibly retail banks—along with mining, shipping, and some professional services. Negotiators are still considering if they should also exempt less heavily regulated financial services companies as well as those with digital business models, like peer lending platforms.

Sectors that will still fall under the consumer-facing definition include retail companies, franchise business models, and “automated digital services” like search engines and social media.

Read more about exemptions here.

Global Minimum Rate

The OECD’s focus Friday fell on Pillar One, but it did give some clues that negotiators are facing some tension over a global minimum tax. The proposal, part of Pillar Two, also includes anti-abuse provisions.

Several countries have said they’d prefer to move forward with a plan that drops Pillar Two, Saint-Amans said.

The Czech Republic, Estonia, and Poland in European Union discussions have pushed for the rules to include an exception from Pillar Two for companies with economic substance in a jurisdiction. The EU is working on getting member states to agree to a unified position on the parts of the plan the bloc could support.

Read more about the minimum rate discussion here.

From the Archive

Jefferson VanderWolk of Squire Patton Boggs looked at the global tax rewrite effort in 2020. Read his Insight here.

Bloomberg Tax reporter Isabel Gottlieb talked about the digital tax debate with Talking Tax podcast host Siri Bulusu. Listen to their discussion here.

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; Vandana Mathur at vmathur@bloombergtax.com

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