The OECD’s latest economic analysis of the two-pillar solution under discussion for taxation of the digitalised economy puts the combined effect at up to 4% of global corporate income tax revenues annually (around $100bn), mainly due to the effects of new global anti-base erosion rules in pillar two. The reallocation of taxing rights in pillar one would bring a small tax revenue gain for most jurisdictions (mainly to low and middle-income economies). More than half of the residual profit reallocated under pillar one will come from 100 multinational groups.
The OECD stresses that the assumptions in the preliminary analysis are illustrative and intended to inform the decisions of the 137 members of the inclusive framework, who have yet to agree on a settled position. Although the final pillar one design is still to be finalised, the analysis considers Amount A (the new taxing right and reallocation of residual profit), but does not take into account Amounts B or C (returns for marketing and distribution activities). The estimates also assume that pillar one will be mandatory, rather than a ‘safe harbour’ regime.
The OECD has not yet released information at the country level, although the modelling has been done and shared with the countries concerned. Instead, the figures show the impact on particular jurisdiction groups (high, middle, low income economies) and on investment hubs (jurisdictions with inward foreign direct investment above 150% of GDP).
Zoe Andrews of Slaughter and May commented that while the 4% increase in global corporate income tax might look attractive to the inclusive framework countries when contrasted with further unilateral digital services taxes, ‘the real test will be whether, once the design and parameters of reform are firmed up and more granular results are released showing the impact at the country level, those countries set to lose out still see the package as an attractive one’.
A key next step will be the G20 meeting in Berlin on 1-2 July, at which the inclusive framework intends to reach agreement on the key policy features of the two-pillar proposal.
The economic analysis and impact assessment take up a large part of the OECD secretary-general’s latest international tax report to the forthcoming meeting of G20 finance ministers and central bank governors to be held in Riyadh on 22 and 23 February.
The report is in two parts. Part I covers progress on taxation of the digitalised economy (annex A), together with updates on jurisdictions that have not satisfactorily implemented the tax transparency standards (annex B), implementation of BEPS measures, and capacity building in developing countries.
Annex B provides a progress report on jurisdictions that have not satisfactorily implemented the tax transparency standards on exchange of information on request (EIOR) and automatic exchange of information (AEOI). Currently only five jurisdictions (Brunei Darussalam, Dominica, Niue, Sint Maarten and Trinidad and Tobago) are failing to comply with the standards. Two jurisdictions (Vanuatu and Montserrat) have complied with the standards since October 2019.
Part II sets out progress on delivering effective EIOR, including beneficial ownership information, and AEOI. Three Annexes cover participation in the multilateral convention on mutual administrative assistance in tax matters (annex C), overall EOIR ratings of the global forum members (annex D) and AEOI implementation and commitments (annex E).
The OECD’s latest economic analysis of the two-pillar solution under discussion for taxation of the digitalised economy puts the combined effect at up to 4% of global corporate income tax revenues annually (around $100bn), mainly due to the effects of new global anti-base erosion rules in pillar two. The reallocation of taxing rights in pillar one would bring a small tax revenue gain for most jurisdictions (mainly to low and middle-income economies). More than half of the residual profit reallocated under pillar one will come from 100 multinational groups.
The OECD stresses that the assumptions in the preliminary analysis are illustrative and intended to inform the decisions of the 137 members of the inclusive framework, who have yet to agree on a settled position. Although the final pillar one design is still to be finalised, the analysis considers Amount A (the new taxing right and reallocation of residual profit), but does not take into account Amounts B or C (returns for marketing and distribution activities). The estimates also assume that pillar one will be mandatory, rather than a ‘safe harbour’ regime.
The OECD has not yet released information at the country level, although the modelling has been done and shared with the countries concerned. Instead, the figures show the impact on particular jurisdiction groups (high, middle, low income economies) and on investment hubs (jurisdictions with inward foreign direct investment above 150% of GDP).
Zoe Andrews of Slaughter and May commented that while the 4% increase in global corporate income tax might look attractive to the inclusive framework countries when contrasted with further unilateral digital services taxes, ‘the real test will be whether, once the design and parameters of reform are firmed up and more granular results are released showing the impact at the country level, those countries set to lose out still see the package as an attractive one’.
A key next step will be the G20 meeting in Berlin on 1-2 July, at which the inclusive framework intends to reach agreement on the key policy features of the two-pillar proposal.
The economic analysis and impact assessment take up a large part of the OECD secretary-general’s latest international tax report to the forthcoming meeting of G20 finance ministers and central bank governors to be held in Riyadh on 22 and 23 February.
The report is in two parts. Part I covers progress on taxation of the digitalised economy (annex A), together with updates on jurisdictions that have not satisfactorily implemented the tax transparency standards (annex B), implementation of BEPS measures, and capacity building in developing countries.
Annex B provides a progress report on jurisdictions that have not satisfactorily implemented the tax transparency standards on exchange of information on request (EIOR) and automatic exchange of information (AEOI). Currently only five jurisdictions (Brunei Darussalam, Dominica, Niue, Sint Maarten and Trinidad and Tobago) are failing to comply with the standards. Two jurisdictions (Vanuatu and Montserrat) have complied with the standards since October 2019.
Part II sets out progress on delivering effective EIOR, including beneficial ownership information, and AEOI. Three Annexes cover participation in the multilateral convention on mutual administrative assistance in tax matters (annex C), overall EOIR ratings of the global forum members (annex D) and AEOI implementation and commitments (annex E).
