Finding agreement on such an immensely sensitive political matter in the midst of a global pandemic with limited time and the eyes of the world on us... This was a once-in-a-generation achievement, and the culmination of almost 13 years of work, dating back to the 2008 global financial crisis. By the end of 2020, we had reached a stalemate after the previous US administration suggested companies would choose whether or not to be in scope of a solution (known as the safe harbour). As a result, there was no way of knowing whether we would reach a resolution this time last year. Some countries were facing trade sanctions and others were introducing new digital services taxes, which were making it even harder to reach a deal. Then, in January 2021, the new US administration unlocked negotiations – in part by removing the safe harbour proposal – and negotiations took off, leaving us with only a couple of months to find a solution. While the significant public and media attention on our work was helpful, it made the stakes even higher. Finding agreement between 137 different countries and jurisdictions was never a given – in fact, many thought it impossible.
It is imperative that we now build legal instruments, including model rules and a multilateral instrument, to implement the agreement. As part of the deal reached last October, 137 members of the Inclusive Framework also agreed a detailed implementation plan, which set out the timeframe for the implementation of each part of the agreement. During 2022, you can expect to see concrete moves towards implementation by countries and regions.
Right now, we are on track to implement by 2023. The first step in the detailed implementation plan was to agree the model global anti-base erosion (GloBE) rules to implement the pillar two minimum tax, and they were agreed last November in line with the implementation plan timing. The EU Commission has since published a draft directive to implement the minimum tax across the EU, based on the model rules. The next step is to agree the commentary to the model rules, which is also in hand. Whatever happens, I cannot see us going backwards. Countries representing over 94% of global GDP have come together to cooperate, rather than act unilaterally. We have turned a corner, and we are finally bringing the international tax system into the 21st century.
The Inclusive Framework has agreed that countries who have committed to the deal applying nominal corporate tax rates below 9% to interest, royalties and a defined set of other payments will now implement the STTR in their bilateral treaties when requested by a developing country. Work on the development of a model STTR treaty provision is advanced and will be released for public consultation later this year.
Naturally we are keeping a watchful eye on developments across the pond, but the debate within the US Congress will be resolved domestically and we all just have to wait and see what the outcome is. Once we have more clarity in the coming weeks, we will be able to revisit how the US GILTI regime will co-exist with the GloBE rules, which have been designed to ensure that if one jurisdiction does not apply the new top-up tax, other jurisdictions will do so. Since the agreement was reached last October, we have seen a number of countries move fast to introduce the minimum tax into their own domestic regime. The EU Commission has already proposed a directive drawing on the model rules adopted in December. The UK has launched a public consultation on P2 implementation. Even Switzerland has just announced changes to its Constitution to implement a minimum effective tax of 15%, which shows how serious countries are about the swift implementation of this deal.
Well, we certainly don’t rest on our laurels in the OECD, or in the Inclusive Framework. We have other exciting work in the pipeline, including covering crypto-assets with information exchange and developing analytical policy tools on tax and gender, but the next big project is on carbon pricing. We are seeing whether we can replicate the success we have had in international tax reform in the environment space. The link between tax and climate change is the price of carbon and current pricing is nowhere near high enough.
Good question! We have worked hard to ensure that the Inclusive Framework lives up to its name, and that each member has equal footing. However, not all countries have equal capacity. The pace of change in the international tax architecture has been rapid over the past decade and many lower capacity administrations remain on a steep learning curve. We have a team at the OECD dedicated to capacity building, and we are presently gearing up our technical assistance work for developing and emerging economy Inclusive Framework members as we head into the implementation phase of the October agreement.
In my former life, I published a book on energy regulation and EDF (the French multinational electric utility company) under a pseudonym, following a stint as the financial director of the French Energy Regulatory Commission.
Finding agreement on such an immensely sensitive political matter in the midst of a global pandemic with limited time and the eyes of the world on us... This was a once-in-a-generation achievement, and the culmination of almost 13 years of work, dating back to the 2008 global financial crisis. By the end of 2020, we had reached a stalemate after the previous US administration suggested companies would choose whether or not to be in scope of a solution (known as the safe harbour). As a result, there was no way of knowing whether we would reach a resolution this time last year. Some countries were facing trade sanctions and others were introducing new digital services taxes, which were making it even harder to reach a deal. Then, in January 2021, the new US administration unlocked negotiations – in part by removing the safe harbour proposal – and negotiations took off, leaving us with only a couple of months to find a solution. While the significant public and media attention on our work was helpful, it made the stakes even higher. Finding agreement between 137 different countries and jurisdictions was never a given – in fact, many thought it impossible.
It is imperative that we now build legal instruments, including model rules and a multilateral instrument, to implement the agreement. As part of the deal reached last October, 137 members of the Inclusive Framework also agreed a detailed implementation plan, which set out the timeframe for the implementation of each part of the agreement. During 2022, you can expect to see concrete moves towards implementation by countries and regions.
Right now, we are on track to implement by 2023. The first step in the detailed implementation plan was to agree the model global anti-base erosion (GloBE) rules to implement the pillar two minimum tax, and they were agreed last November in line with the implementation plan timing. The EU Commission has since published a draft directive to implement the minimum tax across the EU, based on the model rules. The next step is to agree the commentary to the model rules, which is also in hand. Whatever happens, I cannot see us going backwards. Countries representing over 94% of global GDP have come together to cooperate, rather than act unilaterally. We have turned a corner, and we are finally bringing the international tax system into the 21st century.
The Inclusive Framework has agreed that countries who have committed to the deal applying nominal corporate tax rates below 9% to interest, royalties and a defined set of other payments will now implement the STTR in their bilateral treaties when requested by a developing country. Work on the development of a model STTR treaty provision is advanced and will be released for public consultation later this year.
Naturally we are keeping a watchful eye on developments across the pond, but the debate within the US Congress will be resolved domestically and we all just have to wait and see what the outcome is. Once we have more clarity in the coming weeks, we will be able to revisit how the US GILTI regime will co-exist with the GloBE rules, which have been designed to ensure that if one jurisdiction does not apply the new top-up tax, other jurisdictions will do so. Since the agreement was reached last October, we have seen a number of countries move fast to introduce the minimum tax into their own domestic regime. The EU Commission has already proposed a directive drawing on the model rules adopted in December. The UK has launched a public consultation on P2 implementation. Even Switzerland has just announced changes to its Constitution to implement a minimum effective tax of 15%, which shows how serious countries are about the swift implementation of this deal.
Well, we certainly don’t rest on our laurels in the OECD, or in the Inclusive Framework. We have other exciting work in the pipeline, including covering crypto-assets with information exchange and developing analytical policy tools on tax and gender, but the next big project is on carbon pricing. We are seeing whether we can replicate the success we have had in international tax reform in the environment space. The link between tax and climate change is the price of carbon and current pricing is nowhere near high enough.
Good question! We have worked hard to ensure that the Inclusive Framework lives up to its name, and that each member has equal footing. However, not all countries have equal capacity. The pace of change in the international tax architecture has been rapid over the past decade and many lower capacity administrations remain on a steep learning curve. We have a team at the OECD dedicated to capacity building, and we are presently gearing up our technical assistance work for developing and emerging economy Inclusive Framework members as we head into the implementation phase of the October agreement.
In my former life, I published a book on energy regulation and EDF (the French multinational electric utility company) under a pseudonym, following a stint as the financial director of the French Energy Regulatory Commission.
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