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US suggests safe harbour regime for OECD pillar one proposal

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US Treasury secretary, Steven Mnuchin, wrote to the OECD secretary-general on 3 December suggesting a ‘safe-harbour regime’ in place of the OECD’s pillar one proposal for reform of international tax rules for multinationals.

Referring to the ‘unified approach’ to profit allocation and nexus rules under pillar one, Mnuchin expressed ‘serious concerns regarding potential mandatory departures from arm’s-length transfer pricing and taxable nexus standards’. These were ‘long-standing pillars of the international tax system upon which US taxpayers rely’, he added.

Instead, Mnuchin suggested the pillar one goals could be achieved by making it a ‘safe-harbour regime’, meaning companies should be able to opt into or out of the ‘unified approach’ under pillar one, provided they abide by some other agreed measure.

French Finance Minister, Bruno Le Maire, rejected the idea of making pillar one optional. CIOT president, Glyn Fullelove, described Mr Mnuchin’s suggestion as ‘somewhat enigmatic’, without any further detail around what such a regime might look like.

The letter confirmed US support for the pillar two solution, which concentrates on a global minimum effective rate of taxation. It also reinforced the importance to the US of a multilateral solution to prevent the ‘proliferation’ of unilateral measures, such as revenue-based digital services taxes. In Europe alone, 15 countries are believed to be considering a digital services tax.

‘The United States firmly opposes digital services taxes because they have a discriminatory impact on US-based businesses’, Mr Mnuchin said.

‘We urge all countries to suspend digital services tax initiatives, in order to allow the OECD to successfully reach a multilateral agreement’, the letter added.

The OECD secretary-general, Angel Gurría, replied on 4 December, noting that throughout the consultation process, ‘we had so far not come across the notion that pillar one could be a safe-harbour regime’. Gurría expressed concern that introducing the idea at this point could make it difficult for the 135 countries participating in the process ‘to move forward within the tight deadlines we established collectively in the inclusive forum’. The letter invited Mr Mnuchin to discussions at the OECD in Paris ‘ideally before Christmas’.

Glyn Fullelove commented that agreement on pillar one was vital, ‘otherwise we will see full on tax wars with a proliferation of DSTs and counter-measures from the US and possibly others. Accordingly, it is to be hoped that the US will accept the OECD’s offer of further discussions before Christmas’.

Issue: 1469
Categories: News