OECD Tax Talk #15 - 4 May 2020

On 31 January it was announced that the next Tax Talk would not take place until July. The reason for the premature webinar is the COVID-19 crisis. Thus the meeting focused on the current work in the light of the crisis and the continuation of existing projects of the CTPA, Centre for Tax Policy and Administration. In particular the international tax implications of the corona virus have been studied by the OECD. This resulted in a COVID-19-Hub and various publications, which we will take a closer look at in the following.

OECD publications concerning the corona crisis

Overview targeted tax policy/tax administration measures and database release (23.03.2020) and summary of the measures taken by the Forum on Tax Administration (31.03.2020)

In order to be able to support taxpayers on a global level, the tax authorities are deciding on international measures in addition to national ones. However, these can be vary form state to state. In principle, the focus for natural persons is always on avoiding financial hardship and reducing existing financial burdens. A summary of possible measures to achieve these goals can be seen in the following diagram.

In the case of legal entities, the focus is on securing cash flow and the continuation of business activities in compliance with security regulations. The most important topics are summarized in the figure below.

The COVID-19-related Tax Measures Database, which forms the basis for the G20 Report, is presented by Bert Brys. The aim of the database is to inform countries about the measures taken by other states, to identify trends early on and formulate general advice on measures. As of 4 May 2020, the table includes the short-term measures taken, the planned long-term measures in the form of exit strategies and fiscal measures to mitigate the coming recession. The OECD database already contains information on more than 100 countries and is constantly being updated.

Recommendations for cross-border workers and other cross-border relations (03.04.2020)

Especially international activities and circumstances pose challenges to states with regard to taxation and the scope of tax regulations. If income is taxed at the place where the service is provided, as stated in many double taxation agreements, it is unclear whether this place is temporarily moved if cross-border commuters now work from home. In order to solve this problem internationally, the OECD is working with a wide range of countries to develop cooperative taxation options.

Sophie Chatel further explains that the same challenge also affects legal entities. Because strictly speaking, the seat of a company is at the place of actual management. In this case, as well as in the case of possible changes of residence with regard to tax liability, it is advised not to undertake any temporary adjustment, for the sake of simplicity.

Lastly, the transfer pricing of multinational companies is addressed here. Because even if the holes in the state bank must be filled again, the aim remains to avoid international double taxation whilst also maintaining taxation security. It must therefore be ensured that the affected companies are not fully taxed in all countries of activity. The Inclusive Framework is working out the general guidelines that address this problem. Inputs from the stakeholders concerned are welcome.

Advice on the continuation of businesses - "Business Continutiy Considerations" (07.04.2020)

The continuation of business activities during the lockdown and its easing, whether from home or the actual workplace, is essential for the fast recovery of the global economy. This is the only way to keep the coming recession to a minimum and secure as many jobs as possible. Nevertheless, there are some uncertainties here as well in relation to the post-pandemic period. In particular, whether the previously temporary installations, such as working from home, will become permanent. The OECD represents the view that the measures taken during this extraordinary situation should not become part of everyday life. They stress that the work should be carried out in the way it was before the pandemic.

G20 Report - tax and fiscal policy in connection with the corona pandemic (15.04.2020)

This report was prepared at the request of Mohammed al-Djadan, Finance Minister of Saudi Arabia and G20 Chairman. The report takes stock of the emergency measures taken by countries worldwide. Based on this stocktaking, possible further procedures are planned. The following figure shows that the primary focus of the world is on emergency aid. With the successfully flattened curve, it is now also important to consider how planned measures, especially longer-term ones, can contribute to the recovery of the economy. Only with strengthened resilience and a targeted debt management can states be supported in the long term. Sarah Perret stresses that this does not necessarily have to be a linear process, as the danger of a second wave will continue to exist.

In order for the economy to recover at the global level, the fiscal authorities should provide sustainable, demand-driven, targeted and globally coordinated stimuli without fixing them too quickly, as the crisis can develop volatilely. Since we live in an enormously globalized world, the measures can only be taken efficiently if they are internationally coordinated. So the idea is to develop an international Marshall Plan.

It should also be noted that this crisis offers an opportunity. For now states can work towards a resilient-oriented future, whereby, among other things health, climate, biodiversity and global value chains can be supported. Care should therefore be taken to ensure that the state banks are filled in an efficient and also climatepolitically meaningful way.

Continuation of other OECD projects

Tax Transparency from the Global Forum

With the rapid growth of digital platforms, the shift from traditional employment to self-employment and the further development of crypto currencies and the FinTech sector, the need for transparency is also increasing. Thanks to compliance, the tax authorities should be able to access information that was previously concealed in order to to secure taxation opportunities. The Global Forum continues to work on the automatic exchange of information and also supports developing countries and their authorities in increasing data processing capacities.

Taxation of the digital economy - BEPS

Reaching consensus has never been more important than now, as the efficient application of taxes in the digital economy could be a key factor in overcoming this crisis. In order to be able to cushion the consequences of the corona crisis as efficiently as possible, it is essential to find a solution as soon as possible. Under current circumstances, the OECD hopes that a consensus wil be reached more quickly. Nevertheless, nothing should be rushed in order to avoid possible trade conflicts. The aim is to be able to present the solutions by the end of 2020. So the regular timetable should be adhered to. However, the meeting of the Inclusive Framework in July in Berlin will will certainly not take place. Instead, there will probably be a virtual update on the current status of developments. A more extensive meeting will take place in October, but the complete package will most likely not be ready by then.

The OECD further believes that pillar 1 and 2 will generate substantial global revenues and greatly reduce international profit shifting. Important is a quick solution, as digital companies are among the few that have been able to profit significantly from this crisis. Accordingly, the pillar 1 was further elaborated. The aim is to publish a definitive version by the end of summer and to incorporate the opinions of stakeholders. The current status is shown in the following figure:

Pillar 2 was broken down into further components. The current status is as follows:

Action 13: The minimum standard must still be revised by 2020. The public consultation with MNEs, NGOs and other stakeholders was moved from March to May. This is to discuss and improve the application of the standards. Further changes may be necessary in order to continue the work on pillar 1 and 2 and to better assess the limitations of country-by-country reporting.

Action 14: The MAP, mutual agreement procedure, aims to avoid double taxation while providing tax security. Further clarifications of the standards, methodology and statistical framework will take place in the course of 2020. A public consultation might take place later in 2020.