9.6.2021

OECD Tax Talk #18 - 4 March 2021

On 4 March 2021 the 18th OECD Tax Talk took place. The participants were Pascal Saint-Amans, David Bradbury, Stewart Brant, Sophie Chatel, Grace Perez-Navarro, Sarah Perret and Achim Pross. The agenda included an update on the general developments around the issue of taxation of the digital economy (BEPS 2.0).

Furthermore, the participants discussed, among other things, the implications of COVID-19 for the interpretation of DTAs and transfer pricing guidelines, the progress made in the implementation of BEPS action points by the countries and the topic of tax crime.

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Tax Challenges resulting from the digitalised economy

The ongoing OECD work programme has already been developing proposals for solutions to the tax challenges resulting from the digitalised economy for several years. The current proposals are based on two separate so-called pillars:

  • Under the so-called Pillar 1, the aim is to change the profit allocation mechanism and the local connecting factors for the establishment of a tax liability. The aim is to allocate a larger share of group profits to the market states for taxation. Newly group profits can also be taxed where they are generated without a physical market presence. This will inevitably lead to a shift in tax revenues from the countries where large corporations have their headquarters to the market countries (i.e. where the turnover or consumption is generated).
  • The so-called Pillar 2, on the other hand, aims at a worldwide minimum taxation, which is to be introduced for globally operating corporations.

Achim Pross briefly explained the most important results of the public consultations regarding pillar 1 and 2 in the OECD Tax Talk. With regard to pillar 1, all stakeholders expressed the view that a solution must be consensus-based in order to prevent international double taxation as far as possible. Unilateral measures by individual states should be avoided at all costs. In addition Achim Pross then discussed the individual political and technical problems that still exist. These can be summarised as followed:


International tax consultancy

Update on the G20 developments

On 26 February 2021, the G20 finance ministers and central bank heads met. Prior to the meeting, the new US Treasury Secretary Janet Yellen sent an official letter to her G20 colleagues recognising the importance of negotiating the two pillars to the BEPS 2.0 project.

In the meantime, a political consensus on global corporate taxation was reached on 5 June 2021 at the meeting of the G7 countries in London. On the one hand, the participating states are said to have agreed on the principles regarding Pillar 1. In addition, a global minimum tax (Pillar 2) is planned, which should not be less than 15 percent. The next hurdle for the implementation of the BEPS 2.0 project will be the G20 ministerial meeting in July 2021.

COVID 19 response on tax treaties and transfer pricing

The OECD also provided an update at the Tax Talks on 4 March 2021 on the OECD's responses to the specific questions around the interpretation of DTAs and transfer pricing guidelines that have arisen as a result of the Covid 19 pandemic. In April 2020, the OECD, together with a number of countries, produced an initial set of guidelines on the interpretation of DTAs in the context of Covid-19 in order to provide more tax certainty. The guidance sheds light on the interpretation of DTAs around three topics:

  • Operating sites;
  • Residency;
  • Earned income.

In December 2020, the OECD also published guidance on the transfer pricing implications of Covid-19. The guidance illustrates the practical application of the arm's length principle in relation to the challenges posed by the Covid-19 pandemic. The accompanying OECD report with further details and guidance is available at the following link.

Implementation of the BEPS measures

Despite the constraints of the ongoing pandemic, the Inclusive Framework continued to make progress in implementing the four BEPS minimum standards. The implementation of Action Point 5 (Combating Harmful Tax Practices) has progressed well, according to the OECD. Virtually all harmful regulations have either been amended or abolished. In 2021, the OECD Forum on Harmful Tax Practices (FHTP) will continue its reviews of preferential regimes and peer reviews of tax rulings. Regarding Action Point 6 (prevention of treaty abuse), the key instrument for implementing the minimum standard, the Multilateral Convention on the Implementation of Tax Treaty Measures to Prevent BEPS (MLI), has been signed by 95 jurisdictions to date. With regard to Action Point 13 (transfer pricing documentation and country-by-country (CbC) reporting), the report notes that over 90 jurisdictions have already introduced these obligations. With regard to BEPS-Action Point 14 (Improving Mutual Agreement Procedures (MAP)), the report describes that countries are updating their DTAs and have greatly improved their MAP frameworks. For example, tax administrations have received more resources to effectively improve the speed and quality of MAPs.

Tax crime

On 25 February 2021, the OECD published a report highlighting the harmful role of professional intermediaries who facilitate tax evasion and other financial crimes for their clients. The professional intermediaries targeted include lawyers, accountants, notaries, financial institutions, trust companies, corporate service providers and in the field of crypto assets, also operators of black markets on the dark web. The spectrum of such criminal support acts is broad. Such acts can include, for example, the setting up of trust or offshore structures for the purpose of diluting the right to use assets, as well as the simple falsification of documents for the purpose of tax evasion.

To curb tax crime, the OECD recommends a multi-pronged approach. First, tax crime investigators need to be properly trained to ensure that they can identify professional intermediaries. Next, effective legislation is needed so that professional intermediaries can be prosecuted. Governments must also ensure a coherent and multidisciplinary strategy and strengthen the role of supervisory bodies. Increased cooperation is needed at both the national and international levels. The OECD proposes that countries appoint a lead person or agency to oversee the implementation of this strategy. The corresponding OECD report with further details and references can be found at the following link.

Tax Talk #18 can be listened to again in full at the following link.

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Authors
:
Livio Bucher
Tags:
BEPS
International Taxation
Covid-19