27th January 2021
The need for a global and digital tax standard has become of increasing importance in recent months, with authorities seeking ways to better police tax payments for cross-border and online services. In fact, as we mentioned towards the end of last year, a number of jurisdictions – including the European Commission – revealed plans to take action themselves in 2021 if the Organisation for Economic Co-operation and Development (OECD) was unable to reach an agreement on an international corporate tax framework.
But earlier this month, the first of the OECD’s digital tax consultations began, and the discussion certainly proved interesting.
Pillar 1 and 2 blueprints
Before we go into the details of the consultation itself, we’ve outlined a bit of background. Back in October, the OECD released blueprints for pillar 1 and pillar 2 of its tax digitalisation and globalisation project. Pillar 1 focuses on the attribution of revenues to market jurisdictions while pillar 2 looks at the imposition of a minimum tax.
In these blueprints, the current consensus and outstanding issues in the Inclusive Framework of 137 countries were outlined to steer the discussions around setting and agreeing a global, digital tax standard.
The debate begins
On 14th and 15th January, a public digital tax consultation was launched to discuss the scope of the two pillars and agree next steps. The two-day debate saw representatives from firms including Netflix, Intercontinental Hotels Group, Amazon, Johnson & Johnson (J&J), Panasonic and Unilever join the discussions with tax representatives across the OECD and other global jurisdictions to share thoughts and concerns on the blueprints.
While the debate was certainly far ranging, there were a number of common themes that very quickly arose.
Much of the initial conversation centred around the complexity of some of the proposals, with many of the panel members calling for a simplification of the blueprints. In fact, Louise Weingrod, a representative from J&J, stated that the proposal is “unlikely to be sustainable” due to the level of complexity.
Other stakeholders involved in the discussions warned that a globalised digital tax agreement would be in jeopardy if simplicity isn’t achieved, with Janine Juggins, executive vice president of global tax and treasury at Unilever commenting that “complexity really is the common enemy.”
However, during the pillar 2 discussions, a number of commentators were keen to stress that simplicity should also come with ‘tax certainty’ as over-simplification could undermine the rules and provide ‘ways out’ for those looking to get around any framework.
Agreement that changes are needed
There was also a wider agreement from those involved that changes to global tax systems are needed. As Pascal Saint-Amans, director of the OECD’s Centre for Tax Policy and Administration, highlighted at the end of the two-day consultation:
“We’ve not heard anyone say that the international tax system is perfect, that’s a change. I think we can be optimistic. The main takeaways will be, of course, the discussion on how we can simplify pillar one.”
There was also an agreement that there needs to be co-operation and co-ordination across jurisdictions on pillar 2 in order to agree on the segmentation and scoping of an international framework. A number of participants further highlighted a phased implementation approach to pillar 2 would likely be the best option, allowing tweaks and amends as a framework is rolled out.
Further discussion needed
While there may have been agreement in some areas, there were also a fair number of conflicting views that will likely be brought into further consultations that will be taking place later in January. As a case in point, there was a general mixed view regarding the scope of pillar 1. According to a live report from the International Tax Review, “some stakeholders want a wider scope, whereas others want a much more narrow scope.”
While the OECD faces the unenviable task of taking this feedback on board and deciding what to take further when the Inclusive Framework convenes at the end of the month, it’s certainly clear that the debate will continue for some time.
Digital tax consultation highlights compliance struggles
This will certainly be a topic that we continue to follow over the coming months. Whether or not an agreement for a globalised and digitalised tax framework will be reached, however, is up in the air. But what we can say with some certainty, though, is that the complexity of the international tax landscape is set to increase.
For contractors seeking opportunities overseas – whether that’s through in-person relocation where it is safe to do so, or remote working from another location – operating compliantly and within the tax regulations of your home country and the destination of work isn’t a simple task.
In order to remove the burden and allow you to focus on your role, partnering with an expert in international tax legislation is crucial. At 6CATS International, the team has a wealth of experience and on the ground connections to ensure you are operating compliantly, no matter where in the world you are working.
Contact them today to find out how they can help you.