The OECD has published blueprints for a solution to the tax challenges arising from the digitalisation of the economy and acknowledged that a multilateral, consensus-based solution will not be agreed by the end of 2020. The blueprints will be presented to the meeting of the G20 Finance Ministers and Central Bank Governors on 14 October 2020 in the hope that they will push the project over the finish line by the middle of 2021.
What was published?
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Trade tensions and the new deadline
Since the inception of the Base Erosion and Profit Shifting (BEPS) Project, addressing the tax challenges posed by the digitalisation of the economy has been one of its key aims under Action 1. According to Angel Gurría, OECD Secretary-General, it is now more important than ever, as the alternative to a consensus-based solution at the OECD level is a trade war that would further damage the world economy at a time when it is in a fragile state as a result of COVID-19.
A number of countries, including the UK and France, have introduced digital services taxes. The US considers that these unfairly target US companies. In respect of the French DST, the US Trade Representative has confirmed this view following a Section 301 investigation and retaliatory tariffs have been introduced, but their application (and the collection of the French DST) is currently suspended until the end of the year. The suspension period matched the originally anticipated timing for the agreement of a solution at the OECD level.
Back in January 2020, the Inclusive Framework (IF) on BEPS, made up of 137 member countries plus 14 observer organisations, had reaffirmed its commitment “to bridge the remaining differences and reach agreement on a consensus-based solution by the end of 2020”. This timing has clearly slipped with a revised deadline to reach agreement set for mid-2021.
Will this mean that the collection of the French DST will resume and US tariffs on French goods come into effect? Will there be further trade tensions between other countries that have introduced DSTs and the US? Will further countries introduce DSTs?
The answers to these questions are anyone’s guess. Pascal Saint-Amans, Director of the Centre for Tax Policy and Administration, was unable to shed any light on what conversations may have been had between the US and France in light of the new deadline and, during this morning’s press conference, no mention was made of negotiations between the US and other countries.
The Independent Commission for the Reform of International Corporate Taxation, ICRICT, has issued a press release stating that “the OECD has not delivered” and called on governments to “move unilaterally to introduce interim measures to ensure that profitable companies, in particular those in the tech sector, can contribute to a just recovery”. But will anyone heed this call?
It is possible that the European Commission may do so - at least eventually. During her State of the Union Address on 16 September 2020, European Commission President Ursula von der Leyen said that the Commission "will spare no effort to reach agreement in the framework of OECD and G20. But let there be no doubt: should an agreement fall short of a fair tax system that provides long-term sustainable revenues, Europe will come forward with a proposal early next year."