OECD Looking to Finalize Digital Tax Plan by October
In a webcast yesterday, OECD representatives laid out their plans for a final solution to the ongoing digital taxation saga.
Part of the discussion centered on the many details still needed to be hashed out by the parties involved.
According to Grace Perez-Navarro, the OECD’s deputy tax director, any solution will deal with corporate losses and profits, a point of contention involving companies and their use of losses or expenses during the ongoing pandemic to offset future taxes.
“There’s a very broad support for computing these rules applying the same types of computational rules to both profits and losses,” she said.
At this stage, Perez-Navarro said, the negotiation’s participants are looking to agree on “how to treat profit shortfalls, how to treat pre-regime losses, and how far losses can be carried forward.”
Another area of contention involves dispute resolution between jurisdictions and companies and the allocation of their tax obligations.
As reported by Isabel Gottlieb for Bloomberg Tax, Perez-Navarro explained that there would be a “two-phase process, using panels with an initial determination process, where a second panel will make the decision if a first panel isn’t able to agree.”
The ultimate goal, said the OECD representative, is for there to “be finality and a binding decision.”
There is also the question of the plan’s overall scope.
In an earlier hearing of the European Parliament’s Committee on Economic and Monetary Affairs, the OECD’s head of taxation, Pascal Saint-Amans, said a huge issue is how far reaching will this plan be and whether it should impact all companies and not only those operating in the digital realm.
As explained by Benjamin Angel, the European Commission’s director of the division on direct taxation and tax coordination, expanding the scope of the plan would lead to a logistical nightmare considering the spike in the number of companies involved.
Bloomberg Tax’s Gotlieb reported that “if the Pillar One rules apply only to digital companies, the number of companies for which tax administrations would need to find agreement would be ‘probably double-digit, maybe triple-digit,’ but if the scope was widened to large consumer-facing companies, the number could rise to 7,000 to 8,000.”
Angel, therefore, suggests starting small to “allow everyone to gain experience” and, at a later stage, expand the types of companies impacted by these rules.
Pascal Saint-Amans, believes a final outline of the digital tax plan can be presented to OECD members and those involved in October.
Saint-Amans said the plan “will provide the technical details of features of the unified approach for Pillar One and Pillar Two,” ones which “should be as close as possible to the document to be agreed by the ministers.”
However, he did warn that there’s still plenty of work left to be done.
Saint-Amans added: “I think we need to be realistic… As much as we welcome the G20 telling us that they hope to have an agreement by year-end, and they aim to have an agreement by year-end, we have to recognize there are a number of pending issues.”
Some American tech giants have expressed their desire for a global solution to the taxation of digital companies.
In an interview with Reuters, Google’s CEO Sundar Pichai said following the OECD’s lead on the subject is the “right approach,” adding that this complex matter is “not (an issue) for an individual company to solve.”
Ultimately, Pichai said, his company “would be supportive of the OECD engagement.”
Following the US dropping out of the negotiations earlier this year, the EU has asked that the Trump administration rejoin the OECD-led discussion.
Earlier this month, as reported by Reuters, a EU representative in DC “urged the United States to return to negotiations about digital taxation at the Organization for Economic Cooperation and Development, but said it stood ready to make a new proposal at the EU level if those talks failed.”