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OECD’s Digital Tax Plan to Be Delayed due to COVID-19

OECD’s Digital Tax Plan to Be Delayed due to COVID-19

COVID-19 has thrown a wrench into the OECD’s digital tax plans for the world.

As a result of the ongoing pandemic, the OECD has had to postpone a crucial meeting that had been scheduled for July during which a final decision was expected to be made regarding the taxation of the digital economy.

The OECD will now meet in October and might be forced to space out the delivery of a comprehensive and global plan on digital taxation. There’s also the possibility of hosting a virtual follow-up meeting in July to discuss this plan in greater detail prior to October’s final session.

During an OECD webinar hosted earlier this week, the OECD’s Head of Tax Pascal Saint-Amans said, “The reasonable expectation here is that we may have a staged process on at least some of the aspects.”

For instance, contentious points involving Pillar One, which focuses on taxing multinational companies’ profits based on where they carry out business, have yet to be negotiated and a decision on this particular issue might have to be extended to 2021.

“What we can see are tensions, are conflicts of views. We can see an emerging view on Pillar One, Amount A, that it should focus on digital,” Saint-Amans said.

According to Bloomberg Tax’s Hamza Ali and Isabel Gottlieb, “points of tension include disagreements between European countries and the U.S. over whether part of Pillar One should focus on digital companies or target a broader swath of multinationals,” and “between the U.S. and other countries on whether Pillar Two, a global minimum tax rate, should be applied to each country where a multinational does business or on a globally blended basis.”

OECD’s Digital Tax Plan

Opinions Vary on How to Move Forward with the OECD’s Digital Tax Plan

Industry experts believe the ongoing pandemic will make it a whole lot tougher for countries to reach an agreement.

“The Covid crisis, because it is affecting everybody’s ability to collect revenue, is going to make the political decisions about who’s a surrender state, and how much they’re giving up, more difficult,” said Carol Doran Klein of the U.S. Council for International Business.

“The political calculus has gotten harder because governments are spending a lot more money to rescue their economies, and they’ll be a little more jealous of reclaiming their taxing base,” she added.

Others believe that it might be best to shelve this project up until things clear up.

Jesse Eggert, who works at KPMG LLP in Washington and used to be part of the OECD’s tax team, said, “I think it’s going to be challenging for a lot of people, business included, to engage on this work, given everything else that’s going on.”

“With that said, I think there are reasons to want agreement quickly, in order to forestall further unilateral actions,” he added.

However, the French government believes this is the ideal time to push through this plan espoused by the OECD, even going a step further and calling for an EU-wide digital tax in the case that the former fails.

In a live LinkedIn event, French Finance Minister Bruno Le Maire said, “This crisis shows that those who are making out the best are the digital giants, simply because they are able to keep their businesses going and yet they are the ones that are the least taxed.”

“My digital tax proposal is more relevant than ever and I hope that our European partners will recognise the absolute necessity to step up the taxation of digital giants," he added.

Brazil Joins Group of Countries Pushing Towards a Unilateral Digital Tax

Brazil Joins Group of Countries Pushing Towards a Unilateral Digital Tax

In light of this, the OECD might be hard-pressed to push forward taking into account that many countries are moving towards unilaterally imposing taxes on digital companies operating at a local level.

The last to join this group is Brazil, which earlier this week introduced a tax on revenues of digital companies working in the country.

As explained by Francisco Lisboa Moreira, a tax partner with Bocater Advogados, in an article for MNE Tax, “the tax would be triggered upon the receipt of revenue from advertising to Brazilian users or making available a digital platform that permits users to interact with the objective of the sale of goods or services directly between such users if one user is located in Brazil.”

More specifically, this new tax “will be levied progressively, with 1% levied on amounts up to R$ 150 million (USD 30 million); 3% on amounts exceeding R$ 150 million and under R$ 300 million (USD 30 to 60 million); and 5% on the amount exceeding R$ 300 million (USD 60 million).”

Companies affected include “entities domiciled in Brazil or abroad that earned or that are members of a multinational group that earned in the previous-year global revenues exceeding R$ 3 billion (approximately US$ 600 million),” while “the taxpayer must also have gross revenue in Brazil that exceeds R$ 100 million (approximately US$ 20 million).”