By Doug Connolly, MNE Tax
The BEPS Monitoring Group contends in October 5 comments that multinational enterprises that are not in-scope of the global tax deal’s Pillar 1 partial reallocation of taxing rights to market jurisdictions should remain subject to alternative measures like digital services taxes.
Under Pillar 1 of the global tax deal – for which 140 nations will meet on Friday with an aim to finalize terms – taxing rights for a portion of the profits of the largest multinational enterprises would be allocated to market jurisdictions. No more than about 100 multinationals are expected to be subject to reallocation of a portion of their profits (referred to as “Amount A”). However, in signing up for the deal, countries pledge to abandon unilateral measures like digital services taxes that apply to multinationals operating digitally within their borders.
“In our view,” the BEPS Monitoring Group states, “there is no good reason why MNEs left out of the scope of Amount A should not be subject to alternative measures, if applied within each state’s existing international obligations.” The group acknowledges that digital services taxes could be considered trade barriers but argues that alternative measures should be permitted under international agreements.
The BEPS Monitoring Group – a network of international tax experts organized by various civil society groups – issued the comments in support of G-24 criticism of the international tax deal as lacking adequate terms and revenue allocations for developing countries. The G-24 contended that removal of unilateral measures should not be immediate under a deal but tied to the implementation of Pillar 1 to ensure continuity of revenues for developing countries.
The BEPS Monitoring Group expresses its support for the G-24 position that developing countries should not be expected to give up unilateral measures unless they receive sufficient revenue under both Pillar 1 and the “subject to tax rule” under Pillar 2.
The group’s comments also suggest that the minimum tax rate under Pillar 2 should be substantially higher than 15% – “no less than” 25%, and preferably 30%. However, ongoing negotiations this week seem to be closing in on a final rate of 15% and no higher to appease critics of higher rates, such as Ireland.
Doug Connolly
Doug Connolly is Editor-in-Chief of MNE Tax. He has more than 10 years of experience covering tax legal developments, previously working with both a Big Four firm and a leading legal publisher. He holds a law degree from American University Washington College of Law.
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