By Julie Martin, MNE Tax
In a communique released after their July 18 virtual meeting, G20 finance ministers and central bank governors said that despite the disruptions created by the COVID-19 pandemic, they remain committed to achieving consensus on new rules for taxing multinational group income by year-end.
According to the ministers, the goal is to continue work on both “pillars” of the reform. The “pillar one” reform would allocate additional taxing rights over multinational group income to countries where the multinational group’s customers reside. The “pillar two” reform would impose a new, internationally coordinated minimum tax on multinational group income. Agreement on the pillar one reform is proving difficult as the US decided late into the negotiations to oppose a “unified approach” to pillar one, proposed by the OECD.
“We remain committed to further progress on both pillars to overcome remaining differences,” the ministers said following the meeting, which was hosted by Mohammed al-Jadaan, Saudi Arabia’s Finance Minister, and Ahmed Alkholifey, Governor of the Saudi Arabian Monetary Authority.
The G20 ministers said they expected that the “Inclusive Framework on BEPS,” a 130+ country group working on the international tax reform, would approve “blueprints” for both pillars.
The work on the blueprint was described in an OECD Secretary-General report, prepared for the ministers’ meeting. According to the Secretary-General, the pillar one blueprint “will include needed simplification measures to the architecture of the Pillar that was agreed in January 2020. This blueprint could serve as the basis for both a public consultation, so that all stakeholders can input and comment, and a final round of negotiation with a view to agreeing a consensus based solution.”
The Secretary-General report said that progress has been made refining the scope of pillar one, Amount A, through the “definition of automated digital services and consumer-facing businesses, the new nexus rules to determine when a business can be seen to have a significant and sustained engagement in a market, and the related source rules to allocate and measure revenues derived from a market.”
The OECD Secretary-General said that further work is required on the other elements of the Unified Approach to reduce complexity, such as reducing the scope of segmentation and simplifying the process to eliminate double taxation.
Regarding pillar two, the OECD Secretary-General said that “[f]urther discussions are underway at the technical level to finalise the design of the four rules as set out in the Programme of Work: a) the income inclusion rule; b) the switch-over rule; c) the undertaxed payment rule; and d) the subject to tax rule. Regarding the key design features of Pillar Two, work has substantially progressed on the definition of the tax base including the list of permanent adjustments and the definition of covered taxes. Further considerations are being given to carve-outs, the design and scope of the above-mentioned four rules, the co-existence with the US GILTI and BEAT regimes and the minimum tax rate. Finally, work is ongoing on simplification options to reduce compliance costs associated with jurisdictional blending.”
A consultation will be held on jurisdictional blending, the Secretary-General said.
The Secretary-General noted also that different views have been expressed by countries regarding potentially “decoupling” of pillar one and pillar two. While some Inclusive Framework member countries support the idea of independently agreeing and implementing the pillars, other members call for the adoption and implementation of the two pillars as a package. Others have called for a phased approach, starting with pillar one, the Secretary-General said.
In their communique, the G20 finance ministers stressed the importance of the Inclusive Framework’s continuing work.
“We will continue our cooperation for a globally fair, sustainable, and modern international tax system,” the G20 finance ministers said.
Julie Martin
Julie Martin is the founder of MNE Tax. She edits the publication and regularly contributes articles on new developments in cross-border business taxation.
Julie has worked as a tax journalist and editor for more than 13 years. Prior to that, she worked as an in-house tax attorney in New York. She also holds an LLM in taxation from New York University School of Law.
Julie can be reached at [email protected].
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Having had the benefit of practising in both the the Developed world with well established financial ,markets and the Developing world with financial markets that are still in formation,I wonder whether from a Global perspective,concepts like the CAPM is equitable in application of global trade.
Another thing that just came to mind relating to the financial sector is: Is IFRS 9 as it stands “fit for purpose” given the effects of the COVID-19 pandemic since we use one set of rules for the whole whole world without considering diversity.