By Julie Martin, MNE Tax
The OECD on December 9 held a public consultation in Paris, providing a forum for stakeholders to express their views on how to best design a “pillar two” global minimum tax on multinational group profit, also known as the global anti-base erosion (GloBE) tax.
Representatives of business, academia, labor, and non-governmental organizations (NGOs) lined up to speak about the design of the proposal, which seeks to reduce opportunities for multinationals to cut their tax bills by shifting profits to low or zero tax countries.
OECD officials also used the opportunity of the meeting to discuss plans regarding a way forward for “pillar one,” which hit a snag last week as the US seemed to torpedo an OECD compromise pillar one plan and suggest that an entirely new safe harbor proposal be considered instead.
The pillar one and pillar two proposals are halves of a two-part package of proposals being negotiated by 136-countries known as the “Inclusive Framework on BEPS” in an OECD-led process. The Inclusive Framework aims to reach an agreement on both pillars to achieve a coordinated update to the international tax and transfer pricing rules for multinational groups by the end of 2020. The pillar one proposals would update the international tax rules by granting greater taxing rights to countries where a multinational’s customers or users reside. The pillar two proposals provide for a global minimum tax coupled with restrictions on deductions for base eroding payments made by multinationals to related entities located in countries that have low taxes.
Pascal Saint-Amans, Director, OECD Centre for Tax Policy and Administration, noted the US’s objection to its pillar one compromise proposal and announced at the December 9 meeting that the OECD intends to further develop the proposal.
“We reported [on the US objection to pillar one] to the G20 [finance ministers] and we heard from the G20 a pretty strong level of support and consensus to move this work forward which is what we are going to do in the context of the [Inclusive Framework] steering group in the coming days and then in the context of the Inclusive Framework at the end of January,” Saint-Amans said.
With respect to pillar two, Saint-Amans acknowledged that countries can decide for themselves whether or how to implement these measures like the US did when it enacted the global intangible low-taxed income (GILTI) provisions. Unilateral action is not precluded by tax treaties, although coordinated action by countries is more desirable so that companies are not faced with dealing with many different rules, Saint-Amans said.
The consultation focused on only a portion of the technical work underlying pillar two namely, whether an MNE’s financial accounts should be used to determine the base of the tax, whether the effective tax rate of MNEs should be determined by blending the effective tax rates in many countries (like the US GILTI rules do) or not, and whether any particular carve outs from the rules should be provided.
Different views were expressed on all topics though there seemed to be significant support for using financial accounts as a starting point to compute the tax. Many also made a plea for simplicity when designing any new rules.
Saint-Amans said the comments made during the consultation will inform the Inclusive framework steering group. The steering group will then make recommendations to the Inclusive Framework on BEPS for its endorsement at the end of January.
After that, the OECD hopes to launch a second consultation on a pillar 2 proposal in March 2020 covering the OECD’s suggestions with respect to computing the base, blending, carve outs, and possibly the minimum tax rate to be applied, Saint-Amans said. The goal is to reach an agreement by the Inclusive Framework the following June or July.
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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