OECD must engage business advisory group on tax deal implementation, BIAC asserts

By Doug Connolly, MNE Tax

Continued lack of engagement by the OECD with the business stakeholders represented by “Business at OECD” (BIAC) with respect to implementing rules for the OECD’s global tax deal will result in outcomes that are not administrable, according to a November 16 letter to OECD tax leaders from BIAC Committee on Taxation and Fiscal Affairs chair William H. Morris.

The letter expresses frustration with the OECD’s scant interaction with BIAC in recent months, adds that BIAC still has a role to play in advising on technical details for implementation, and suggests some key areas where more business stakeholder input is needed.

The letter acknowledges that the policy decisions “have now largely been made.” However, it adds that issues “will arise in the implementation of these policy choices” that will require BIAC’s “technical and practical help.”

This is the “unanimous view of the Tax Committee,” the letter notes, “representing very different geographies and sectors.”

Business input for administrable rules

For the implementation of the tax deal to be successful, the letter states, the rules need to be “functional and capable of being administered by a wide range of countries, as well as capable of being complied with by a wide range of taxpayers.”

BIAC has served as an official business stakeholder organization for the OECD for more than 50 years. In this capacity, it seeks to inform the OECD’s output with practical expertise from business stakeholders spanning geographies and sectors.

Earlier this year, BIAC established – “with the support of the OECD” – two committees to advise on the OECD global tax deal, i.e., one committee for each pillar. The aim was to provide practical business advice to the OECD on making the deal implementable. However, due to lack of OECD engagement, “that has not happened.”

Going forward, BIAC proposes to “rapidly engage in depth in an advisory capacity on the technical issues.” Failing that, the rules will be “more difficult than need be.” Moreover, “there is a real danger” the success of the deal will be challenged by businesses declining to engage in the multilateral process in the future.

Issues needing attention

Regarding the Pillar One profit allocation rules, the letter acknowledges that the OECD has engaged BIAC with respect to one issue – that is, how sales of in-scope companies could be sourced to the country of end consumers. However, “there are many other equally critical issues” relating to the design of Pillar One for which BIAC could offer practical advice.

One critical remaining Pillar One issue, the letter notes, is how to establish the location of residual profits. Another is what to do about “double counting,” i.e. when the relevant profits are already taxed in the market country. There are also questions relating to tax relief for taxable income redistributed under Pillar One (ensuring taxable income is only reallocated, not increased). Moreover, there are questions about how to provide tax certainty amid these rules.

Similarly, with the minimum tax under Pillar Two, BIAC was engaged with the OECD up to a point – including “advising on the crucial question of how to deal with timing differences in the construction of the Pillar Two tax base (deferred tax accounting vs. carryforwards).” However, further key Pillar Two issues, like safe harbors and definitions, could benefit from business input, which has not been sought in recent months.

The letter further notes that Pillar Two will involve “an extremely complex set of rules” with “new concepts, based on a novel and untested tax base.” As such, business input is essential, the letter claims, to facilitate taxpayer compliance with the rules and to enable tax authorities to administer them.

To provide such input in a meaningful way, the letter states that BIAC needs “sufficient information on the content of the draft rules.” In this respect, it states that BIAC members “have heard” that the rules “have been changing quite substantially in a number of important areas over the last couple of months.” Without BIAC’s access to the content of the draft model rules, the letter states, there may be “difficulties that will have to be rectified later.”