On 23 July 2018 the OECD released the tax report from the OECD Secretary General to the G20 Finance Ministers.  The G20 Finance Ministers met on 19 and 20 July 2018.

Tax Challenges Arising from Digitalisation

An interim report issued in March 2018 looked at the issues resulting from digitalization of the economy. Some countries consider that the issue is generally limited to highly digitalized businesses; some consider that digitalization is challenging tax rules more widely than just base erosion and profit shifting (BEPS) issues; and others consider that the BEPS package has dealt with double non-taxation and no further significant reform of the international tax rules is necessary.

The Inclusive Framework is working towards a consensus-based solution in relation to profit allocation and nexus rules. An update will be provided to the G20 in June 2019 with a final report in 2020. The Task Force on the Digital Economy (TFDE) met on 11 July 2018 to take the issues forward. Members of the Inclusive Framework see the need to resolve the issues and have modified their positions in an effort to come closer together. Following technical work to be undertaken by the Secretariat the TFDE will meet again in December 2018 to explore the possibility of a common position. Different possibilities on the issues include a revision of the transfer pricing rules; a minimum tax approach; and taking account of the user contribution.

The report notes that new technologies such as blockchain can offer more secure record keeping methods but also facilitate crypto currencies that could pose a risk to tax transparency efforts. Work is being conducted on the tax treatment of crypto currencies and on methods of investigating tax crimes involving these currencies.

Tax Transparency

The Global Forum’s standards on information exchange apply to all the members (now numbering more than 150). A second round of peer reviews has begun in relation to procedures in member countries for the exchange of information on request and implementation of the automatic exchange of information.

The G20 has requested recommendations on how the criteria on information exchange can be strengthened to ensure they are a lever for progress.  The OECD proposes that benchmarks should be strengthened, for example to look at what countries have done to implement the automatic exchange of information (rather than just committing to do so) and looking at whether the Convention for Mutual Administrative Assistance in Tax Matters has not only been signed by a country but is also in force there. As before, a jurisdiction receiving a non-compliant rating for exchange of information on request (EOIR) would automatically lead to being listed as not having satisfactorily implemented the transparency standards. Under the proposal failure to meet the criterion for automatic exchange of information (AEOI) would also lead to being listed.

At the G20 summit in November 2018 the OECD will report to the G20 on the number of jurisdictions that risk being considered as not implementing the standards satisfactorily; and a progress report will be delivered to the Leaders’ Summit in 2019.

Tax Certainty

Following consideration of a report on tax certainty produced by the OECD and IMF in 2017 the G20 requested a follow-up report in 2018. The 2018 report identifies approaches including improving the clarity of legislation; increasing predictability and consistency of tax administration; effective dispute resolution and robust dispute resolution mechanisms.

A key tool in ensuring tax certainty is the mutual agreement procedure. 72 jurisdictions have been scheduled for peer reviews of their procedures under BEPS action 14 (dealing with mutual agreement procedures) and 21 reviews have already been published. Actions taken as a result of the reviews will be monitored and followed up in stage two of the peer reviews. Of the mutual agreement procedures concluded in 2016 more than 85% resolved the relevant issue.

The 2018 report includes information on OECD work to mitigate uncertainty in tax treaties, the IMF initiative to address international tax issues in its surveillance and the FTA initiative to improve risk assessment and audit processes. Several initiatives discussed in the 2018 report aim to enhance tax certainty in development countries including toolkits produced by the Platform for Collaboration on Tax, Medium Term Revenue Strategies, IMF technical assistance work on revenue mobilisation and the progress on the tax administration diagnostic assessment tool (TADAT).

Capacity Building

Capacity building is increasingly looking at the issues of tackling tax crimes and other financial crimes. The OECD International Academy for Tax Crime Investigation has trained more than 400 financial crime investigators and the Africa Academy for Tax and Financial Crime Investigation is to be formally established in the near future.

The Platform for Collaboration on Tax (an initiative by the OECD, IMF, UN and World Bank Group to provide capacity building support for developing countries) is planning to issue two more toolkits in 2018, on Indirect Offshore Transfers of Interests and on Implementing Effective Transfer Pricing Documentation.