On 1 July 2020 the OECD Secretary General delivered the opening address for the July 2020 meeting of the Inclusive Framework on base erosion and profit shifting (BEPS).

The countries involved in the Inclusive Framework are working towards implementation of the BEPS package, including the monitoring process for the four minimum standards and the review mechanisms for other parts of the BEPS package.

COVID-19

The Secretary General noted that the global health and economic crisis, including the resulting crisis in confidence, has led to delays in implementation of policy, pressure on national budgets and uncertainty about the future.

Transparency and Information Exchange

At the time of the financial crisis in 2008 the G20 decided to take measures to remove banking secrecy and strengthen the measures to combat tax evasion. Progress has been made on these issues as a result of the work of the Global Forum on Transparency and Exchange of Information for Tax Purposes.

In 2019 information exchange took place involving around 84 million financial accounts with a total balance amounting to approximately EUR 10 trillion. This represents a substantial addition to the secure tax base for tax administrations and allows them to raise further tax revenue at a time when this is critical for national budgets.

Taxation of the Digital Economy

Progress has been made by the OECD on the taxation of the digital economy involving concessions and compromises by countries in order to advance the consultations. The Secretary General pointed out that the US has not pulled out of the negotiations although it has requested a delay in the work on Pillar One of the work. He noted that a US delegation is participating in the meeting of the Inclusive Framework, evidence of their continuing engagement in the consultations.

The opening address noted that many countries regard taxation of digital activities as a question of fairness, and noted that large digital businesses have continued to do well during the COVID-19 crisis. If no solution is found, there is a risk of further unilateral actions to introduce national digital service taxes and this could result in further trade wars. As economies have already been hit by the current crisis further problems must be avoided. Countries should therefore continue to move towards a solution on Pillar One.

In relation to Pillar Two of the taxation of the digital economy, concerning a global minimum tax, there is continuing public concern about tax fairness. As the world moves into an economic recovery period all companies will be expected to pay tax in the countries where their profits are earned. Pillar Two aims to ensure that multinational groups will pay a minimum amount of tax globally regardless of their tax planning strategies.

International agreement is therefore necessary within the timetable driven by the political agenda. The Inclusive Framework meeting will include technical discussions that will contribute to a multilateral solution on taxation of the digital economy. Further progress on the issue is expected in the period leading up to the meeting of the Inclusive Framework in October 2020.