On 1 February 2021 the OECD Secretary General published a blog post entitled A Turning Point for Tax: International co-operation for better regulation of globalisation. The note is based on the speech given by the Secretary General at the opening of the meeting of the OECD’s Inclusive Framework in January 2021. The post looks at ways in which the OECD and the G20 have improved the international tax climate since the global financial crisis.

Global Forum on Transparency and Exchange of Information

Following the G20 summit of April 2009 the Global Forum on Transparency and Exchange of Information for Taxation Purposes was convened to look at proposals for new governance structures. Achievements of the Global Forum since that date have included bringing an end to bank secrecy for tax purposes and working towards a level global playing field.

Corporate tax avoidance

In 2013 the OECD launched the action plan on base erosion and profit shifting (BEPS) including fifteen actions that could help tax administrations to combat corporate tax avoidance. The G20 Finance Ministers endorsed the BEPS Package in Lima in 2015. The package provided tax administrations with the methods and instruments necessary to limit tax avoidance and showed that international tax cooperation was the only way to defend tax sovereignty.

Inclusive Framework on BEPS

Formally establishment in 2016, the Inclusive Framework aims to enforce the four BEPS minimum standards that are being implemented by its member countries. The standards have increased transparency and have eliminated harmful tax practices. Peer reviews of member countries are held to monitor compliance with the minimum standards and recommend improvements.

The Multilateral Instrument (MLI) was set up to deal with a number of BEPS challenges in the current bilateral tax treaty networks and has been signed by 95 jurisdictions and already ratified by 61 of these countries. Around 1,700 bilateral tax treaties are impacted by the provisions of the MLI.

Provisions for Country by Country Reporting introduced as a result of BEPS Action 13 have resulted in the establishment of more than 2,500 bilateral exchange relationships. Tax administrations are receiving aggregate data on multinational enterprises including details of the global allocation of income, profit, taxes paid and other useful data. This can be used in transfer pricing risk assessment of multinational enterprises.

Digital Economy

The G20 has asked the Inclusive Framework to reach agreement on taxation of the digital economy by mid-2021.

Under the proposals currently under discussion Pillar One would introduce a new taxing right allocating a percentage of residual profits of multinational enterprises to market jurisdictions. The proposals under Pillar Two would introduce a global minimum tax to ensure multinational enterprises pay a minimum level of taxation on their global profits regardless of any tax planning measures used.

Failure to reach agreement on taxation of the digital economy would have the consequence that many countries would consider the introduction of a unilateral Digital Services Tax (DST), resulting in increased compliance costs for taxpayers as they need apply different tax rules in each country. A multilateral, consensus-based solution would provide more certainty and lower compliance costs. Countries have indicated that they would withdraw their unilateral DSTs if an international agreement is reached by the Inclusive Framework.