The OECD has published its report prepared for the meeting of G20 Finance Ministers on 13 October 2021.
Two Pillar Solution on Tax Challenges of the Digital Economy
The report notes that the two-pillar approach to digital economy taxation aims for a fairer allocation of taxing rights between countries in relation to the largest multinationals. The report notes that Pillar One will include a binding dispute resolution process that will bring more tax certainty. The global minimum tax under Pillar Two would ensure that countries protect their tax base and it also maintains the right of developing countries to tax some types of base eroding payment, such as interest and royalties, if they are taxed at less than the minimum rate.
As a result of the agreement, it is expected that more than USD 125 billion of residual profit will be re-allocated to market jurisdictions under Pillar One, and it is estimated that about USD 150 billion more tax revenue would be collected as a result of the global minimum tax under Pillar Two.
Tax Policy and Climate Change
Some policies assign an explicit price to carbon emissions, while others create an implicit price. The precise policy mix would depend on the economic circumstances of each country. As G20 countries are responsible for around 80% of greenhouse gas emissions, the G20 is in a good position to pursue a dialogue on the role of implicit and explicit carbon pricing and promote greater co-operation between G20 countries. The report suggests that an inventory of mitigation policies (other than through explicit pricing instruments) is required, with an estimate of the implicit carbon price where possible. This could involve the creation of a multilateral platform for the improved measurement and assessment of policies for emission reduction.
Developing countries and the Inclusive Framework
A separate report entitled Developing Countries and the OECD/G20 Inclusive Framework on BEPS is included in an attachment to the main report. This looks at the participation of developing countries in the Inclusive Framework on base erosion and profit shifting (BEPS), reviews the support available to them for capacity building, and assesses how far the Inclusive Framework has made room for developing countries in its deliberations and governance arrangements. The report outlines the views of developing countries on how the Inclusive Framework can continue to support their priorities in relation to domestic resource mobilisation.
Tax and Fiscal Policy after the pandemic
A report on Tax and Fiscal Policy after the COVID-19 Crisis is included as an attachment to the main report. Tax and spending policies must support sustainable economic growth following the pandemic. Measures are required to support sustainable tax revenues and the report discusses the tax policy design options available. Tax reforms would need to be accompanied by compensatory measures to ensure that they are affordable. The correct mix of tax instruments will depend on the circumstances of each country such as GDP growth, level of development and fiscal space available.
Implementation of Tax Transparency and BEPS minimum standards
The report to the G20 Finance Ministers includes a summary of the progress made in relation to tax transparency and the BEPS minimum standards on harmful tax practices, tax treaty abuse, country by country reporting and the mutual agreement procedure.
