The OECD Secretary-General has prepared a tax report for the July 2021 meeting of the G20 Finance Ministers and Central Bank Governors.

Tax challenges of the digital economy

On 1 July 2021 the OECD issued a Statement on the tax challenges of the digital economy. Currently 130 countries and jurisdictions, representing more than 90% of global GDP, are taking part in the two-pillar reform to the international tax system that has resulted from the project on base erosion and profit shifting (BEPS).

Pillar One aims to ensure the fair allocation of profits and taxing rights between countries in relation to large multinational groups. The taxing rights for profits above a specified level would be reallocated to market jurisdictions. Pillar Two would set a global minimum corporate tax rate of at least 15%, that countries could use to protect their tax bases.

The remaining parts of the two-pillar approach are to be finalised by October 2021 and the new framework is to be implemented in 2023.

Tax policy and climate change

There is a need for tax systems to be more aligned with environmental objectives, to help with the pricing of pollution and to moderate the adverse distributional impacts that could result from policies on climate change. A multilateral solution is necessary to ensure greater certainty, and encouragement of investments and growth in the period following the pandemic.

The OECD can facilitate international cooperation and help to reconcile different policy approaches to achieve net zero emissions. In attempting to mitigate climate change countries will act at different speeds and use different policy approaches in line with their specific economic needs, and the OECD can facilitate dialogue.

Greenhouse gas emissions pricing is one policy approach that can be used but there is considerable divergence in employing this approach among the G20 and OECD countries. Around 60% of carbon emissions are still unpriced and the continued use of fossil fuel subsidies weakens the incentive to reduce greenhouse gas emissions. Carbon pricing is not used to the same extent in all industrial sectors and is especially underused in the electricity and industry sectors. The use of pricing and similar instruments must be strengthened, to increase its role in policy packages to combat climate change.

Tax and Development

In October 2021 the OECD is to deliver a report to the G20 on progress made by developing countries through the Inclusive Framework, identifying ways in which domestic resource mobilization efforts can be supported by the international community. The report will help to identify ways to help developing countries integrate faster into the new international tax framework.

Capacity building efforts have continued in developing countries during the pandemic. Support has been given to developing countries in implementing VAT on e-commerce and regional VAT Digital toolkits have been published. The implementation of the Base Erosion and Profit Shifting (BEPS) measures and improvements in exchange of information (EOI) have also been a focus of capacity building. The OECD recently released a progress report on Tax Co-operation for Development.