On 27 February 2023 the OECD gave an update of recent developments in their tax work.
G20 Chair’s summary
The G20 Chair’s summary following the meeting of G20 finance ministers and central bank governors confirmed that the G20 remains committed to swift implementation of the two-pillar international tax package and urged the Inclusive Framework to finalise remaining issues on Pillar One so the multilateral convention can be signed in the first half of 2023. On Pillar Two the negotiations for the subject to tax rule (STTR) should be finalised to allow implementation. The OECD should also complete the implementation packages on the crypto-asset reporting framework and the amendments to the common reporting system.
Economic Impact Assessment
The OECD noted that revenue gains from the two-pillar framework are projected to be higher than previously estimated. The global minimum tax is projected to result in annual global revenue gains of around 9% of global corporate income tax revenues. The Pillar One rules are estimated to allocate new taxing rights on around USD 200 billion in profits each year to market jurisdictions, and this is projected to produce between USD 13 billion and USD 36 billion in annual global tax revenue gains.
Some new design features would benefit low-income jurisdictions, for example in Pillar One the creation of special nexus thresholds; revenue sourcing; tail-end revenue provisions and the de minimis rules; and in Pillar Two the revised UTPR allocation key; and the qualified domestic minimum top-up taxes.
Pillar Two
Members of the Inclusive Framework that are taking steps to implement Pillar Two include the EU member states, Switzerland, the UK, Australia, Canada. Indonesia, Japan, Korea, Malaysia, Singapore, Thailand and the UAE.
On 16 March 2023 public consultations are taking place on the contents of the GloBE information return; and on dispute prevention and resolution mechanisms for resolving differences in interpretation or application of the rules.
Comments received from stakeholders on the proposals in the consultation document indicated that that there is support for a standard information return and a framework for exchanging information; and there should be a coordinated approach to filing and administration.
Tax certainty
Recent initiatives to increase tax certainty include the Bilateral APA Manual (BAPAM) which aims to streamline the advance pricing agreement (APA) process and encourage best practices to increase transparency and reduce time lags resulting from asymmetrical procedures in the countries involved in an APA. Also, the Manual on Multilateral MAPs and APAs gives guidance on specific issues arising from multilateral mutual agreement procedures (MAPS) and APAs such as procedural aspects of filing, discussions, agreement and implementation.
Tax and development
Capacity building is being provided for the two-pillar tax reform, through regional consultations, Technical sessions have been held on key issues arising from Pillar One. The pilot programme on tax incentives and Pillar Two can assist countries in identifying tax incentives that may be at risk of being nullified by top-up taxes under Pillar Two or will not work for large multinationals under the new international tax regime. Countries can also receive assistance in assessing the economic impact of the rules and in drafting legislation to implement the rules or reform domestic incentives.
VAT and digital trade
Around 90 jurisdictions have implemented reforms to their VAT laws to cover digital trade, and a further 30 countries are currently considering reforms. Priorities for 2023 include VAT policy on crypto-assets; digital platforms; enforcement of VAT in digital trade; digital reporting of VAT; and e-invoicing.
A capacity building programme is continuing in relation to VAT and digital trade.
Inclusive Forum on carbon mitigation Approaches
The Forum aims to improve the global impact of emissions reduction efforts through data and information sharing and multilateral dialogue. The inaugural meeting on 9 and 10 February 2023 discussed the challenges facing governments. The technical work will aim to develop a consistent methodology to assess the effects of carbon mitigation policies on emission reductions.
