In a Tax Talk on 12 October 2020 the OECD gave an update of recent developments.
Digital Economy
The OECD’s Inclusive Framework met on 8 and 9 October 2020 and Blueprint reports on Pillar 1 and Pillar 2 of the proposals on taxation of the digital economy were released on 12 October 2020, with comments from interested parties invited by 14 December 2020.
The participating countries agree that a new nexus is possible but some important policy features involving political and technical issues are still to be resolved. Countries can still reach agreement by mid-2021 and model draft legislation, guidelines, international rules and processes would then be drawn up.
The OECD will report to the G20 summit on 21 and 22 November 2020, and after receiving written comments from interested parties there will be a public consultation meeting on the issues in January 2021.
Taxing Virtual Currencies
A report on taxing virtual currencies has been prepared for the meeting of G20 Finance Ministers. The report looks at the tax treatment of virtual currencies, considering income tax, consumption tax and property tax. The report looks at the policy implications of emerging issues such as Central Bank digital currencies, proof-of-stake and decentralised finance.
Countries need to provide clear and regularly updated guidance on taxation of virtual currencies that takes into account consistency with the treatment of other assets and covers emerging issues. Improved compliance should be supported by provision of simplified valuation rules or simplified rules for small businesses.
The tax treatment of virtual currencies needs to be in line with other policy objectives such as the policy on the use of cash or environmental policy. Guidance is required on the tax treatment of emerging technological developments as they arise.
BEPS Developments
The report noted that in line with BEPS action 5 (harmful tax regimes) a total of 290 potentially harmful tax regimes have been reviewed.
Country by country reporting under BEPS action 13 has been introduced by 93 jurisdictions. Under BEPS action 14 (tax dispute resolution mechanisms) a total of 70 jurisdictions have been reviewed and 1500 recommendations made.
The multilateral instrument (MLI) enabling countries to swiftly implement tax treaty related BEPS provisions has been signed by 94 jurisdictions and ratified by 53.
Tax Transparency
There have been around 7,000 bilateral exchanges of tax information under agreements for the exchange of tax information (AEOI) so far in 2020, an increase of around 15% on 2019.
A total of 141 jurisdictions are now participating in the Multilateral Convention on Mutual Assistance
Transfer Pricing Guidance on COVID-19
The government intervention in economies as a result of the business losses and disruption caused by the COVID-19 pandemic has given rise to further transfer pricing challenges. The need to help certain hard-hit business sectors has exacerbated the issue of the treatment of government assistance programs. Practical issues are arising such as the impact of the crisis on the comparability analysis and on advance pricing agreements. A coordinated response to the issues would help to maintain tax certainty and to avoid tax disputes. An OECD working party is examining the issues and aiming to put together guidance by the end of 2000.
