The tax challenges of the digitalisation of the economy were identified as one of the main areas of focus of the Base Erosion and Profit Shifting (BEPS) Action Plan, leading to the 2015 BEPS Action 1 Report. Policy discussion on those challenges remain an important part of the international agenda.
The OECD/G20 Inclusive Framework on BEPS provides for two pillars to be developed with a consensus solution to be agreed upon by the end of 2020.
Pillar One focuses on the allocation of taxing rights and seeks to undertake a coherent and concurrent review of the profit allocation and nexus rules. The proposals articulated so far, would entail solutions that go beyond the arm’s length principle. To help expedite progress towards reaching a consensus solution to Pillar One issues, the Secretariat prepared a proposed “Unified Approach” for public consultation.
Pillar Two takes a massive step forward beyond addressing digital taxation and proposes a global minimum effective tax regime comprising of four component – income inclusion rule, undertaxed payments rule, switch-over rule and subject to tax rule. These co-ordinated set of rules are intended to address “ongoing risks from structures that allow MNEs to shift profit to jurisdictions where they are subject to no or very low taxation”.
Like the Four Horsemen of the Apocalypse, however, do these proposals spell the death knell of the post-war international income tax framework as we have come to know it - where bilateral treaties allocate taxing rights to avoid double taxation and countries abide by a set of commonly acceptance of OECD soft-law principles? Or do they represent a new inclusive global grand bargain that will finally stem the tide of unilateral actions in our uncertain world?
WTS Global took advantage of this opportunity to comment on the proposed “Unified Approach” to deal with Pillar One and Pillar Two.
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