This week in tax: Heated debate at OECD’s digital tax consultation

Many tax professionals have been watching the public consultations held on January 14 and 15 on the pillar one and pillar two blueprints. Ahead of the live event, ITR highlighted the views of some large businesses including Unilever, Netflix, Microsoft and Uber.

Live commentary from ITR’s Josh White covered the key developments during day one of the virtual consultations where these businesses, and many others, shared their opinions on the gaps that remain. Live commentary from day two can be found here.

As the public consultations come to an end, some are already preparing for the next discussions on January 27-28. The 11^th meeting of the G20/Inclusive Framework will be the next point when country representatives will try to find common ground to support a final draft.

“Many countries have an idea of what they would like to do with pillar one,” says Martin Kreienbaum, chair of the Inclusive Framework. “The difficulty is finding a consensus.”

At the Inclusive Framework meeting, leading economists will also discuss the global economic outlook and impact of COVID-19, while senior international experts will examine how tax can help deliver on the UN Sustainable Development Goals. Other topics will include conversations on tax morale among businesses and how to strengthen it, the future of international taxation, taxation of the digital economy, tax certainty, tax transparency and tax administration 3.0. A further informal day of briefings on the OECD work will be held on January 29.

However, February will continue to be busy for the Paris-based organisation. On February 1, there will be a public consultation meeting to discuss the proposals for the 2020 review of the Action 14 minimum standard. Consultation responses on the mutual agreement procedure (MAP) were published on January 14 ahead of the public event, which discussed:

• Experiences with, and views on, the status of dispute resolution and suggestions for improvements, including experiences with MAPs in those jurisdictions that obtained a deferral; and

• How to strengthen the Action 14 minimum standard and MAP statistics reporting framework.

If these consultations are not enough to keep tax professionals occupied and discussing the future of tax policy, the EU has added to the list with its proposed roadmap to introduce a digital tax. On January 14, the European Commission's Department for Taxation and Customs Union published its proposal for a directive on the measure and is inviting feedback until February 11.

This consultation was released on the same day that the Office of the US Trade Representative (USTR) issued more findings into its investigation on digital services taxes (DSTs). After issuing reports on India, Italy, and Turkey last week, it said such taxes in Austria, Spain, and the UK were also discriminatory. The USTR is still looking into similar levies in a number of other countries, including Brazil, the Czech Republic, Indonesia and the European Union.

In the US, Senator Ron Wyden, incoming chair of the Senate Finance Committee and Richard Neal, the next chair of the House Ways and Means Committee, have released their wishlist of 2021 tax changes.

In addition to plans for individual taxpayers, the two committees intend to address climate change by consolidating rules and reforming energy taxes, as well as rolling back the corporate tax giveaways in the 2017 tax reform bill, according to several news reports. Changes for multinationals could include closing the carried interest loophole, according to Forbes.

Neal and Wyden’s wishlist is supported by President-elect Joe Biden. In a speech on January 14, he said his administration’s efforts to put America on the path for a post-pandemic recovery will include “closing tax loopholes for companies that ship American jobs overseas or that allow American companies to pay zero in federal income taxes”. A full factsheet was published, which suggests tax measures affecting individuals and small businesses will happen first, after which the government will address the taxation of large and multinational companies.

The UK, meanwhile, has stepped up its investigations into ‘irregular’ transfer pricing (TP) practices as part of renewed efforts to raise tax compliance. It is opening criminal investigations against corporations that have tried to deceive HM Revenue and Customs (HMRC) about their transfer pricing arrangements, according to a news report in the Financial Times. The UK revenue authority is going after corporations with inconsistent TP practices, but the majority of these cases are settled with an extra tax payment.

In other news:

• Japan’s agreement for the avoidance of double taxation with Peru will enter into force on January 29 2021. It will apply, in most cases, to taxable years beginning on or after January 1 2022;

• The UK government is unlikely to raise taxes in the next budget statement in March because of the coronavirus pandemic, according to The Times. Tax rises are instead expected in August;

• Piet Battiau, head of the consumption taxes unit at the OECD, says his department will be using 2021 to recommend how countries can adjust VAT policies in response to sharing and gig economies;

• Karine Halimi-Guez, managing director of tax at FedEx, speaks in a podcast about cross-functional tax planning, the importance of flexibility as a leader during COVID-19, and the role of the tax function during a corporate restructuring;

• Japan’s customs mutual assistance agreement (CMAA) with the UK and Northern Ireland has entered into force; and

• Improved clarity on IR35 changes are proving useful for UK MNEs, they tell ITR.

ITR will be providing more detailed coverage of the OECD public consultation next week, with a focus on how solving the scope and segmentation on Amount A is next step to wider agreement on pillar one.

An article by the Global Forum will also show how work on the automatic exchange of information (AEOI) initiative has progressed and how it will be developed over the coming two years.

Meanwhile, to get ahead on tax disputes, ITR will highlight the key tax and transfer pricing cases to watch in 2021 that may set a precedent and impact corporate strategies. We will also examine how tax teams are dealing with the initial impacts of Brexit, touching on issues including the rules of origin, the mutual recognition by the UK and EU of the authorised economic operator (AEO) or 'trusted trader' certification, and new technology systems being trialled at the Irish sea border.