OECD presents international tax update to G20 Finance Ministers

Secretary-General Angel Gurría briefed the G20 Finance Ministers today on ongoing negotiations to address the tax challenges of digitalisation and on recent international tax developments |

Overview

Since I last reported to you in February 2020, the world has undergone a cataclysmic change. The emergence of the COVID-19 pandemic has upended daily life as countries attempt to protect the health of their citizens and mitigate the economic fallout from the ongoing crisis.

In responding to this crisis, the tax agenda is more relevant than ever. First, fiscal measures – in particular tax-related measures – have played and will continue to play a critical role as countries continue to navigate their way through the COVID-19 crisis. Following a request of Saudi Arabia’s G20 Presidency, the OECD outlined measures taken by countries in its report Tax and Fiscal Policy in Response to the Coronavirus Crisis: Strengthening Confidence and Resilience1, presented during the virtual meeting of the G20 Finance Ministers and Central Bank Governors, on 15 April 2020. Effective tax policy responses in the recovery phase will provide countries with essential tools to face the upcoming challenges arising from the current crisis. The OECD stands ready to deliver tax policy recommendations by spring 2021.

Second, there remains a pressing issue that has been on the table for more than seven years: reaching a multilateral, consensus-based solution to the tax challenges arising from the digitalisation of the economy amongst the 137 members of the G20/OECD Inclusive Framework on BEPS (the G20/OECD Inclusive Framework). Although practical challenges as a result of the pandemic have inevitably affected the pace of progress, technical work on a solution continues to progress well under both Pillar One (establishing a new nexus and reallocating taxing rights) and Pillar Two (ensuring a minimum level of taxation). Since January, and the adoption of an outline of Pillar One based on an OECD Secretariat proposal for a Unified Approach, 11 building blocks have been developed technically by the G20/OECD Inclusive Framework. Work on Pillar Two has also progressed well, with the aim of delivering blueprints for each Pillar for the October meeting of G20 Finance Ministers. Failure to reach an agreement comes with serious risks of escalating tax and trade tensions, which would further undermine the global economy.

Contrary to what has been reported publicly, all members are committed to the current negotiation even though some are of the view that a pause at the political level is needed. We encourage you all to remain fully engaged and advance the work so that, when the COVID-19 crisis is over and some of the electoral deadlines have passed, a political agreement can be reached. We look forward to delivering a detailed blueprint of Pillar One in October, embedding needed simplification measures to the architecture of the Pillar that was agreed in January 2020. This blueprint could serve as the basis for both a public consultation, so that all stakeholders can input and comment, and a final round of negotiation with a view to agreeing a consensus based solution.

The work to finalise Pillar Two is also well advanced and is increasingly relevant as public tolerance of tax avoidance by companies is expected to reach an historic low in the aftermath of the COVID-19 crisis. By ensuring that a minimum level of tax will be paid on all profits made by multinational enterprises, Pillar Two offers another powerful tool to address BEPS and also establishes a floor to tax competition. Work is underway to finalise the technical design of Pillar Two, which will be submitted to the G20/OECD Inclusive Framework at its plenary meeting in October 2020.

Reaching a solution to the tax challenges arising from digitalisation will only be achieved with your strong leadership and clear political support. International co-operation is needed more than ever to provide tax certainty to businesses during very uncertain times and to prevent an unnecessary exacerbation of the already daunting economic challenges posed by the pandemic.

Further progress on the tax agenda

Allow me to remind you that progress on international co-operation has been one of the great success stories of the G20. In the aftermath of the 2008 global financial crisis, you decided to end bank secrecy once and for all in order to crack down on tax evasion. Now, 12 years later, the results of the fruitful multilateral collaboration between the now 161 members of the OECD-hosted Global Forum on Transparency and Exchange of Information for Tax Purposes (Global Forum), bank secrecy for tax purposes, and the tax evasion it facilitated, have been seriously reduced.

The numbers speak for themselves. Newly reported figures show that in 2019, information was exchanged on around 84 million financial accounts, with a total balance of around EUR 10 trillion. This represents a significant increase compared to the 2018 figures, amounting to 47 million financial accounts, representing EUR 5 trillion. With this wealth of new information, tax administrations so far have been able to identify for collection EUR 102 billion that was previously hidden money.

Effective multilateral co-operation has also delivered new model rules to require reporting by digital platform operators with respect to sellers in the sharing and gig economy. This new tax compliance tool approved by the 137 member countries and jurisdictions of the G20/OECD Inclusive Framework will greatly enhance transparency in this sector of the digital economy. Activities facilitated by digital platforms may not always be reported to tax administrations, either by third parties or by taxpayers themselves. The model rules are designed to help taxpayers comply with their tax obligations, while also ensuring a level playing field with traditional businesses, in the key sectors (e.g. accommodation and transportation) of the sharing and gig economy. These model rules also help digital platform operators by avoiding the excessive compliance burdens that would result from a multiplicity of uncoordinated unilateral reporting requirements. These new model rules constitute an important element in addressing the tax challenges arising from the digitalisation of the economy and demonstrate that multilateral co-operation continues to deliver.

Further proof of what can be accomplished through multilateralism can be seen from the results of the ongoing implementation of the OECD/G20 BEPS initiative. As you will recall, following a G20 mandate, international co-operation fundamentally altered the international tax landscape as countries agreed to crack down on base erosion and profit shifting practices by multinational companies. Since 2016, the implementation of the BEPS Project’s measures is producing results, as reflected in this year’s fourth annual progress report of the G20/OECD Inclusive Framework (see Annex 1). As a result of this co-operation, taxation is now better aligned with where value is created, tax transparency has increased, and individuals and businesses have benefitted from improvements to dispute resolution.

It should also be noted that a global crisis requires a global response, and particular attention should be devoted to the specific challenges faced by developing countries. As developing countries often rely to a large extent on corporate tax revenues, they may therefore suffer from BEPS behaviours to a greater degree, thereby restricting their fiscal space in times of economic crisis. Currently, the G20/OECD Inclusive Framework includes 70% of non-OECD, non-G20 member jurisdictions, including 66 developing member jurisdictions. Fortunately, through extensive training and capacity building efforts, developing countries are in a better position than they would have been in the absence of BEPS implementation. In addition, the partners in the Platform for Collaboration on Tax (PCT) – the International Monetary Fund (IMF), OECD, United Nations (UN), and World Bank Group (WBG) – continue to strengthen their co-operation in support of developing countries. The PCT continues to deliver on its 2018 Action Plan, and a full update on its activities is available in the Platform for Collaboration on Tax Progress Report 20202. Innovative programmes such as Tax Inspectors Without Borders (TIWB), which has resulted in over USD 530 million of tax revenue being recovered from tax assessments of over USD 1.7 billion to date, has also helped shore up the national budgets of developing countries.

Access the full report here: OECD SECRETARY-GENERAL TAX REPORT TO G20 FINANCE MINISTERS AND CENTRAL BANK GOVERNORS

Compliments of the OECD.