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G-7 Ministers to Return to Digital Tax Agenda Once Crisis Slows

Posted on Apr. 15, 2020

The G-7 finance ministers and central bank governors will refocus on their ongoing work on a global tax overhaul for the digital age after the urgency of the coronavirus pandemic subsides.

“Once the immediate impacts of the crisis abate, ministers and governors will return to other priority agenda items, such as further promoting debt transparency and sustainability, addressing tax challenges resulting from the digitalization of the economy, addressing illicit financial flows, and setting proper frameworks for digital assets and cybersecurity of the financial sector,” the group said in a chair summary published after its virtual April 14 meeting. The United States holds the G-7 presidency and the statement was posted on Treasury's website.

The G-7 ministers and governors also discussed coordinated responses to fight the COVID-19 pandemic and ways to curb the global economic shocks it has caused.

The G-7 countries — Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States — have been deeply involved in ongoing OECD-led work on a solution to address the tax challenges of the digital economy.

That solution involves two pillars, with pillar 1 calling for a “unified approach” to revising profit allocation and nexus rules and pillar 2 consisting of a global anti-base-erosion proposal that would introduce minimum corporate taxation. 

The G-20 had directed the OECD to spearhead efforts to find consensus on a solution by the end of 2020. Nearly 140 countries belonging to the OECD inclusive framework on base erosion and profit shifting are aiming for political agreement at their next meeting, scheduled for July 1-2.

Countries hope the multilateral solution will allow them to tax multinational companies that raise revenues in their jurisdictions with little to no physical presence under current tax rules and to address remaining issues that the original BEPS project did not address.

The solution is also expected to stave off the proliferation of unilateral measures, such as revenue-based digital services taxes, which have heightened trade tensions between countries such as the United States and France.

The OECD’s Centre for Tax Policy and Administration confirmed on March 17 that the work continues as planned and on schedule amid the pandemic. However, many business groups have called for a delay in the project’s timeline, citing the difficult economic situation that companies now face in the wake of the coronavirus crisis.

In an April 9 speech, German Finance Minister Olaf Scholz underscored the importance of agreeing on a multilateral solution, which would help support long-term global economic recovery after the pandemic tapers off, prevent trade wars resulting from unilateral measures, and eliminate double taxation.

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