Global Tax Reform Project Should Consider COVID-19, ICC Says
The OECD should take into account the coronavirus pandemic’s effects on businesses as it continues to work on updating the global corporate tax rules for the digital age, a major trade group said.
The International Chamber of Commerce (ICC) in an April 21 statement welcomed the measures that governments around the world have adopted in response to the coronavirus crisis. In particular, the group noted the OECD’s efforts to outline tax policy and administration measures for governments to consider and its database of tax measures that governments have taken so far.
Because the pandemic affects all countries and has led to complex issues for the global economy, it requires “an extraordinary fiscal response” from G-20 countries, the ICC said.
When it comes to global tax policy, “policymakers should urge governments to avoid imposing unilateral taxes, such as digital services taxes, that adversely impact cross-border business” and repeal any measures that are already in place, the ICC said.
Governments should commit to supporting the OECD’s project, according to the ICC. “Furthermore, the OECD should consider the impact of the COVID-19 crisis with respect to ongoing work in the pillar 1 and 2 proposals for the taxation of the digitalized economy,” the group said. “Consequences related to scope and impact on certain business models, such as consumer-facing businesses, which are likely suffering more acutely from the COVID-19 crisis, should be considered.”
The OECD is leading work on the design of a two-pillar solution to modernize corporate tax rules and is aiming for consensus among nearly 140 members in its inclusive framework on base erosion and profit shifting by the end of 2020. Pillar 1 calls for a unified approach to revising international profit allocation and nexus rules, and pillar 2 consists of a global anti-base-erosion proposal providing global minimum taxation.
The OECD’s Centre for Tax Policy and Administration has said that despite the pandemic, the work continues as scheduled, and it expects to reach a political decision on the solution during the inclusive framework’s July meeting.
The ICC is not the only group that has commented on the OECD’s work in the context of the crisis. The National Foreign Trade Council recently called for the work to be postponed by at least six months.
The Tax Foundation in an April 22 report also proposed that the OECD suspend its work on the multilateral solution until the global economy grows by 2 percent for two consecutive years. “Only in the context of a healthy global economy would further discussions of a global digital tax fix make sense,” the report says.
However, the G-20 is continuing to push forward on the solution, Saudi Minister of Finance Mohammed Al-Jadaan said after the G-20 finance ministers and central bank governors met virtually on April 15. Saudi Arabia holds the G-20 presidency.
The OECD is assessing the situation, and all input is welcome for feeding the conversation between inclusive framework member states, Pascal Saint-Amans, director of the Centre for Tax Policy and Administration, recently told Tax Notes.
Let’s Keep Talking
Business groups continue to evaluate how the pandemic might affect the OECD’s work. “At [the] Confederation of Danish Industry, we are discussing if the coronavirus situation could have the consequence that the OECD consultation processes will be hampered,” said Sune Hein Bertelsen, the group’s tax policy adviser. “It is very important to analyze the practical consequences of the proposals with full involvement of the business community.”
The Computer and Communications Industry Association has said it continues to support the OECD’s work and still hopes for consensus on a solution by the end of 2020, but recognizes that the timeline may need revisiting. “However, any deferral of the OECD process without a clear alternative timeline risks further proliferation of national digital taxes,” said Heather Greenfield, the group’s director of communications.
The U.S. Council for International Business is also working to provide feedback, according to Carol Doran Klein, its vice president and international tax counsel. While the pandemic is hitting consumer-facing businesses, which would fall under the scope of pillar 1, it is also affecting tech companies because consumers are buying less overall, according to Klein. “That is the new reality — everyone is pulling back, so all businesses that rely on consumer purchasing power are affected, whether traditional or tech, which is ultimately everyone,” she said.
Business at OECD still supports the technical work on the multilateral solution and is communicating business views to the OECD through virtual means, Will Morris, deputy global tax policy leader at PwC, said. Those views were important even before the pandemic because the project is so complex, according to Morris, who is also the tax committee chair for Business at OECD.
“However, with the dramatic impacts that the crisis may have not just in the short term, but also in the medium and longer term, it is even more important that the OECD and inclusive framework members have a clear understanding of not just the most effective and least burdensome ways of achieving their policy objectives, but also . . . of how this project might affect the ability of businesses (and their countries and citizens) to recover from the crisis,” Morris said.