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More Trade Groups Call for OECD Tax Overhaul Delay During Crisis

Posted on Mar. 31, 2020

Two more industry groups are dialing up the volume on calls to their respective governments to delay the timeline of the OECD’s work on a global corporate tax overhaul in light of the coronavirus pandemic.

In a March 27 letter to U.S. Treasury Secretary Steven Mnuchin, obtained by Tax Notes on March 30, the National Foreign Trade Council (NFTC) noted the complexity of a two-pillar solution to modernize corporate tax rules. The OECD, which is leading the technical work on the design of that solution, 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 of the solution calls for a “unified approach” to revising profit allocation and nexus rules, and pillar 2 consists of a global anti-base-erosion proposal that would introduce global minimum taxation. Because the work is so complex, significant resources are required not only from the OECD and governments, but also businesses, according to the letter.

The OECD’s Centre for Tax Policy and Administration on March 17 said that, despite the coronavirus emergency, the work continues as scheduled and it expects to meet a key July deadline for reaching a political decision on the solution.

The inclusive framework’s efforts should concentrate instead on policy responses to the immediate crisis, as well as on tax measures to address the economic effects that affect trade, investment, jobs, and economic growth, according to the NFTC letter.

“Avoiding uncoordinated unilateral tax measures while devising new tax rules are worthwhile goals to pursue, and should not be abandoned, but timelines for finalizing the new rules should be realistic and a new timetable should be established given the current circumstances,” the letter says.

As such, G-20 finance ministers should ask the OECD to refocus its expertise to “advise on possible coordinated pro-growth measures that could help mitigate the economic damage of the coronavirus pandemic, rather than pushing full-steam ahead on complex and politically difficult proposals that are not conducive to growth,” the letter adds.

The finance ministers should also agree that they will not push unilateral actions to give the OECD more time to finish its work. “Those proposals can be negotiated at an appropriate time in the future,” the letter says. “Expending precious resources on them now does not make sense.”

Catherine Schultz, the NFTC’s vice president for tax policy, told Tax Notes that Treasury had not yet responded to the letter, which she wrote. Treasury did not respond to Tax Notes’ request for comment by press time.

“Given the difficult economic situation we are currently in, slowing down the OECD tax work until we have a better understanding of the lasting economics of the pandemic makes more sense than trying to keep the current time frame they are working under,” Schultz said.

The NFTC’s letter follows a similar letter to Treasury from the U.S. Council for International Business. That letter, dated March 23, had recommended delaying the OECD’s work on the solution by at least six months.

Separately, the Federation of German Industries (Bundesverband der Deutschen Industrie, or BDI) on March 26 published eight recommendations for the German government to adopt to further help companies as they grapple with the economic fallout of the coronavirus pandemic.

The BDI called for postponing new compliance requirements, citing the limited resources that companies have as they deal with the crisis. These include measures being considered as part of the OECD’s project to address the tax challenges of the digital economy, according to the BDI. The discussion and implementation of the proposals will create significant administrative overhead for companies, and the additional burden would not be reasonable given the circumstances, the BDI said.

Pascal Saint-Amans, director of the Centre for Tax Policy and Administration, previously said the OECD has prioritized working on tax policy advice for its members to respond to the crisis and continues the work on the global tax overhaul according to the mandate that the G-20 gave the OECD. He also noted that businesses have different views on the timeline issue. Saint-Amans declined to comment further on the NFTC’s letter.

In a March 30 op-ed, Saint-Amans wrote that reaching a solution by the end of 2020 in line with the G-20 mandate is becoming even more urgent as more governments, including many in Europe, consider adopting unilateral digital tax measures.

“What lies in the balance is the result of decades of multilateral efforts to create a predictable international framework that fosters tax certainty,” Saint-Amans wrote. “Failure to deliver on a consensus-based solution will ultimately lead to a patchwork of unilateral measures with negative consequences for businesses and ultimately for growth. Only a robust multilateral response can avert this.”

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