An OECD agreement on an anti-base-erosion regime may not incorporate all design details, according to a U.S. Treasury official.
As part of the OECD-level work that is rethinking the international tax framework, countries are mulling a global anti-base-erosion proposal targeting unresolved base erosion and profit-shifting issues. The proposal falls under the second pillar of the OECD’s two-pillar project to craft a solution on the tax challenges of digitalization that attracts global consensus by 2020.
Brian Jenn, Treasury deputy international tax counsel, explained April 16 during the 19th annual NYU/KPMG Tax Symposium in New York that it is too early to assess the level of detail in a global framework that might come out of the OECD’s pillar 2 work. However, he indicated that an OECD standard might not incorporate all mechanics of a minimum tax regime.
An agreement could tend “towards looser consensus and not being highly prescriptive about how you implement the basic goal of achieving a minimum tax rate,” Jenn said. But a consensus-based regime likely will have to address several key design questions, he added.
“For instance, the issue of whether you’re topping up to the minimum rate or you’re topping up to the country’s headline rate, I think that is a fundamental issue,” Jenn said. “Also, the basis on which you’re measuring whether your effective tax rate is meeting the minimum rate or not . . . [i.e.,] is it a global measurement of effective tax rate, country-by-country, or some other level of aggregation? I think that could be something that is part of the outcome as well.”
The proposal, which was set forth in the OECD consultation document released in February, contemplates an income inclusion rule that would function as a minimum tax and a tax on base-eroding payments. U.S. officials have highlighted the design complexities and technical challenges of a minimum tax regime, and Jenn noted there is a lot of technical work to be done on the design and coordination of the anti-base-erosion proposal’s elements.
U.S. Response
The OECD received hundreds of stakeholder submissions in March in response to the consultation document, with public input stressing the importance of simplifying the anti-base-erosion proposal. There is some concern that countries will start implementing U.S.-style minimum tax regimes absent OECD-level coordination.
Jenn said that “it’s too early to know whether and to what extent [an] outcome under pillar 2 is going to differ” from the U.S. regime, such as whether there might be any potential differences between the income inclusion rule and the U.S. global intangible low-taxed income provision.
Jenn further said he “won’t presume to speak for Congress” on whether U.S. rules might be modified to adapt to a potential OECD-level consensus. However, Jenn noted there is precedent for Congress legislating based on an agreement reached at the OECD, most recently with the Tax Cuts and Jobs Act that incorporated provisions consistent with or inspired by select rules from the original BEPS project.
Correction, April 17, 2019: A previous version of the article had the incorrect name of the event.