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World Must Not Lose Focus on Global Tax Overhaul, Germany Urges

Posted on Apr. 13, 2020

The world needs to stand together, not only to fight the coronavirus pandemic, but also to agree on an OECD solution to update global tax rules for the digital age, Germany’s finance minister said.

In an April 9 speech, German Finance Minister Olaf Scholz underscored the gravity of the pandemic’s effect on public health and world economies, and the importance of global solidarity to tackle those issues. He was speaking during the virtual Global Solutions Summit.

“Viruses don’t discriminate by nationality or income. They attack all of humanity,” Scholz said. Therefore, it’s essential to ensure that countries have enough fiscal firepower and strong budgets to act, he added. “That is why it remains important — also in this time of crisis — that we put an end to profit shifting and tax avoidance,” he said.

Although countries have already moved in the right direction with the OECD’s base erosion and profit-shifting project, they still need international tax rules that are fit for the digital economy, according to Scholz. He pointed to a key two-pillar proposal that nearly 140 countries are considering through the OECD’s inclusive framework on BEPS in the hope of finding agreement by the end of 2020.

Countries hope the 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 not covered by the original BEPS project.

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. Pillar 2 is largely based on a concept that Germany and France proposed in November 2018. “Put both pillars together, and there is real scope to build a smarter and fairer global corporate tax framework,” Scholz said.

Agreement on the solution would strengthen national budgets, eliminate double taxation, ensure legal certainty for businesses, and prevent trade conflicts that would arise because of unilateral measures to tax the digital economy, according to Scholz.

“And an agreement will support the long-term economic recovery across the globe after [the coronavirus crisis]. We have to be successful,” Scholz said. “In these difficult times, many matters are taking a back seat to more immediate concerns. But we must do our best to not let important issues slide.”

Although the pandemic has ground most global economic activity to a halt, the OECD secretariat has said that the work on the solution remains on schedule thanks to virtual channels to keep the momentum going. Countries were expected to reach political agreement on the solution during the inclusive framework’s next plenary, scheduled for July 1-2 in Berlin.

Some business groups, meanwhile, have called for a delay in the OECD project’s timeline, citing the difficult economic situation that many companies now face as they deal with the economic fallout of the pandemic.

However, the pandemic has raised the stakes for the work on the solution as countries look for ways to pay for their economic response packages, including pushing ahead with unilateral measures such as digital services taxes, according to observers.

Scholz’s speech comes the same day that EU finance ministers reached agreement on a €540 billion economic package to respond to the coronavirus crisis after a marathon Eurogroup meeting.

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