Tax and trade officials say the OECD may be unable to achieve consensus by the end of the year on its plan for addressing the digital economy unless countries become more open to compromise.
Amy Roberti, director of U.S. federal government relations and global tax policy at Procter & Gamble, said there's a long way to go before consensus is reached on the OECD's plan for a global solution to taxing the digital economy, but time is running out.
“We just need to do something about these [unilateral digital services taxes] and figure out a solution at the OECD, because . . . the gross receipts tax is not the answer to what is either a consumption tax kind of issue — consumption of services — or . . . an income tax issue," Roberti said February 3 at a forum titled “Tax and Trade Wars” hosted by Georgetown Law’s graduate tax program, its Institute of International Economic Law, and the USA branch of the International Fiscal Association in Washington.
France recently imposed its own 3 percent DST, and other countries are following suit.
"Whether you're hit by DSTs or not, I think there's a real interest in getting into an agreement," Roberti said. "If we can be realistic about the exercise we're undertaking, we can get to a result that works with business and works for tax administrations, but there's a long, long way to go to get there, and not a lot of time.”
Roberti and fellow panelist and Georgetown Law professor Itai Grinberg said they were perplexed by the challenges outlined in a statement issued February 3 by the OECD’s inclusive framework on base erosion and profit shifting. Although members of the inclusive framework agreed to press forward with a two-pillar work program to revise the international corporate tax system by the end of 2020, they acknowledged that some issues — including the unified approach for increasing market countries’ taxing rights and the United States' safe harbor proposal under pillar 1 that would allow companies to opt into or out of the unified approach — remain problematic.
However, Roberti said she is happy to see an openness among countries, a path forward for some of the technical work, and some good ideas for how to reach agreement.
Pillar 1 of the work program relates to revised profit allocation and nexus rules, and pillar 2 consists of a global anti-base-erosion proposal that would provide for global minimum taxation. The two pillars are meant to serve as a foundation for an internationally agreed approach to allow countries to tax multinational companies that raise revenues in their jurisdictions despite having little or no physical presence there.
Christian Schleithoff, head of the German embassy’s financial division, also expressed hope that the OECD can accomplish its 2020 deadline goal, but said it will require compromise.
"There's a long way to go, but what I've seen in the OECD is that there is momentum," Schleithoff said. "This is the main issue — to come to a compromise, and all parties have to come to it. . . . And since there are 137 different countries in the room, you can imagine how difficult it is.”
Schleithoff warned that if an agreement is not reached by the end of the year, there will be an increase in unilateral action. But he said U.S. Treasury Secretary Steven Mnuchin’s call for pillar 1 to be implemented on a safe harbor basis probably will not be approved. “The U.S. indeed has proposed a safe harbor rule . . . that means that American companies would be able to decide by themselves how they will be taxed in a poor country. And I have serious doubts that any other country would accept that,” Schleithoff said.