The 137 countries involved in talks on base erosion and profit shifting (BEPS) due to the digitalization of the economy have agreed to keep working toward an agreement on the taxation of digital companies by mid-2021, thus acknowledging that they will fail to strike a deal by the end of the year, according to the Organisation for Economic Co-operation and Development (OECD).
The year-end deadline had been set by the G20, an international forum for the governments and central bank governors from 19 countries and the European Union.
The OECD said that countries taking part in the talks recognized that “negotiations have been slowed by both the Covid-19 pandemic and political differences,” but blueprints released today “reflect convergent views on key policy features, principles and parameters for a future agreement.”
Pascal Saint-Amans, who is in charge of fiscal policies at the OECD, said that the proposal is nearly ready but there is no political agreement yet, partly because of the opposition of the U.S., which hosts many of the digital giants.
The OECD added that participants had approved for public consultation a proposal, referred to as “Blueprint for Pillar One,” which would establish new rules on where tax should be paid and a fundamentally new way of sharing taxing rights between countries. “The aim is ensure that digitally-intensive or consumer-facing Multinational Enterprises (MNEs) pay taxes where they conduct sustained and significant business, even when they do not have a physical presence, as is currently required under existing tax rules,” the Paris-based organization said.
Countries also approved for public consultation another project, dubbed “Blueprint for Pillar Two,” which would introduce a global minimum tax to help countries address remaining issues linked to base erosion and profit shifting by MNEs.
The OECD warned that the absence of a consensus-based solution “could lead to a proliferation of unilateral digital services taxes and an increase in damaging tax and trade disputes, which would undermine tax certainty and investment.”
In the worst-case scenario, failure to reach an agreement could reduce global gross domestic product by more than 1 percent annually, the OECD added.
The OECD has released a survey indicating that up to 4 percent of global corporate income tax revenues, or $100 billion annually, could result from the implementation of the global minimum tax. The analysis also shows that a further $100 billion could be redistributed to market jurisdictions thanks to a fairer international tax framework.