December 13, 2019
Report on recent US international tax developments – 13 December 2019
The Organisation for Economic Co-operation and Development (OECD) on 9 December held a public consultation meeting on the Global Anti-Base Erosion (GloBE) Proposal under Pillar Two of the ongoing project titled “Addressing the Tax Challenges of the Digitalisation of the Economy.” The consultation began with the OECD Secretariat and the German Chair of the Inclusive Framework providing assurances that the Base Erosion and Profit Shifting (BEPS) 2.0 project will continue to move forward. In regard to Pillar Two, the OECD Secretariat laid out a timeline for future work on the GloBE proposal in the near term, including plans to issue an additional and more detailed consultation document on Pillar Two early in 2020. The comments made by stakeholders during the consultation session reflected clear differences in views about the GloBE proposal between the business community and non-governmental organizations.
The public consultation took place against the backdrop of last week’s unexpected exchange of letters between United States (US) Treasury Secretary Steven Mnuchin and the OECD Secretary General, in which the Treasury Secretary said the US had “serious concerns” about the proposals under Pillar 1, which provide a new nexus concept and new and revised profit allocation rules. The Treasury Secretary suggested that the goals of Pillar 1 could be “substantially achieved” by making it a safe harbor regime. The tax press this week quoted Pascal Saint-Amans, Director of the OECD Centre for Tax Policy and Administration, as saying the letters created the need for “unplanned and urgent meetings.” Referencing the correspondence, Saint-Amans said, “We heard from the G-20 a pretty strong level of support and consensus to move this work forward.”
Saint-Amans also confirmed that the Inclusive Framework steering group would be meeting soon to develop a progress report for the broader Inclusive Framework group that will serve as the basis for reaching agreement at a planned meeting for the end of January 2020. The report is expected to include an update on Pillar 2, including recommendations on key design elements.
Another OECD official this week disclosed that the organization is engaged in ongoing economic modeling of the Pillar 1 and Pillar 2 proposals that will be released beginning in early 2020. The official was quoted as saying that while the OECD continues to refine its analysis, it appears that there would be modest global net tax revenue gains under Pillar 1, with low and middle income economies benefiting more than more advanced economies. The global net tax revenue gains under Pillar 2 would be greater than under Pillar 1, but those results are less certain due to the lack of details, including the minimum tax rate and whether some form of blending of income subject to varying tax rates would be adopted.
For additional information with respect to this Alert, please contact the following:
Ernst & Young LLP, International Tax and Transaction Services, Washington, DC