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Executive summary

On 15-16 July 2022, the G20[i] Ministers of Finance and Governors of Central Banks met in Bali, Indonesia. The meeting was attended by G20 members, invited countries (including Ukraine), and international and regional organizations. The G20 Chair’s summary issued at the conclusion of the meeting includes a reiteration of the G20 Finance Ministers’ ongoing commitment to implement the agreement on the G20/Organisation for Economic Co-operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) 2.0 two-pillar international tax package. The summary includes a call for action to finalize Pillar One, including by signing the Multilateral Convention (MLC) in the first half of 2023, and to complete the negotiations that would allow the development of the Multilateral Instrument for implementation of the Subject to Tax Rule (STTR) under Pillar Two. The summary was issued by the G20 Chair and it is not a joint statement.

In advance of the meeting, the OECD released the OECD Secretary-General Tax Report to G20 Finance Ministers and Central Bank Governors (the Report), providing an overview of the latest international tax developments, including updates on Pillars One and Two. Annexed to the G20 Report is the Progress Report on Amount A of Pillar One, released by the OECD Secretariat on 11 July 2022 for public comment.[ii]

Detailed discussion

OECD Secretary-General report

On 11 July 2022, the OECD Secretary-General released the tax report to the G20 Finance Ministers and Central Bank Governors ahead of their 15-16 July meeting under the 2022 Indonesian Presidency. This Report provides updates on the BEPS 2.0 project and the launch of the Inclusive Forum on Carbon Mitigation Approaches, as well as on the ongoing work on tax and development, tax transparency and implementation of the outcomes of the original BEPS project. In addition, the Report includes as an Annex the Progress Report on Amount A of Pillar One prepared by the OECD Secretariat and released as a consultation document.[iii]

On BEPS 2.0, the Report notes that the technical work on Pillar Two is close to completion following the release of the Global Anti-Base Erosion (GloBE) Model Rules^[iv] and the related Commentary.^[v] According to the Report, most countries are planning for entry into force of the GloBE rules in 2024, which will provide sufficient time for the Inclusive Framework on BEPS to develop the Pillar Two Implementation Framework.

In addition, the Report notes that work is progressing on the Pillar Two STTR draft model provision and related Commentary as well as the draft multilateral instrument to facilitate its implementation.

Regarding Pillar One, the Report indicates that negotiations are ongoing, noting that progress has been made based on the stakeholder input provided in the series of public consultations on key building blocks held earlier this year.[vi] The Report also states that work on Amount B has been progressing, indicating that its release is expected by the end of 2022. The Report further notes the Progress Report released on 11 July 2022 (and attached as an annex)[vii] and refers to the new timeline agreed by the Inclusive Framework to deliver the MLC for the implementation of Amount A as a more realistic timeline that increases the chances of global implementation.

On the Inclusive Forum on Carbon Mitigation Approaches (the Inclusive Forum) that was launched in June 2022, the Report indicates that it is expected to comprise both OECD and non-OECD members, and its objective is to assist policymakers in converting high-level policy ambitions, such as those under the Paris Agreement and the United Nations Sustainable Development Goals, into tangible outcomes domestically. The Report further notes that the Inclusive Forum also could help countries use low-carbon development policies to achieve domestic resource mobilization. Work on the procedural aspects of the Inclusive Forum is currently advancing.

On tax and development, the Report notes that domestic resource mobilization and tax sustainability remain challenging areas for developing countries, especially in the current environment of increasing prices. During the Indonesian Presidency’s G20 Ministerial Symposium on Tax and Development held on 14 July 2022, the implementation of international tax standards, including the BEPS measures and exchange of information, and the consequences of the implementation of Pillar Two for developing countries, as well as improvements in tax administration, were identified as the key priority areas for supporting developing countries. In particular, regarding Pillar Two, it was noted that the focus should be on tax incentives and domestic resource mobilization. These views are expected to be considered in the development of a Roadmap on Developing Countries and International Tax to be delivered during the G20 Finance Ministers’ October 2022 Meeting.

On tax transparency, the Report indicates that work is advancing on the global implementation of the Automatic Exchange of Financial Account Information in Tax Matters (AEOI) Standard, with its peer review expected to be finalized before the G20 Leaders’ meeting in October 2022. As of January 2022, technical assistance has been provided to more than 60 jurisdictions, 24 of which received assistance on the implementation of the AEOI standard. Moreover, the Report notes that the number of jurisdictions not having sufficiently implemented the tax transparency standards (the so-called OECD blacklist) has dropped from five to four[viii] since Dominica started exchanging financial account information automatically.

The Report also indicated that progress has been identified in the Global Forum’s regional initiatives. Following the Latin American and African initiatives, the Asia Initiative was released in November 2021 and signed[ix] on 14 July immediately before the G20 Finance Ministers’ meeting.

Finally, the Report provides an update on the ongoing activity with respect to the BEPS minimum standards on the taxation of multinationals:

• BEPS Action 5 (harmful tax practices): the Forum on Harmful Tax Practices (FHTP) has reviewed more than 300 preferential regimes and the substance legislation of 12 no-tax or nominal tax jurisdictions. The first annual monitoring of the effectiveness of the substantial activities requirements in no or only nominal tax jurisdictions was finalized in April 2022, and its outcomes are expected to be published later in 2022.
• BEPS Action 6 (treaty abuse): The Inclusive Framework approved the fourth peer review report, which shows that compliance with the minimum standard on treaty shopping has more than doubled since last year, with about 2,300 of the 2,400 tax treaties concluded between Inclusive Framework jurisdictions expected to comply with the minimum standard shortly.[x]
• BEPS Action 13 (transfer pricing documentation): progress is advancing with over 100 jurisdictions having introduced a domestic legal framework for reporting, 83 jurisdictions having signed multilateral or bilateral competent authority agreements, approximately 90 jurisdictions having been assessed for confidentiality and data safeguards, and 84 jurisdictions having provided the Inclusive Framework with detailed information on the appropriate use of the Country-by-Country reports.
• BEPS Action 14 (dispute resolution): On 1 April 2022, the Inclusive Framework released the ninth batch of Stage 2 peer review reports relating to the outcome of the peer monitoring of the implementation by Andorra, Bahamas, Bermuda, British Virgin Islands, Cayman Islands, Faroe Islands, Macau (China), Morocco, and Tunisia (the assessed jurisdictions).[xi]

G20’s Chair summary

On 16 July 2022, at the close of the G20 Finance Ministers and Central Bank Governors meeting, the G20 Chair issued a summary of the outcomes. On Pillars One and Two, the G20 Chair’s summary states:

We reaffirm our commitment to the swift implementation of the OECD/G20 two-pillar international tax package. We support the ongoing work on Pillar One and welcome the completion of Pillar Two Global Anti-Base Erosion (GloBE) Model Rules, which pave the way for consistent implementation at a global level as a common approach, and look forward to the completion of the GloBE Implementation Framework. We call on the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) to finalize Pillar One, including by signing the Multilateral Convention in the first half of 2023, and call on the Inclusive Framework to complete the negotiations that would allow the development of the Multilateral Instrument for implementation of the Subject to Tax Rules (STTR) under Pillar Two.

On other tax-related issues, the summary indicates that G20 members reaffirmed the objective to strengthen the tax and development agenda in light of the G20 Ministerial Symposium on Tax and Development. In addition, the summary notes that G20 members support the progress made on implementing internationally agreed tax transparency standards, including regional efforts. They welcomed the progress at the OECD on the Reporting Framework for Crypto-Assets as well as the amendments to the Common Reporting Standard and called for their swift completion.

Although the G20 Chair’s summary does not include a reference to the Inclusive Forum on Carbon Mitigation Approaches, G20 Finance Ministers and Central Bank Governors, together with international, attended a High-Level Breakfast Discussion on Climate Mitigation where Ministers and Governors shared best practices, national experiences, and an overview of international efforts to address climate change. 

Implications

The OECD Secretary-General report to the G20 Finance Ministers and the G20 Chair’s summary each provide high-level updates on the tax-related workstreams of the OECD. Both summaries show that there is still work to be done in the Inclusive Framework for the completion and implementation of both pillars of the BEPS 2.0 project, while also reflecting the continued intention of the G20 members to finalize work soon.

It is important for businesses to follow the developments with respect to the BEPS 2.0 project as they unfold, including evaluating the potential impact of the new rules on their organization and considering what will be needed to prepare for the compliance obligations associated with the rules. In addition, affected companies may want to consider taking the opportunity to engage with the OECD and country policymakers through the consultation process on the Pillar One Progress Report that is currently open until 19 August 2022. Businesses also should monitor global developments with respect to tax policy and climate change, including activity in the OECD, the G20 and the European Union.

_________________________________________

For additional information with respect to this Alert, please contact the following:

Ernst & Young Belastingadviseurs LLP, Rotterdam

• Marlies de Ruiter | marlies.de.ruiter@nl.ey.com
• Maikel Evers | maikel.evers@nl.ey.com
• Andromachi Anastasiou | andromachi.anastasiou@nl.ey.com

Ernst & Young Belastingadviseurs LLP, Amsterdam

• David Corredor Velasquez | david.corredor.velasquez@nl.ey.com
• Konstantina Tsilimigka | konstantina.tsilimigka@nl.ey.com

Ernst & Young Limited (New Zealand), Auckland

• Matt Andrew | matt.andrew@nz.ey.com

Ernst & Young LLP (United States), Washington, DC

• Barbara M. Angus | barbara.angus@ey.com

_________________________________________

Endnotes

1. The G20 includes the European Union and 19 individual countries: Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, South Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the United Kingdom (UK), and the United States (US).

2. See EY Global Tax Alerts, OECD releases Progress Report on Amount A of Pillar One of BEPS 2.0 project and invites public comment, dated 11 July 2022 and OECD releases Progress Report on Amount A of Pillar One of BEPS 2.0 project: A detailed overview, dated 15 July 2022.

3. Ibid.

4. See EY Global Tax Alert, OECD releases Model Rules on Pillar Two Global Minimum Tax: Detailed review, dated 22 December 2021.

5. See EY Global Tax Alert, OECD releases Commentary and illustrative examples on Pillar Two Model Rules, dated 21 March 2022.

6. See EY Global Tax Alerts, OECD releases Pillar One public consultation document on draft rules for tax base determinations, dated 21 February 2022, OECD releases public consultation document on draft rules regarding scope under Amount A for Pillar One, dated 12 April 2022, OECD releases public consultation document on Extractives Exclusion under Amount A for Pillar One, dated 25 April 2022, OECD releases public consultation document on Regulated Financial Services Exclusion under Amount A for Pillar One, dated 16 May 2022, and OECD releases public consultation documents on tax certainty under Amount A for Pillar One, dated 7 June 2022.

7. See EY Global Tax Alerts, OECD releases Progress Report on Amount A of Pillar One of BEPS 2.0 project and invites public comment, dated 11 July 2022 and OECD releases Progress Report on Amount A of Pillar One of BEPS 2.0 project: A detailed overview, dated 15 July 2022.

8. Anguilla, Niue, Sint Maarten and Trinidad and Tobago.

9. The Asia Initiative was signed by Brunei Darussalam, Hong Kong (China), India, Indonesia, Japan, Korea, Macau (China), Malaysia, Maldives, Singapore and Thailand.

10. See EY Global Tax Alert, OECD releases fourth annual peer review report on BEPS Action 6 relating to prevention of treaty abuse, dated 4 April 2022.

11. See EY Global Tax Alert, OECD releases ninth batch of Stage 2 peer review reports on dispute resolution, dated 20 April 2022.