OCDE - international taxes update

OECD Secretary-General presents in February 2021 a Tax Report to G20 Finance Ministers and Central Bank Governors.

A lot of valuable and updated informations about The OECD’s International Tax Agenda (Tax challenges arising from digitalisation, response to Covid -19, tax and environment, beds measures, tax transparency developments, supporting developing countries) and the Global Forum on Transparency and Exchange of Information for Tax Purposes Progress Report to the G20.

Overview by the OECD Secretary-General

This work is published under the responsibility of the Secretary-General of the OECD. The opinions expressed and arguments employed herein do not necessarily reflect the official views of OECD member countries.

As I look back over my fifteen years as Secretary-General of the OECD, our efforts to transform the international landscape together stand out as one of my proudest achievements. Since its inception, the G20 has supported multilateral co-operation for a globally fair, sustainable and modern international tax system and we have witnessed incredible transformations as a result. I am hopeful that together we can continue our tradition of delivering on another ambitious tax agenda this year as I welcome the Italian presidency of the G20.

The pressing issue at the forefront of the agenda is reforming the international tax system to address the tax challenges arising from the digitalisation of the economy. The need for international co-ordination to resolve the tax challenges of digitalisation and restore stability to the international tax framework is greater than ever, as the COVID-19 pandemic has accelerated digitalisation, public finances are increasingly strained and tolerance for tax avoidance by multinational companies (MNEs) in the current environment is nil. The absence of a multilateral solution to the tax challenges arising from digitalisation would likely lead to a proliferation of unilateral and uncoordinated tax measures, retaliatory trade sanctions and an undermining of tax certainty and investment. The impact of such negative consequences could reduce global GDP by more than 1%.

Today, all the conditions to find a consensus-based solution by the July meeting of G20 Finance ministers are met. First, we have a solid technical basis with the Blueprints of Pillar One and Pillar Two, which you welcomed in October. Public comments have since called for simplifications which can be advanced by July to make both Pillars fully implementable. Second, the political conditions for a deal in July are present with very strong and positive messages from the new US Administration.

This constructive attitude to “re-energise the negotiation” echoes the strong signals from the Ministerial roundtable at the first public meeting of the G20/OECD Inclusive Framework in January where there was consensus on The Honourable Chrystia Freeland’s declaration “let’s get it done!” Reaching a solution between now and your July meeting will only be achieved with your strong leadership and unequivocal political support and involvement.

Beyond the corporate income tax challenges, we are advancing the work on tackling other tax challenges arising from the digitalisation of the economy.

• New technologies emerging in the digital space raise novel tax challenges. The overall market capitalisation of virtual currencies has reached over USD 1 trillion, a figure that has increased fourfold since I last reported to you. We are developing a new tax reporting framework for crypto-assets, with a view to presenting a comprehensive implementation package to you later in 2021.
• The implementation of the OECD’s standards for the effective collection of VAT on online sales of goods, services and digital products have continued to influence worldwide VAT reform. Thus far, 69 countries have implemented, or enacted legislation to implement, the standards and 40 countries are on course to implement the standards. The standards have minimised competitive distortions between online traders and traditional businesses and continue to yield considerable revenue. In addition to this ongoing work, we will deliver new guidance on the VAT treatment for the sharing and gig economy in 2021.
• Following the development of model rules for reporting on sellers in the sharing and gig economy, endorsed at your July 2020 meeting, we are working towards agreement on a new framework to support the international exchange of information furnished by platform operators under the new rules. This will greatly facilitate and ensure tax compliance by online sellers.

Responding to the COVID-19 crisis

Tax has a key role to play in responding to the COVID-19 crisis, which has resulted in a drop in economic activity without precedent in recent history. Tax revenues are likely to be significantly reduced for a number of years, on account of both direct effects of the crisis and policy actions taken. The unprecedented nature of the crisis is prompting a reflection on whether some new tax measures could be contemplated and more traditional measures reconsidered. In April 2020, the OECD delivered to you the report “Tax and Fiscal Policy in Response to the Coronavirus Crisis: Strengthening Confidence and Resilience”, which took stock of more than 700 tax measures taken by governments around the world to help businesses stay afloat, support households and preserve employment in the immediate aftermath of the crisis. Since then, the OECD has continued to track tax policy responses to the crisis and I will furnish a new report with the latest developments to you at your next meeting in April 2021.

In addition, we have also swiftly addressed important issues that international businesses and mobile workers have faced as a result of the COVID-19 crisis. Since my last report, the G20/OECD Inclusive Framework has published new guidance on the transfer pricing implications of the COVID-19 pandemic, which provides much needed clarification and support for taxpayers and tax administrations as they navigate the application of international transfer pricing rules for periods impacted by the COVID-19 pandemic. In January 2021, the OECD also published updated guidance on the impact of the COVID-19 pandemic on the interpretation of tax treaties to provide more certainty to taxpayers during this exceptional period.

Pathways to carbon neutrality through tax reform

As countries consider how best to build back better, the contribution of tax to mitigating climate change must now be strengthened. Our economies are increasingly confronted with urgent environmental challenges that, if left unaddressed, threaten the functioning of economic and social systems. Our work reveals that, at present, 70% of all energy-related CO2 emissions across G20 and OECD countries are completely untaxed and some of the most polluting fuels remain among the least taxed. Emissions trading systems (ETS) contribute to carbon pricing, and increasingly so, but overall, the resulting carbon price falls well short of what is needed to reach Paris Agreement goals. Building on the commitments of many of your governments to reach carbon-neutrality around the middle of the century, co-ordination on fiscal instruments including carbon pricing can steer transformational change, as CO2 remains seriously under-priced and global CO2 emissions continue to rise.

Well-designed energy and carbon taxes can strengthen domestic revenue mobilisation and contribute to supporting growth, sustainability and inclusiveness in tax systems. Since I last reported to you, the OECD published a new report examining energy taxation in 15 developing and emerging economies in Africa, Asia, Latin America and the Caribbean. The report, published in January 2021, found that 83% of energy-related CO2 emissions in the countries surveyed are entirely untaxed and that they could generate revenue equivalent to around 1% of GDP if they set carbon rates on fossil fuels equivalent to EUR 30 per tonne of CO2 (a low-end estimate of carbon costs today, and a starting point for price levels required to reach Paris Agreement targets). Tax systems that integrate environmental goals could help ensure long-term, viable financing for sustainable development in such countries.

The OECD will soon release the update of our flagship Effective Carbon Rates report, providing a comprehensive view of how energy taxes, carbon taxes and emissions trading systems result in price signals to reduce carbon emissions. We are also working with the IMF to investigate common ways of measuring carbon pricing with a view to furnishing you with a report at your next meeting in April 2021. This work should help facilitate a policy dialogue on carbon pricing and form the basis for discussions at the first ever G20 Tax Symposium on tax and environment in July 2021.

Further progress on the tax agenda

In an increasingly uncertain world, providing tax certainty is crucial to facilitate global growth and cross-border investment. The implementation of the G20/OECD BEPS project is critical to this objective and continues to deliver results. Since my last report to you in October 2020:

• Treaty shopping has become even less feasible. Ten additional jurisdictions have deposited their instrument of ratification for the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI). This brings the total number of jurisdictions to ratify to 63 among the 95 jurisdictions that have signed the MLI. The MLI now covers over 1 700 bilateral tax treaties and started to become effective as of 1 January 2021 for approximately 650 treaties, with an additional 1 200 treaties to become effectively modified once the MLI is ratified by all Signatories.
• The practices of MNEs have become more transparent. Over 30 000 exchanges on previously secret tax rulings have taken place since 2016. In addition, over 90 jurisdictions are exchanging Country-by-Country reports (CbCR) on the activities, income and assets of MNEs since June 2018. More than 2 700 bilateral relationships have been established for the exchange of CbCR between jurisdictions.
• Jurisdictions have amended or abolished almost 300 preferential tax regimes, which allowed MNEs to avoid tax on their international activities. Since 2015, 295 regimes of 80 jurisdictions have been reviewed and virtually all of the regimes that were identified as harmful have been amended or abolished.

The Global Forum on Transparency and Exchange of Information for Tax Purposes (Global Forum), which now has 162 member countries and jurisdictions, continues to step up the fight against offshore tax evasion.

• Since I last reported to you, the Global Forum published the first peer reviews of the automatic exchange of financial account information (AEOI) standard, assessing the legal frameworks in 100 jurisdictions engaged in AEOI. The December 2020 report showed that 88% of jurisdictions engaged in automatic exchange since 2017-18 have satisfactory legal frameworks in place or need only minor improvement.
• A total of EUR 107 billion of additional revenues (tax, interest, penalties) have been identified so far, thanks to voluntary disclosure programmes and similar initiatives and offshore investigations.
• Through the implementation of global tax transparency standards, information on 84 million financial accounts was exchanged in 2019 with a total value of around EUR 10 trillion.
• The Global Forum has already commenced the reviews of the effectiveness of AEOI in practice in the first 100 jurisdictions engaged in AEOI. Progress on the reviews will be reported to you.

Tax and development

Set against the COVID-19 crisis, the work to build effective tax systems in developing countries has never been more important. A critical part of this work focuses on ensuring that developing countries benefit from the significant changes in the international tax system. To date, 43 bespoke induction programmes, to support new members of the G20/OECD Inclusive Framework to implement their BEPS priorities and build capacity, have been launched. The OECD/UNDP Tax Inspectors Without Borders (TIWB) initiative has been especially relevant during COVID-19 as a practical tool to help developing countries collect all taxes due from MNEs. TIWB continues to expand its scope with 84 programmes ongoing or completed and 21 forthcoming. The initiative has helped raise over USD 775 million in additional tax revenues and overall tax assessments in excess of USD 2.3 billion up to the end of 2020.

Source : OECD (2021), OECD Secretary-General Tax Report to G20 Finance Ministers and Central Bank Governors – February 2021, OECD, Paris, www.oecd.org/tax/oecd-secretary-general-tax-report-g20-finance-ministers-february-2021.pdf.