Despite reassurances in early March that the COVID-19 pandemic would not set back its digital tax work, the OECD has hinted there may be a delay in achieving an international consensus on new international tax rules for the digital economy this year.
The disclosure was made during the OECD's latest Tax Talks webcast, held on 4 May 2020. The OECD uses these webcasts as an opportunity to update stakeholders on its current work on tackling tax base erosion and profit shifting, as well as other initiatives.
A year ago, the BEPS Inclusive Framework agreed a Program of Work for Addressing the Tax Challenges of the Digitalization of the Economy. The OECD was tasked with developing a regime centred around two pillars, which would enable states to better tax income derived by digital platforms when engaging with consumers in their territories. This work was due to be presented for international agreement by the end of 2020.
The proposed digital tax architecture would comprise: new profit allocation and nexus rules, which would allocate taxing rights between jurisdictions in respect of multinationals' digital income; and a minimum tax rule, which would ensure that multinational businesses deriving significant profits from digital activities pay at least a minimum amount of tax, wherever that may be.
Rather than taking forward this agenda, the OECD's May 2020 webcast was instead dominated with discussions about governments' responses to support their economies in light of COVID-19. The OECD reported that over 100 countries have so far announced more than 700 measures in response to COVID-19, including extending tax payment and filing deadlines, allowing taxpayers to defer payment, and suspending debt recovery.
The OECD told stakeholders that its work towards a digital tax consensus is ongoing, with meetings having been conducted remotely with delegates since the COVID-19 outbreak began in March.
- An Update on the OECD’s Digital Tax Work
- The OECD's New Rules for the Sharing and Gig Economies
- UK Delays Expansion Of Making Tax Digital
- New Zealand Mulls Removing GST From Crypto-Assets
However, the OECD reported that:
"delegates from the Inclusive Framework on BEPS continue working towards a G20 mandate of reaching a multilateral, consensus-based solution by year-end," they have "agreed to postpone the delivery of a political decision from a plenary meeting scheduled for July in Berlin to a new, as-yet-undetermined date in October."
"A virtual plenary meeting of the Inclusive Framework on BEPS is scheduled for July 2020, where delegates will discuss a range of ongoing work, including the fiscal aspects of the COVID-19 crisis."
Back in February 2020, it emerged that countries were at odds with one another about the digital tax proposals. The OECD acknowledged that countries had expressed concerns about aspects of the project, and, in particular, many states were critical about the proposal from the US that the new digital tax framework could be introduced on a "safe harbour" basis, which could potentially make optional its adoption globally.
With countries transfixed presently on domestic policy issues, the disclosure from the OECD that states have pushed back progress until at least October, and with many issues still be negotiated, it may be the case that the soft deadline for approval of the new international tax framework may be pushed back to 2021.
Already some states have indicated that they are looking at unilateral solutions, perhaps in anticipation that there will be no solution to the digital tax conundrum hammered out this year:
- The UK introduced its own digital services tax from April 2020;
- France's Finance Minister Bruno Le Maire has said France will begin collecting its digital services tax this year;
- The Philippines has announced new plans for a levy; and
- The Czech Government, eyeing adoption by January 2021, has revised its plans for a digital services tax and is considering a lower rate.
Only time will tell whether the OECD will be able to bring the international community together under one banner.