OECD eyes 1-year extension of digital service tax moratorium

The Organisation for Economic Co-operation and Development (OECD) announced a potential one-year extension of a moratorium on digital services taxes while countries continue to negotiate toward an agreement to allow taxing rights based on sales under Pillar 1 of the OECD’s two-pillar approach to international reform.

The announcement came as part of a broader statement outlining several developments on both Pillar 1 and 2. Pillar 1 deals with the allocation of taxing rights based on sales into a country and applies to companies with a global turnover above 20 billion euros and a profit margin above 10%. Nearly all 140 of the OECD’s member countries originally agreed to pursue the Pillar 1 and 2 framework in 2021. As part of that deal, countries agreed not impose new digital service taxes until 2024 while they negotiated a final agreement.

The new OECD announcement provides an extension of that moratorium until 2025 if at least 30 countries representing 60% of covered entities sign the multilateral convention (MLC). The moratorium can be further extended through 2025 “if sufficient progress has been made toward implementation.”

The statement acknowledged concerns expressed by many countries with the MLC and said efforts to resolve the issues are underway. The OECD said the MLC will be opened for signature sometime in 2023 with the objective or entering into force in 2025.

Pillar 1 remains politically controversial with many Republicans opposing it. In order for the MLC to take effect in the U.S., it would generally require two-thirds majority for ratification in the Senate, though the administration has discussed options for implementing it without a formal treaty ratification.

Implementing the Pillar 2 global minimum tax here in the U.S. would only require regular legislation amending the tax code, but this has also proven difficult in the face of Republican opposition. The Ways and Means Tax Subcommittee will hold a hearing July 19 reviewing the global tax agreements where Michael Plowgian, Treasury deputy assistant secretary for international affairs, is expected to appear.