Update issued on tax challenges of digitalization

Tax Hot Topics newsletter The Organisation for Economic Co-operation and Development (OECD) delivered a progress report to the G20 regarding the tax challenges of digitalization on July 18.

The 137-country Inclusive Framework (IF) at the OECD addressing the tax challenges of digitalization is working to overcome “divergent” views on implementation of a two-part digital plan and will release blueprints of both portions of the plan by October.

The OECD is working to get the 137 countries of the IF to agree to overhaul global tax rules and agreements to address how big technology companies are taxed. Pillar One of the plan would reallocate some of multinationals’ profits to jurisdictions where they have users or consumers. Pillar Two would establish a global minimum tax to address tax competition between countries.

Since January 2020, Pillar One has worked on defining the rules which give new tax jurisdiction to market countries and source rules that determine how much revenue to allocate to those market countries. According the report, work continues regarding ways to address complexities. Regarding Pillar Two, technical work has progressed on defining the tax base.

Countries within the IF disagree over whether the two pillars must be adopted together and whether the implementation should be phased. Failure to reach consensus would encourage more countries to consider adoption of digital services taxes (DSTs). The United States has threatened retaliatory tariffs with regard to France’s and other OECD nations’ DSTs.

According to the report, the technical work should be advanced enough to allow “political” decisions to be taken on both pillars in October.

David Sites
Washington National Tax Office
T +1 202 861 4104

Steven Wrappe
Managing Director
Washington National Tax Office
T +1 202 521 1542

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