OECD researchers spoke during a webinar about a report released Oct. 12 on the proposals' economic impact. The report found that the proposals, Pillar One and Pillar Two, could affect up to $80 billion in annual tax revenue, mostly shifting it from "investment hubs," or low-tax jurisdictions, to developed as well as developing nations.
Åsa Johansson, a senior economist with the OECD, said the study used data taken from before the pandemic. While the long-term effects will be difficult to estimate, in the short term the outbreak and ensuing lockdowns will probably cut the revenue in play, she said.
"The crisis is likely to reduce the expected revenue gains of both pillars, at least in the short term," Johansson said, "since most firms' profits have been reduced, due to the slower economic activity that we're seeing now, perhaps with the exception of some digital-intensive multinationals that have seen an increase in activity."
The OECD also released final blueprints of the proposals Oct. 12, outlining several provisions that countries have helped craft over the past three years but have not agreed to in full yet. Under Pillar One, countries would be able to tax multinationals based on sales in certain businesses — categorized as "automated digital services" and "consumer-facing businesses" — regardless of whether they maintain a physical presence there. Pillar Two would set a global corporate minimum tax, which would allow countries to tax companies if their foreign income is taxed below a certain rate.
Both proposals face long odds, as several outstanding political questions have yet to be resolved, and the U.S. has announced opposition to some aspects.
Johansson added that the effects of the COVID-19 pandemic could worsen the consequences if the OECD is unable to forge a consensus solution on questions about digital taxation.
"For instance, we have seen an intensification of digitalization, and that can potentially increase the importance of the automated digital services in Pillar One," she said. "So all in all, extra digitalization, fiscal pressures that are likely to come from the COVID crisis and a growing dissatisfaction with tax avoidance are likely to lead to further unilateral tax measures in the absence of a consensus solution."
The OECD is accepting public comments on the proposals until Dec. 14 and has said it will hold a public consultation with stakeholders in January 2021.
The OECD did not immediately respond to a request for further comment.
--Editing by Neil Cohen.
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