Report To Show Digital Tax Deal Near, OECD Official Says

By Alex M. Parker
Law360 is providing free access to its coronavirus coverage to make sure all members of the legal community have accurate information in this time of uncertainty and change. Use the form below to sign up for any of our daily newsletters. Signing up for any of our section newsletters will opt you in to the daily Coronavirus briefing.

Sign up for our Tax newsletter

You must correct or enter the following before you can sign up:

Select more newsletters to receive for free [+] Show less [-]

Thank You!



Law360 (June 24, 2020, 7:26 PM EDT) -- The OECD should be able to unveil a solution in October on new digital taxation rules, showing that jurisdictions are close to an agreement despite recent hiccups, Pascal Saint-Amans, the organization's top tax official, said Wednesday.

The U.S. recently pushed for a pause in discussions while countries deal with the fallout from the novel coronavirus pandemic, and many jurisdictions are moving ahead with their own unilateral digital services taxes, defying U.S. opposition. But Saint-Amans, the Organization for Economic Cooperation and Development's deputy director for tax administration, said after the U.S. presidential election in November, the sides may have more room to maneuver.

Saint-Amans did not rule out finalizing a deal by the end of 2020. The OECD's most recent progress report on the project was in January.

"We can have a report in October that will show that, from the outline in January to where we are, we are near the solution. We are near the agreement," he said, speaking during a webcast hosted by Bloomberg Tax. "And then we have something which looks good, and which indeed would be the good basis for finalizing the negotiations, whether it's a Trump administration or a Biden administration."

The multiyear project to reach a consensus seems to be locked at a standstill, with the U.S. and Europe at odds over the basic elements. Many European leaders claim the pandemic has made it all the more important that digital companies, long criticized for supposed tax avoidance, pay their full fair share. The U.S. steadfastly opposes taxes targeted at the technology sector specifically or more muscular attempts to collect tax from online commerce.

Since December, the U.S. has opposed a proposal from the OECD leadership that give countries more rights to tax companies of all kinds if they sell into their jurisdiction or utilize their consumers online. Known as pillar one of a two-pillar project, the plan would, its supporters argue, address concerns that the tax system does not capture digital commerce without targeting specific transactions or industries.

U.S. Treasury Secretary Steven Mnuchin wrote that such a proposal would only be acceptable as an optional safe harbor, which most European leaders oppose. Meanwhile, the U.S. Trade Representative's Office has begun the process to enact retaliatory tariffs on countries which enact taxes on revenue from online activities.

While a recent U.S. letter asking for the OECD to suspend negotiations for the time being did not mention the November election, Saint-Amans said the uncertainty about the result was a primary reason the U.S. could not commit to a position.

"I think the real timeline is the U.S. election," he said.

He also emphasized that he believed either a Democratic or Republican administration could move forward with an agreement, despite President Donald Trump's disdain for multilateralism.

"This is an administration that's known for deals," Saint-Amans said. "And twisting the arm with threats of trade sanctions but also reaching deals here and there."

The disruption in negotiations over digital taxation has led to speculation that the OECD could move forward on a separate part of the project, pillar two, which would create a recommended corporate minimum tax that countries could enact through their own legislation. With an aim toward preventing income-shifting and competition for low tax rates, the proposal is based in part on the tax on global intangible low-taxed income enacted in the U.S. 2017 federal tax overhaul .

But Saint-Amans noted that many countries only wanted the two pillars to be included together as part of a larger agreement, and would oppose pillar two on its own.

"I would say the main enemy of pillar two is pillar one," he said. 

There are other unresolved questions about pillar two. These include whether it should apply to taxpayers based on their effective tax rates in individual jurisdictions or "blended" into an aggregate global rate, what income should be included or excluded and where the OECD should set the minimum rate, Saint-Amans said. Those issues are linked in a way that made it difficult to address them one at a time, he added.

"So you have the different building blocks, but you cannot bring them together unless you bring them all together at once," he said.

Despite the U.S. request for a pause, Saint-Amans repeated what he said in a Law360 interview Tuesday, that the process had not been halted and that all countries were still participating. 

"What is for sure is that we work, we keep working, we are alive, we're not on life support," he said. "So COVID has not done too much harm yet on this, but we recognize the difficulties."

The U.S. Department of the Treasury did not return requests for comment.

--Editing by Neil Cohen.

For a reprint of this article, please contact reprints@law360.com.

Hello! I'm Law360's automated support bot.

How can I help you today?

For example, you can type:
  • I forgot my password
  • I took a free trial but didn't get a verification email
  • How do I sign up for a newsletter?
Beta
Ask a question!