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February 7, 2020 TO: ICI MembersICI Global Members
ICI Global Tax Committee
Management Company Tax Subcommittee
Tax Committee SUBJECTS: International/Global
Tax RE: OECD/G20 Inclusive Framework Affirms Commitment to Consensus Solution
On January 31, 2020, the OECD issued a Statement by the OECD/G20 Inclusive Framework on BEPS on the Two-Pillar Approach to Address the Tax Challenges Arising from the Digitalisation of the Economy that endorsed the Unified Approach under Pillar One as the basis for the negotiations of a consensus-based solution to be agreed in 2020. The Statement also recognized the good progress made on Pillar 2’s Global Anti-Base Erosion (GloBE) minimum tax proposal.[1]
As previously described, the Unified Approach includes a new taxing right (Amount A) over a portion of residual profits allocable to market jurisdictions irrespective of physical presence.[2] The businesses that fall within the scope of Amount A generally provide automated digital services or are consumer-facing. The Statement notes that there is a compelling case for certain regulated financial services to be outside the scope of Amount A. The justification being that those businesses are subject to regulation in market jurisdictions which ensures that residual profits are largely realized in local customer markets.
The Statement also notes technical challenges as well as policy differences that will have to be resolved to reach an agreement. This includes the December 3rd letter from the US Treasury Secretary proposing to implement Pillar One on a ‘safe harbor’ basis. Other outstanding issues to be resolved include the binding nature of dispute prevention and resolution mechanisms as well as the scope of the dispute resolution mechanisms under Amount C.
Katie Sunderland
Assistant General Counsel
endnotes
[1] See Institute Memorandum 32072, ICI Global Submission to OECD Urging Exemption for Funds from "Pillar 2" Minimum Tax Proposal, dated December 2, 2019.
[2] See Institute Memorandum 32004, OECD Public Consultation Document: Proposal for a "Unified Approach" under Pillar One, dated October 10, 2019; and Institute Memorandum 32049, ICI Global Submission to OECD Urging Exemption for Funds and their Managers from Pillar 1 Tax Proposal, dated November 12, 2019.