March-June 2020 update on the post-Covid Digitalized Economy Taxation global discussion: The moment that matters

Post covid digital economy taxation
Post covid digital economy taxation

The OECD calendar in respect of the Digitalized Economy Taxation, Pillar 1 and Pillar 2 approach has been affected by the global Covid-19 pandemic situation.

While the former tight schedule was defining beginning of July as the moment for the inclusive framework members to agree the base line policies, this milestone has been now pushed to October, in parallel to the G20 Finance Ministers meeting. 

Nonetheless, Mr. Saint-Amans confirmed that the December 2020 deadline for the overall basic implementation  agreement is still in place, and the target is that the G20 leaders deliver a consensus-based solution by November 2020, warning however that some elements of the agreement could be delayed until 2021.

The technical specific work of the last few months about Pilar 1 and Pillar 2 building blocks are going to be released for comments this summer, together with the impact assessment result.

The OECD mentioned that by June we can expect a set of draft model rules for Digital Platforms where the new is that the reporting will happen at the level of the country of Platform mother company residence, to be exchanged later with the countries of the sellers.  

Progress is also been made in the cryptocurrency area and we should see the output at the end of the year.

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The closing of May leave us with the last news about this topic, pointing to a much more escalated tension around Pillar 1, with a concerning kind of back-to-basics in terms of Digital Ring-Fencing willingness of a few countries and the US not only proposing to consider Pillar One as a safe harbor cause their rejection to Arm’s Length principle shortcuts or automations but also proposing a GILTI-type approach for Pillar Two solution.

On Pillar 2 however, it seems that the OECD is more positive on the tone of conversations for a simplified agreement.

In our perspective, the new business normal is bringing a huge re-purposing of the digital transformation of most industries:  First to be able to have an stable or much bigger digital go to market option and second to adjust the international supply chain to preserve the present and protect the future.  

This is going to necessarily imply a tremendous boost of digital business models, some of them new as the crisis is also fostering innovation.

Remote collaboration, scattered value creation in the value chain will the norm and remain at different intensity levels after.

Digital transactions will multiply and the resulting physical flows at the supply chain different levels will be altered.  Digital Advertising is exploding with the while conversion rates are going to be different.   

A global strategic firm approach to this issue is needed. We can’t afford the heavy weight of a thousand of unilateral different country by country solutions in the first semester of 2021 when many Governments are going to be dramatically searching for liquidity and urged to collect to generate revenue.  

The EU is logically preparing is own set of special measures to take more control and drive this unprecedented situation, with Digital Tax again strongly in the agenda but let’s hope that global common-sense reigns first and everything can be properly integrated.

Integrating the EU ATADs, and any new Own Resource, US GILTI and BEAT, the new OECD Unified Approach and Pillar 2, probes not going to be easy to say the least, but Multinationals need a clear path and this might be the historic moment, driven by necessity, to raise and enforce some new overarching rules for the “new-international-tax-normal” that can shed light and avoid conflicts.

As a last side note, worth to mention that OECD works towards digital business models information sharing, reporting and ultimately transparency continues, which is positive.

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