The Organisation for Economic Cooperation and Development (OECD) released a proposal to advance international negotiations in an effort to determine that certain “large and highly profitable” multinational enterprises (MNEs)—including digital companies—pay tax wherever they have significant consumer-facing activities and generate their profits.
As noted in the OECD release, the proposal—Secretariat Proposal for a “Unified Approach” under Pillar One brings together common elements of three competing proposals from OECD member countries, and is based on the work of the OECD/G20 Inclusive Framework on base erosion and profit shifting (BEPS), which aligns 134 countries and jurisdictions for multilateral negotiation of international tax rules.
The consultation document describes the “unified approach” to Pillar One as proposed by the OECD Secretariat, and seeks comments from the public on a number of policy issues and technical aspects. The comments provided will assist members of the Inclusive Framework on BEPS in the development of a solution for its final report to the G20 in 2020.
The proposal would:
- Re-allocate some profits and corresponding taxing rights to countries and jurisdictions where MNEs have their markets
- Provide that MNEs conducting significant business in places where they do not have a physical presence would be taxed in those jurisdictions, through the creation of new rules providing: (1) where tax is to be paid (nexus rules); and (2) on what portion of profits the MNEs are to be taxed (profit allocation rules).
The Inclusive Framework’s tax work on the digitalisation of the economy is part of broader efforts to restore stability and certainty in the international tax system; to address possible overlaps with existing rules; and to mitigate the risks of double taxation.
CTG submitted a short consultation response (link below). It noted that there were not many UK charities that have a substantial primary purpose trade that is carried on overseas. Of those charities to which this applies the number that conduct their international business through the charity rather than one or more subsidiaries is probably limited, particularly if the foreign countries where the charity is operating do not grant it any tax privileges based on its charitable status. However, it noted that some charities with global operations could be impacted. As a result, the response makes a number of specific comments, rather than attempting to respond to each question.
Beyond the specific elements on reallocating taxing rights, a second pillar of the work aims to resolve remaining BEPS issues, so that there would be a minimum corporate income tax on MNE profits. The consultation on the Pillar Two proposal closed on 2 December and the CTG response can be read here.