The OECD has introduced various components of change-making legislation in an ambitious strategic plan to transform and update the international tax landscape. Recent highlights include:
The dynamic development of global countries into an Inclusive Framework on BEPS;
A unified approach under pillar one, whereby the daunting challenge of digital tax businesses and the arm's-length standard are confronted – which has been legislated unilaterally by several countries including France, Italy and the UK;
Pillar two addressing global minimum tax provisions for developing countries;
Follow-up guidance for administrations and multinationals on country-by-country reporting (CbCR);
Spontaneous exchange of information for 'substantial activities' requirements of no or only nominal tax jurisdictions;
The Tax Inspectors Without Borders (TIWB) joint OECD/UN programme launched in July 2015; and
Tax dispute resolution, peer reviews, and other contemporaneous challenging and technical agenda items.
The arm's-length standard is now subject to new debate, based on different norms of applying tax rates to tax bases that may not depend on a physical presence, while also allocating taxes to many other countries around the world. The automatic exchange of information (AEOI) provisions are now accepted as an international standard, while their application is extended into different areas of reporting to promote fairness and transparency.
The United Nations (UN), as we know it today, was founded in 1945. The Committee of Experts on International Cooperation in Tax Matters reviews and updates the UN model double taxation convention and manual for the negotiation of bilateral tax treaties, both applicable between developed and developing countries. Most importantly, they provide recommendations on capacity building and the provision of technical assistance to developing countries, as well as countries and economies in transition.
In June 2019, the UN manual for the negotiation of bilateral tax treaties between developed and developing countries was published, providing technical expertise for tax officials to negotiate tax treaties. The most recent meeting focused on issues related to an update of the UN double taxation convention, development of a UN handbook on tax dispute avoidance and resolution, updating the UN transfer pricing manual, tax consequences of the digitalised economy, and other related issues of global interest for developing countries.
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The arm’s-length standard is now subject to new debate, based on different norms of applying tax rates to tax bases that may not depend on a physical presence, while also allocating taxes to many other countries around the world |
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Developed countries, and their tax administrations, are also independent change-makers, providing unilateral legislation initiatives for which other countries play follow-the-leader and copycat components thereto for their fiscal objectives.
The Internal Revenue Service (IRS) tax administration of the US continues to develop final and proposed regulations for the Tax Cuts and Jobs Act (TCJA), addressing complexities of calculating global intangible low-taxed income (GILTI), the foreign-derived intangible income (FDII) deduction, the base erosion and anti-abuse tax (BEAT), and other complexities addressing the shift from a worldwide income tax system to a quasi-territorial system including a global minimum tax on foreign affiliates, which is now being reviewed by other countries.
In other countries, the digital services tax (DST) for multinationals with digital business models is gathering momentum, apart from the OECD initiative for which several countries are not willing to wait. France is one of the change leaders, followed closely by Italy, Spain and the UK, while many others are closely watching the interaction, and potential conflict, between the unilateral initiatives and future rules for which the OECD will provide guidance in the near future.
The EU is also very visible with respect to change, addressing consolidated reporting (again), digital business models, tax transparency initiatives, and other areas of tax on which it is focused. While still a member of the EU, the UK is nearing a pivotal point on whether to enact Brexit, remain in the EU, or to have a hybrid system. A new election, parliamentarians, a possible referendum and many days of heated debate await ultimate closure, all of which impact direct and indirect tax compliance provisions, regulations, treaties, directives, customs procedures, etc.
The change-making organisations and administrations are to be commended for their efforts, while striving to address the taxation of business complexities that exist in multinational companies globally.
Global tax leaders have been exemplary in providing comments, reviewing, comprehending, and deciphering compliance aspects for a brave new world of international tax that have transformed the manner in which multinational companies, tax advisors, administrations and organisations try to achieve a 'fair and equitable tax' which is not disproportionate or subject to significant uncertainties.
In summary, change is certain. While the international tax world is ever-changing, there should always be time to recognise new global tax leaders, as well as future leaders to address new challenges.
Keith Brockman is the VP Global Tax at Manitowoc Foodservice. His previous role was international tax director at Mars. He is also a lecturer, frequent speaker and the author of the Strategizing Multinational Tax Risks blog. In his regular ITR column he provides a practical analysis of some of the more challenging recent developments for corporate taxpayers, looking at how in-house professionals can mitigate new risks and identify effective solutions in an evolving environment. |
