IFA 2022: leaders warn DSTs are tip of iceberg in world fractures

International Tax Review is part of Legal Benchmarking Limited, 1-2 Paris Garden, London, SE1 8ND

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

IFA 2022: leaders warn DSTs are tip of iceberg in world fractures

Iceberg in ocean. Hidden threat or danger concept. Central composition.

Government officials and OECD leaders say digital service taxes are only the first set of unilateral risks to come if there are not enough countries to implement the two-pillar solution.

Tax certainty to avoid fracturing the international tax system is an elusive element of the two-pillar framework. Corporate directors on a panel at the IFA/OECD seminar on September 7 shared similar concerns about double taxation from digital services taxes (DSTs) and other national measures, such as withholding taxes and transactions taxes, which would widen the tax base in several countries.

Gael Perraud, deputy director of international tax and European affairs in the French Finance Ministry, said there is no choice but to succeed at implementing the two-pillar framework.

“DSTs are just the tip of the iceberg,” said Perraud regarding the double tax risks to come if global coordination fails and the two-pillar solution does not find the “critical mass” of participating countries it needs to work.

“Waiting for longer does not help developments, we have to conclude the deal sooner than later,” he continued, suggesting that negotiations with stakeholders could go on for ages with reviews.

The alternative to the two-pillar solution is a string of unilateral measures, including DSTs, which would likely start a global trade war. This was exemplified when the US issued tariffs and trade restrictions on EU countries for unilateral measures – many started and ended in 2020.

The other six panellists were Pascal Saint-Amans, director of the Centre for Tax Policy and Administration at the OECD; Achim Pross, head of the OECD’s International Cooperation and Tax Administration Division; Lisa Wadlin, head of tax at Netflix; Peter Shaw, head of tax audit and litigation at Maersk; Manal Corwin, tax principal at KPMG in Washington, D.C.; and Ruth Mason, professor of tax law at the University of Virginia.

“If DSTs are the tip of the iceberg, then governments are on the Titanic,” said Corwin.

Saint-Amans, who has led many of the ongoing negotiations on the two-pillar framework, said several countries are tempted to enhance their taxing rights alone, rather than wait beyond the deadline in 2024 to implement the final versions of pillar one and pillar two.

Panellists also emphasised that there are risks to not having enough countries implement the two-pillar solution and align the technical rules by the deadline.

Critical mass

Advisers and government officials on the panel said if the requirements are too narrowly defined to get the right critical mass of countries to join, then it does not incentivise participation.

“It’s a huge disincentive for any one country to contribute the whole Amount A,” said Corwin.

“You need a critical mass [of countries] to move forward and achieve stability in the international tax system,” she added.

Attaining that critical amount will pressure other countries to sign on to the tax reforms.

Panellists called the approach a feat of “diabolical engineering” and “devilish logic”, with many commending its potential to introduce influential changes in international policy.

Saint-Amans noted that an adequate critical mass for Amount A rules in pillar one’s design can be considered later. However, he also said the US must be a part of pillar one, or there will be no critical mass.

Corwin, who has experience in international tax policymaking at the US Treasury, explained that the Biden administration does not consider pillar one a centrepiece of its policy objectives.

However, Corwin also said the administration still supports pillar one, but there needs to be a commercial reason for its rules to materialise in the US market.

“It has not been fleshed out enough to make its way to Congress,” she said.

“However, we do not want to rearrange the deck chairs on the Titanic either,” she added, expanding on the analogy.

All stakeholders want the two-pillar solution to be administrable, reliable and sufficiently grounded in existing international tax principles.

As government negotiations continue and the OECD races against an aggressive deadline to pressure enough countries to adopt these regulations, there is a looming risk of wider fractures in the international tax system.

more across site & shared bottom lb ros

More from across our site

Canadian Prime Minister Mark Carney and US President Donald Trump have agreed that the countries will look to conclude a deal by July 21, 2025
The firm’s lack of transparency regarding its tax leaks scandal should see the ban extended beyond June 30, senators Deborah O’Neill and Barbara Pocock tell ITR
Despite posing significant administrative hurdles, digital services taxes remain ‘the best way forward’ for emerging economies, says Neil Kelley, COO of Ascoria
A ‘joint understanding’ among G7 countries that ‘defends American interests’ is set to be announced, Scott Bessent claimed
The ‘big four’ firm’s inaugural annual report unveiled a sharp drop in profits for 2024; in other news, Baker McKenzie and Perkins Coie expanded their US tax benches
Representatives from the two countries focused on TP as they met this week to evaluate progress under a previously signed agreement – it is understood
The UK accountancy firm’s transfer pricing lead tells ITR about his expat lifestyle, taking risks, and what makes tax cool
Dolphin Drilling intends to discuss the final liability amount and manner of settlement with HM Revenue and Customs
Winning the case against the 20% VAT imposition was always going to be an uphill challenge for the claimants, UK tax advisers argue
A ‘paradigm shift’ in Chile’s tax enforcement requires compliance architecture built on proactive governance, strategic documentation and active monitoring of judicial developments
Gift this article