All material subject to strictly enforced copyright laws. © 2022 ITR is part of the Euromoney Institutional Investor PLC group.

IFA 2022: Pillar two about ‘strengthening sovereignty’

Leader concept. Headman. Chess king cast shadow in form of lion

The departing OECD director said countries’ sovereignty is crucial to pillar two while speakers questioned current tax policies.

Countries must not fear losing their sovereignty when implementing pillar two, but policies need to be revised for the OECD tax framework to be efficient, according to panellists at the IFA Congress in Berlin last week.

Pascal Saint-Amans, departing director at the OECD’s Centre for Tax Policy and Administration, said that countries had “lost their sovereignty” in the world of globalisation due to unfair tax competition.

However, they could regain their power through more robust tax laws.

“The tax paradox is to strengthen the tax sovereignty. To do that, they [countries] have to give up a bit of their sovereignty,” he said during the IFA panel on September 7.

Mechanisms must be put in place to prevent profit shifting and for governments to retain their power of collecting revenue, but tax incentives make it difficult to do so, according to Saint-Amans.

“There is a wealth of debate and questions that countries will have to face. It’s about strengthening sovereignty and removing the ability of some countries to be aggressive and offer tax tools,” he explained.

US outlook

Despite regulations including the global intangible low-taxed income (GILTI) rule in the US, which aims to tax income earned by controlled foreign companies (CFCs), there remains a sovereignty and compliance issue.

CFC rules are also designed to prevent profit shifting by forcing taxpayers to declare their foreign earnings.

During the same panel, Manal Corwin, principal-in-charge of KPMG’s Washington national practice and America’s regional tax policy leader for KPMG International, said she considers this to be a crucial issue within BEPS.

“The US was suggesting strengthening CFC rules – in the end, the BEPS action plan was a way to get that. CFCs are the province of domestic law,” she said.

“At the end of the day, you end up with something in which countries are looking to collect their own tax. There is a tension with the fact that countries regularly use tax policies to drive outcomes, desirable outcomes,” added Corwin.

This approach “neutralises” the effectiveness of tax policies to achieve these desirable outcomes, according to Corwin.

“The origin and pathway were because of sovereignty and the fact that CFC and tax rates are the problem of domestic law,” she said.

Lisa Wadlin, US-based head of tax at Netflix, also claimed that the US considers GILTI not to be sufficient – or that it leaves leeway for others to tax income.

Pillar two would impose a 15% tax on multinationals with revenues above €750 million ($747 million) – a “high” threshold from a US perspective, said Wadlin.

The implementation of pillar two would also call into question the effectiveness and role of other tax policies currently in place, such as the CFC regime, she added.

ITR also reported on progress made around pillar two, as discussed at the IFA Congress, in this latest article.

more across site & bottom lb ros

More from across our site

Ramesh Khaitan speaks to reporter Siqalane Taho about tax morality, transfer pricing regulations, Indian tax developments, and the OECD’s two-pillar solution.
Join ITR and KPMG China at 10am BST on October 19 as they discuss the personal, employment, and corporate tax-related implications of employees working from overseas.
Tricentis and Boehringer Ingelheim, along with a European Commission TP specialist, criticised the complexity of pillar one rules and their scope at an ITR event.
Speakers at ITR’s Managing Tax Disputes Summit said taxpayers can still face lengthy TP audits, despite strong documentation preparation
Gig economy companies in New Zealand will need to fully account and become liable for the goods and services tax of underlying suppliers on their platforms, under new proposals.
Join ITR and Thomson Reuters at 2pm (UAE) / 11am (UK) on October 13 as they discuss how businesses can prepare for Tax Administration 3.0 and future-proof against changes such as e-invoicing and increasing digitisation.
ITR has partnered with global TP leaders from Deloitte to discuss transfer pricing controversy around the globe, and to share advice on how to navigate an increasingly uncertain and risky TP landscape.
Sources say they are not satisfied with pillar one protections in the marketing and distribution safe harbour, even though it was designed to give businesses greater tax certainty.
Political support for qualified majority voting is at a peak as unanimity rules continue to block the European Council from passing a directive on pillar two.
The winners of the ITR Americas Tax Awards have been announced for 2022!
We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree