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This week in tax: OECD tax reform could benefit the US most of all

The US may gain the most in tax revenue from the OECD’s plans for international tax reform, according to a TaxWatch study. This is despite the OECD’s aims of solving digital tax to end tensions over the technology sector.

The Paris-based organisation is set to settle the question of digital tax once and for all, but the United States government may stand to gain the most revenue from a reallocation of taxing rights under pillar one coupled with a global minimum tax rate of 21%.

The US Treasury could raise as much as $5.4 billion just from Apple, Facebook, Google and Microsoft under a minimum rate of 21%, according to research by TaxWatch. By contrast, the research suggests that pillar one could redistribute just $2.5 billion to the rest of the world.

On the other hand, the OECD plans may benefit large population countries where parent companies might be more inclined to base themselves. This is why the Indian government expects to gain tax revenue from the two-pillar plan.

Meanwhile, the Association of South-East Asian Nations (ASEAN) has found the OECD plan could benefit several of its member-states. This includes The Philippines, Indonesia, Thailand and Vietnam stand to make ‘moderate’ revenue gains, according to the ASEAN+3 Macroeconomic Research Office.

The OECD’s proposals are going ahead as the outlines of a possible final agreement, so the world will soon find out who will gain and who will lose out.

Top ITR stories this week include:

Diversity in tax: A long way to go

Ireland and other holdout countries agree on pillar two at 15%

Businesses fear double taxation as the EU pursues tax reform

Pandora Papers will increase scrutiny on MNE tax affairs

Tax directors are juggling indirect taxes on e-commerce

Pandora Papers will increase scrutiny on MNE tax affairs

Leaked financial information about offshore accounts could implicate multinational enterprises (MNEs) and lead to criminal convictions.

Large companies are likely to face increased scrutiny on their tax affairs due to the Pandora Papers, a collection of close to 12 million leaked files that expose offshore financial dealings in more than 90 countries. While implicated world leaders and public officials make the headlines, the leak also has significant implications for MNEs and tax transparency.

“The sheer size of the investigation is causing much consternation,” said Ali Kazimi, managing director at Hansuke Consulting. “For firms that have not taken the tax integrity agenda seriously, today is a watershed moment.”

As governments continue to reckon with the cost of the COVID-19 pandemic, the Pandora Papers provide another impetus for revenue authorities and the public to question whether MNEs are being sufficiently transparent and tax compliant.

The files were acquired by the International Consortium of Investigative Journalists (ICIJ) and published by news outlets around the world on October 3. They show that wealthy clients hired companies to create offshore structures, often using shell companies or anonymous bank accounts to maintain privacy.

Some of the implicated entities may have been involved in tax avoidance or tax evasion, fraud, or money laundering. The distinction between tax avoidance, which is legal but can be perceived as unethical, and tax evasion, which is a criminal offence, will be critical.

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Tax directors are juggling indirect taxes on e-commerce

Tax teams at multinational enterprises (MNEs) are managing EU VAT e-commerce rules, OSS and IOSS, and marketplace obligations. Meanwhile, MNEs are seeing an increase in online sales due to COVID-19.

MNEs are relying on technology to manage indirect tax obligations relating to the digital economy due to a spate of legislative changes. These changes have coincided with an increase in online shopping during the pandemic.

Variations in rules from different countries are creating complexity for tax teams, although harmonisation across the EU is helpful, according to tax directors at ITR’s Taxation of the Digital Economy summit.

“The main challenge for indirect tax is getting indirect tax authorities to cooperate,” said Wendy Fischnaller, business development director of UKI at Vertex.

In a poll of attendees at ITR’s event, 83% of respondents said their company’s biggest indirect challenge is keeping abreast of legislative changes and system impacts. Tax directors have told ITR that some MNE tax teams are struggling to keep track of legislation such as digital services taxes (DSTs) due to a lack of resources and clarity on who is responsible for what.

The changes to the EU e-commerce VAT rules, introduced on July 1 2021, were designed to offer simplifications to taxpayers. The one stop shop (OSS) and import one stop shop (IOSS) allow businesses to register in just one EU member state to declare and pay VAT on all distance sales to customers in the EU.

The EU has said companies will see a “reduction in red tape of up to 95%” by registering with OSS. However, this is not a good solution for all companies because each business will face different compliance demands depending on their structure and where they operate.

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Next week in ITR

ITR will be exploring the most important transfer pricing trends of 2021 in a series of articles. Topics include the TP implications of COVID-19, particularly how multinational companies should prepare for the transition to a post-pandemic economy.

At the same time, ITR will be keeping its spotlight on digital tax since the OECD is due to close in on a final agreement in October. The G20 meeting is set to decide the fate of the two-pillar framework and the future of the international tax system.

In other news, ITR will be taking a look at the impact of VAT and carbon tax reform in Indonesia. The Indonesian government has turned to indirect tax measures to bolster tax revenue and tackle the country’s contribution to climate change.

Readers can expect these stories and plenty more next week. Don’t miss out on the key developments. Sign up for a free trial to ITR.

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