The US asks the OECD to delay talks on allocating taxing rights under Pillar 1 of its framework
The United States is calling upon the Organisation for Economic Cooperation and Development (OECD) to "pause" some of its discussions on a multilateral approach to address tax challenges of the digitalization of the economy by the end of 2020. In a letter to the Finance Ministers of France, Italy, Spain and the United Kingdom dated June 12, 2020, the United States asks the OECD to delay discussions on the allocation of taxing rights under Pillar 1 of its framework until later in the year due to the COVID-19 pandemic.
In the letter, the United States provides its view that the taxable nexus threshold of physical presence and the arm's-length principle should be implemented on a safe harbour basis, and that it is at an impasse since the Finance Ministers have rejected this proposal in discussions about Pillar 1 of the OECD framework. The United States also notes that it fully supports the OECD's intentions to conclude negotiations on the global minimum tax under Pillar 2 by the end of 2020. In addition, the United States reiterates its opposition to the imposition of gross-basis digital services taxes, such as those that have been adopted by France, Italy, Spain and the United Kingdom, while the OECD works towards global consensus on a multilateral solution.
In a statement on June 18, 2020, the OECD stresses the importance of continuing negotiation towards the goal of reaching global consensus by the end of 2020, noting that the absence of a multilateral solution will result in additional unilateral measures, tax disputes and trade tensions.
The OECD has committed to reach a consensus-based solution to ensure that certain multinational enterprises pay tax in countries where they have consumer-facing activities but do not have a physical presence. Generally, the OECD is looking at new tax proposals under two specific "pillars". Pillar One focuses on the allocation of taxing rights, including nexus and profit allocation issues, while Pillar Two, the Global Anti-Base Erosion (GloBE) proposal, addresses remaining BEPS challenges by ensuring that the profits of internationally operating businesses are subject to a minimum rate of tax. However, several countries have adopted unilateral digital services taxes in the interim.
The United States has said that these digital services taxes are an "unfair trade practice" that disproportionately target U.S.-based companies. Instead, the United States is in favour of finding a multilateral agreement at the OECD on new rules that would apply broadly across all industries, while precluding unilateral digital services taxes. As a result, the United States recently announced that it would launch investigations of digital services taxes and consider enacting "commensurate measures" in response. This U.S. investigation affects digital services taxes as adopted or under consideration by Austria, Brazil, the Czech Republic, the EU, India, Indonesia, Italy, Spain, Turkey and the UK. The United States previously initiated an investigation regarding the digital services tax enacted by France.
For more information, contact your KPMG advisor.
Information is current to June 30, 2020. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500
© 2021 KPMG LLP, an Ontario limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
For more detail about the structure of the KPMG global organization please visit https://home.kpmg/governance.