OECD: United States drops “safe harbor” request on proposed digital tax rules

OECD: United States drops “safe harbor” request

It is being widely reported that at this week’s meeting of finance ministers of the G20 countries, the United States will drop its demand that proposed rules for taxing the profits of multinational entities apply only as a “safe harbor.”

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The United States demand for a safe harbor had been seen as a major stumbling block to reaching agreement at the Organisation for Economic Cooperation and Development (OECD) on the proposed rules, commonly referred to as Pillar One.

The reports are based in part on a tweet from the German finance minister and the following tweet from the EC director for tax:

Strong support from all #G20 Finance Ministers for an agreement on both OECD pillars by July 2021. Secretary Yellen making important step of dropping the request for a safe harbour. A new impetus and a real chance to make it!

This information has not been confirmed by a release from the U.S. Treasury Department.

Read a February 2021 report [PDF 2.28 MB] from the OECD Secretary-General to the G20 finance ministers and central bank governors, following the conclusion of this week’s meeting.

Background

The OECD in October 2020 released reports described as “Blueprints” concerning solutions to the tax challenges arising from digitalisation of the economy.

  • The Pillar One Blueprint reflects a focus on new nexus and profit allocation rules so that, in an increasingly digital age, the allocation of taxing rights with respect to business profits is no longer exclusively circumscribed by reference to physical presence.
  • The Pillar Two Blueprint reflects an approach that is focused on the remaining base erosion and profit shifting (BEPS) challenges and proposes a systematic solution designed so that all internationally operating businesses pay a minimum level of tax. Pillar Two leaves jurisdictions free to determine their own tax system, including whether they have a corporate income tax and where they set their tax rates, but also considers the right of other jurisdictions to apply the rules contained in this report where income is taxed at an effective rate below a minimum rate.

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