Crystal sphere on a wooden platform with lake in the background

Postcards from Davos: Day 3

Postcards from Davos: Day 3

Postcards from Davos: Day 3

Jane McCormick | Leadership,

Discussions on environmental taxes have continued over the last day, including discussion of the proposed EU border adjustment tax. I can say that I now know a lot more about the carbon content of soil. I’ve been reflecting a bit more on the main tax event yesterday, which was a discussion on the future of tax, covering digital taxes, tax competition and responsible tax behaviors. We saw a good mix of participants from business, government OECD and civil society, which is just what this conversation needs.

On digital taxes, some think the current OECD proposals to allocate a proportion of profits to the market jurisdiction are not enough, and that we should move to a full formulary apportionment of profits and away from arm’s length transfer pricing. Others are concerned that it might be too much for governments who are the losers in the reallocation of taxing rights to be able to sell at home. What is a very clear hope amongst the business community is that some international consensus can be reached, and that this is enough to stop the outbreak of unilateral measures, which are likely to result in double taxation, challenge certain business models (especially for small technology companies in, for example, Europe) and which are likely increase costs for small businesses using large technology platforms.

On the topic of proposals on a minimum corporate tax rate, there was again a discussion as to what the rate should be, with no agreement on a “Goldilocks” number; though in relation to tax competition, there seemed to be agreement from business and governments that we don’t want or need a “race to the bottom”. Harmonization of rates might seem possible but some countries flagged the need to make rates higher. For example, when profits are made from extraction of a finite mineral resource or to introduce reliefs to incentivize investment. In the interest of achieving cohesive and sustainable economies, I think these issues need to be resolved. It seems to me that the economies of individual countries may be very different according to their geographical location, their natural resources, their stage of development and so on, so there may be very good reasons for having a different set of tax policies, including rates. I think “BEPS 1” has probably been effective at stopping the type of tax competition between countries that involved attracting tax base without hosting business operations.

So, I think differences in tax regimes will continue but we need to maintain an international consensus as far as possible in the interest of the global economy. The WEF future council on trade and investment, of which I am a member, has produced a paper about the current challenges in international trade and how tax is contributing to this. The state aid cases in the EU turned tax into a trade issue and the dispute between the US and France on digital taxes versus tariffs (which thankfully seems to be moving on) is another case in point. The OECD, through the inclusive approach, is doing a good job of trying to reach consensus on some issues, but I think so called “BEPS 2” may not be the end of the journey toward cohesion.

As I mentioned at the start, we also had some good discussion on responsible tax behavior yesterday, but this topic is also on the agenda later today, so I will write more on that tomorrow. Also on the agenda for me today is diversity and the role of women leaders. I hope it’s a big crowd!

Oh, and the weather is still lovely.