OECD Inclusive Framework Makes Important Progress on Digital Taxation

21/02/2019

On 23-24 January, the OECD/G20 Inclusive Framework met on Base Erosion and Profit Shifting (BEPS), bringing together 264 delegates from 95 member jurisdictions and 12 observer organisations. The jurisdictions agreed to step up efforts toward reaching a global solution on how to best tax multinational enterprises in a rapidly digitalising economy.

It was further agreed at the meeting that future discussions to reach a solution will be based around two pillars, identified in a new Policy Note released after the Inclusive Framework’s meeting.

The first pillar will focus on how the existing rules that divide the right to tax the income of multinational enterprises among jurisdictions could be modified to take into account the changes that digitalisation has brought to the world economy.

The second pillar aims to resolve remaining BEPS issues and will explore two sets of interlocking rules designed to give jurisdictions a remedy in cases where income is subject to no or only very low taxation.

Given the significance of the new proposals for the international tax system, the Inclusive Framework will issue a consultation document that describes the two pillars in more detail, and a public consultation will be held on 13 and 14 March 2019 in Paris as part of the meeting of the Task Force on the Digital Economy.

EU Council’s Code of Conduct Group Publish Letters Seeking Commitments on Tax Regimes

On 1 February, the Code of Conduct Group (Business Taxation) of the Council of the European Union for transparency reasons published letters seeking commitments from the jurisdictions of Barbados, Belize, Curaçao, Mauritius, Saint Lucia and Seychelles to replace harmful preferential tax regimes with alternative measures.

The letters identify preferential tax regimes which have been introduced in the jurisdictions which exempt foreign income from taxation, and ask that the jurisdictions abolish the regimes by the end of 2019 without any grandfathering mechanisms being introduced.

The letters indicate that should the regimes not be abolished, the Code of Conduct Group will revisit its recommendations to the Council of the EU as to whether the jurisdictions ought to be included on the List of Non-cooperative Jurisdictions for Tax Purposes.

Ireland Ratifies OECD’s MLI

Ireland has now ratified the OECD’s Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS. The multilateral tax treaty allows jurisdictions to update their existing double tax treaties and transpose measures agreed in the BEPS project without further need for bilateral negotiations.

The MLI entered into force on 1 July 2018 following on from 5 countries having ratified the instrument, namely Austria, the Isle of Man, Jersey, Poland and Slovenia. There are now 87 jurisdictions that are signatories to the treaty.