Business
‘The whole OECD-UN debate is not a cricket match,’ states Oecd’s deputy director – Times of India
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A UN Tax Convention may be a reality in the near future. India was one of the 125 countries that voted in its favour at the UN’s Economic and Financial Committee held in New York, last month. Now, this resolution will shortly go to vote at the UN General Committee, where a favourable result is again expected. The resolution calls for creation of an ad-hoc inter-government committee and is expected to result in greater inclusiveness in tax policy decision making.
Dr Achim Pross, Deputy Director, Centre for Tax Policy and Administration at the Organisation for Economic Cooperation and Development (OECD), was emphatic that: “The whole OECD-UN debate is not a cricket match.”
“To me, if this was a cricket match, it probably wouldn’t have the staff of one team, trying to help the other,” he explained.Pross was speaking on ‘The Future of Global Tax Policy Making’ at aFIT-IBFD seminar held in Mumbai.In the context of co-operation, Pross said, “Go back to automatic exchange of information. I think there’s a UN resolution that endorses this thing. It’s endorsed by 170 countries now in the global forum. There is not much division if we think about it.”
India was one of the early adopters and committed to exchange information automatically from 2017. It involves the systematic and periodic transmission of “bulk” taxpayer information by the source country to the residence country concerning various categories of income, especially passive income like dividends and interest.
Another example given by Pross related to the tax transparency agenda, where OECD did a report on behalf of the Indian government.
Pross (in his personal capacity) spoke on a range of topics. On the topic of ‘Intellectual Honesty’ (including in public discourse) he dwelled on the Two Pillar Solution, spearheaded by the OECD.
FAQs issued by the OECD explain the basis of the solution: Each pillar addresses a different gap in the existing rules that allow Multinational Entities (MNEs) to avoid paying taxes. First, Pillar One applies to the biggest and most profitable MNEs and re-allocates part of their profit to the countries where they sell their products and provide their services, where their consumers are. Without this rule, these companies can earn significant profits in a market without paying much tax there.
Under Pillar Two, a much larger group of MNEs would be subject to a global minimum corporate tax. With the new rules, companies organising their affairs in a way that their profits in a given jurisdiction (whether in a low tax jurisdiction or otherwise) are subject to an effective tax rate lower than the minimum rate, those profits would still be taxed at a minimum rate of 15%.
While India has been an active participant in the discussions, there is a degree of dis-satisfaction as regards the amount that would be allocated (Amount A) to countries where the customer base lies.
Amount B is expected to be defined in the transfer pricing guidelines expected to be released in January. Amount B provides for a simplified and streamlined approach to the application of the arm’s length principle to in-country baseline marketing and distribution activities, with a particular focus on the needs of low-capacity countries.
“If you think about the direction of travel, the direction of travel is one direction. As a community we have made tremendous progress in the design and the reflection – this is a thought process. We have to come together in building a house,” said Pross.
He stated that he struggled with the notion expressed in some quarters that Pillar One is too complicated and a ‘formulatory apportionment approach’ should be adopted. He gave his views on the complexities that would be involved in the formulatory approach – such as the need for a common tax base, development of revenue sourcing rules, determining exclusions and market allocation.
Pillar Two sets out the global minimum tax rules designed to ensure that large MNEs pay a minimum effective rate of tax of 15% on profits in all countries.
Some tell us that the global minimum tax should be 20%, there should be no substance carve-outs and there should be no interference in the sovereign right of developing countries to offer tax incentives. “This doesn’t come together,” he emphasized.
“When we sometimes talk about the divisions that we have we forget to realize how much commonalities we do have in this wider world…” The bottom line of his address was that countries have embarked on a journey for more inclusive discussions on a range of topics much beyond the Two Pillar Solution– ranging from consumption taxes to tax certainty.
Dr Achim Pross, Deputy Director, Centre for Tax Policy and Administration at the Organisation for Economic Cooperation and Development (OECD), was emphatic that: “The whole OECD-UN debate is not a cricket match.”
“To me, if this was a cricket match, it probably wouldn’t have the staff of one team, trying to help the other,” he explained.Pross was speaking on ‘The Future of Global Tax Policy Making’ at aFIT-IBFD seminar held in Mumbai.In the context of co-operation, Pross said, “Go back to automatic exchange of information. I think there’s a UN resolution that endorses this thing. It’s endorsed by 170 countries now in the global forum. There is not much division if we think about it.”
India was one of the early adopters and committed to exchange information automatically from 2017. It involves the systematic and periodic transmission of “bulk” taxpayer information by the source country to the residence country concerning various categories of income, especially passive income like dividends and interest.
Another example given by Pross related to the tax transparency agenda, where OECD did a report on behalf of the Indian government.
Pross (in his personal capacity) spoke on a range of topics. On the topic of ‘Intellectual Honesty’ (including in public discourse) he dwelled on the Two Pillar Solution, spearheaded by the OECD.
FAQs issued by the OECD explain the basis of the solution: Each pillar addresses a different gap in the existing rules that allow Multinational Entities (MNEs) to avoid paying taxes. First, Pillar One applies to the biggest and most profitable MNEs and re-allocates part of their profit to the countries where they sell their products and provide their services, where their consumers are. Without this rule, these companies can earn significant profits in a market without paying much tax there.
Under Pillar Two, a much larger group of MNEs would be subject to a global minimum corporate tax. With the new rules, companies organising their affairs in a way that their profits in a given jurisdiction (whether in a low tax jurisdiction or otherwise) are subject to an effective tax rate lower than the minimum rate, those profits would still be taxed at a minimum rate of 15%.
While India has been an active participant in the discussions, there is a degree of dis-satisfaction as regards the amount that would be allocated (Amount A) to countries where the customer base lies.
Amount B is expected to be defined in the transfer pricing guidelines expected to be released in January. Amount B provides for a simplified and streamlined approach to the application of the arm’s length principle to in-country baseline marketing and distribution activities, with a particular focus on the needs of low-capacity countries.
“If you think about the direction of travel, the direction of travel is one direction. As a community we have made tremendous progress in the design and the reflection – this is a thought process. We have to come together in building a house,” said Pross.
He stated that he struggled with the notion expressed in some quarters that Pillar One is too complicated and a ‘formulatory apportionment approach’ should be adopted. He gave his views on the complexities that would be involved in the formulatory approach – such as the need for a common tax base, development of revenue sourcing rules, determining exclusions and market allocation.
Pillar Two sets out the global minimum tax rules designed to ensure that large MNEs pay a minimum effective rate of tax of 15% on profits in all countries.
Some tell us that the global minimum tax should be 20%, there should be no substance carve-outs and there should be no interference in the sovereign right of developing countries to offer tax incentives. “This doesn’t come together,” he emphasized.
“When we sometimes talk about the divisions that we have we forget to realize how much commonalities we do have in this wider world…” The bottom line of his address was that countries have embarked on a journey for more inclusive discussions on a range of topics much beyond the Two Pillar Solution– ranging from consumption taxes to tax certainty.
