Davos panel exposes disagreements on two-pillar tax reform

Speakers on the only panel dedicated to tax at last week’s World Economic Forum described the global agreement on international tax reform, commonly known as BEPS 2.0, as a step in the right direction but didn’t hold back in their criticism of the deal.

The panel, comprising government ministers and other officials, was hosted live in Davos, Switzerland, on Thursday, January 19.

Mathias Cormann, secretary general of the OECD, which facilitated the negotiations, was forced to defend aspects of the package from charges that its scope was too narrow and that it did not go far enough on a global minimum corporate tax rate.

Cormann said he hoped the jurisdictions that had signed up to the agreement, which now number 138, would conclude the drafting of the multilateral convention required to implement the package’s pillar one by the middle of this year so that it could be put into place on schedule around the world in 2024.

“There are still various areas where there are technical discussions and public consultations,” he said.

“For example, on issues like how we treat withholding taxes. Those who pay taxes in market jurisdictions say withholding taxes are taxes they have paid and they should be taken into account. Others say withholding taxes are not in scope and if they are part of the equation, we should adjust amount A. It becomes very technical very quickly.”

Amount A refers to the formula-based share of residual profit allocated to market jurisdictions.

Zainab Shamsuna Ahmed, Nigeria’s minister of finance, budget and national planning, said her country could not sign up to the agreement in its current form but would be interested in joining if improvements were possible.

“Most of the digital enterprises in our countries are the medium-sized ones. They’re not the very, very large ones,” Ahmed said.

“The outcome of this means there will be discriminatory taxes within our jurisdiction, so, if we sign up, we will not be able to tax these small and medium-sized businesses while we are taxing similar Nigerian companies operating in the same market.”

Gabriel Zucman, director of the EU Tax Observatory, said he was a critic of the agreement because the minimum corporate tax rate of 15% imposed by pillar two was too low.

“This agreement is the first time where countries are going to agree on a minimum tax rate,” he said. “It’s going to make a real difference, especially pillar two, because many companies pay less than 15%, at least in some of the countries in which they book profits.

“That being said, it is also very insufficient and it’s also conceptually and philosophically flawed. It isn’t sufficient because a tax rate of 15% is way too low,” he added.

Faisal Alibrahim, the minister of economy and planning in Saudi Arabia, said his country broadly supported the deal: “There are some details that need to be sorted out, but it is underpinned by the pillars of fairness. It’s all about making sure that value and taxation are close to each other.”

The WEF finished on Friday, January 20.


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