Inclusive Framework

Statement – SC/WATAF Special Technical Session on 2 Pillar Solution, 4-5 July 2023

OUTCOME STATEMENT

SOUTH CENTRE-WATAF JOINT SPECIAL TECHNICAL SESSION ON THE OECD TWO PILLAR SOLUTION

(JULY 4-5 2023)

The South Centre and the West African Tax Administration Forum (WATAF) successfully organised a two-day special session in Abuja, Nigeria, from 4-5 July, 2023, aimed at enhancing the understanding of WATAF and South Centre member countries on the draft rules of the OECD Two Pillar solution to taxation of the digitalised economy. The session brought together officials responsible for tax policy, legislation, and administration, along with experts representing African and Latin American countries in the OECD Inclusive Framework Steering Group.

(more…)

SC Statement – Two Pillar Solution, 28 July 2023

Statement by the South Centre on the Two Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy

28 July 2023

The South Centre takes note of the Outcome Statement by 138 member jurisdictions of the OECD/G20 Inclusive Framework (IF) made on 11 July 2023, on the Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy. In this statement the South Centre highlights the inclusion of rules that have the practical effect of reducing the tax payable to developing countries under Amount A, the limitations of Pillar Two and other key aspects of the OECD proposed rules that require attention by developing countries before they decide to be tied up by such rules.

(more…)

Tax Cooperation Policy Brief 32, 30 May 2023

Global Minimum Taxation of Multinationals: Opportunities and risks for some African States

By AMAGLO Kokou Essegbe, KOUEVI Tsotso and ADJEYI Kodzo Senyo

To face the challenges posed by the digitization of the economy, the OECD’s Inclusive Framework has developed two Pillars to address tax base erosion and profit shifting. The objective of Pillar Two is to define the minimum amount of tax to be paid by multinational enterprises in the jurisdictions where they operate. The OECD’s Inclusive Framework has adopted an average effective rate of 15% for this purpose. The objective of this study is to show whether the implementation of Pillar Two in African jurisdictions constitutes an opportunity or a risk for them.

The results show that it is an opportunity for countries with a low effective tax rate and a risk for countries with a high effective tax rate. Therefore, setting a 15% income tax rate for non-resident multinationals is an opportunity for some African countries. For it would constitute for these countries a source of additional tax revenue mobilization. For this reform to be an opportunity for Africa, however, the minimum effective tax rate must be raised to at least 20%, as was demanded by the African Tax Administration Forum (ATAF).

The risk that lies in the application of an effective rate of 15% for Africa as a whole is that some African countries might have to reduce their effective tax rate. This would be a loss of revenue for those African countries. Since most countries in the African jurisdiction have effective tax rates and statutory corporate income tax rates that are more than 20 percent, above the set average effective rate, multinationals would seek to shift their profits to the countries with the most advantageous taxation. This could lead to a transfer of profits to other jurisdictions.

(more…)

Tax Cooperation Policy Brief 30, 25 March 2023

Enforcing Secondary Taxing Rights: Subject to Tax Rule in the UN Model Tax Convention

 By Abdul Muheet Chowdhary and Sebastien Babou Diasso

The Global Anti Base Erosion (GloBE) Rules under OECD’s Pillar Two recommendations, with a minimum effective tax rate of 15%, are expected to play a significant role to end the ‘race to the bottom’ in corporate taxation, which is one of the main drivers of profit shifting. However, the thrust of these rules is designed in a manner to give priority to the developed countries. In this light, the Subject to Tax Rule (STTR), which is a treaty-based rule that allows source jurisdictions to impose limited source taxation on certain payments that are taxed below a minimum rate in the country of residence, is of extreme significance for the developing countries. Under Pillar Two, application of STTR is restricted to base eroding payments or mobile income between related parties only, which does not address Base Erosion and Profit Shifting (BEPS) concerns in an entirety. That apart, the withholding tax rate of 9% proposed by the OECD may not result in generation of significant resources for the developing countries. In this light, developing countries keenly expect that the UN Tax Committee should devise an STTR that is simple to operate, has a broad scope covering all payments in a tax treaty and imposes a higher withholding tax closer to 15% to bring meaningful revenues for them. Also, developing countries desire that STTR provisions may be introduced at the earliest so as to speedily implement them through the UN Multilateral Instrument under contemplation. This Policy Brief also examines existing average withholding tax rates on interest and royalty payments in existing tax treaties of 48 South Centre and 52 G-77+China Member States and finds that out of a total of 100 developing countries, only 25 would stand to benefit from the STTR in its restricted form in Pillar Two, further strengthening the need for an improved version formulated by the United Nations.

(more…)

SC Contribution – WITHDRAWAL OF DIGITAL SERVICES TAXES & RELEVANT SIMILAR MEASURES, 25 January 2023

COMMENTS ON PILLAR ONE – AMOUNT A: DRAFT MULTILATERAL CONVENTION PROVISIONS ON DIGITAL SERVICES TAXES AND OTHER RELEVANT SIMILAR MEASURES

The BEPS Monitoring Group, 25 January 2023

The BEPS Monitoring Group submitted comments to the public consultation on the draft provisions on withdrawal of Digital Services Taxes and ‘relevant similar measures’. Abdul Muheet Chowdhary, Senior Programme Officer of the South Centre Tax Initiative, was a contributor.

(more…)

South Centre Comments on the Amount A Draft MLC Provisions on DSTs & Other Relevant Similar Measures, 20 January 2023

South Centre Comments on the ‘Amount A Draft Multilateral Convention Provisions on Digital Services Taxes and Other Relevant Similar Measures’

The South Centre provided its comments to the OECD Inclusive Framework’s Task Force on Digital Economy (TFDE) on the Draft Multilateral Convention Provisions on Digital Services Taxes and other Relevant Similar Measures under Amount A of Pillar One (MLC). This MLC is part of the components of Pillar One to address the tax challenges arising from the digitalization of the economy. It aims to restrict countries which sign to the Pillar One MLC from implementing any digital tax policy solution apart from the OECD’s, such as Digital Service Taxes (DSTs) and other relevant similar measures.

These draft provisions are amongst the most controversial aspects of the Pillar One rules, as countries which decide to implement the OECD solution will be expected to give up the use of DSTs and similar measures on all companies, not just those in-scope of Amount A.

(more…)

Tax Cooperation Policy Brief 27, 21 December 2022

Taxing Big Tech: Policy Options for Developing Countries

By Abdul Muheet Chowdhary and Sébastien Babou Diasso

Even as the COVID-19 crisis wreaked havoc on the global economy, it gave rise to a small set of winners, namely Big Tech. The increasing prevalence of remote work and an acceleration of the digitalization of the economy allowed Big Tech companies to raise enormous revenues during the pandemic, which in some cases dwarfed the gross domestic product (GDP) of several countries. This policy brief explores the rising untaxed profits of Big Tech in particular, and the digitalized economy in general, and explains why the existing rules are insufficient. It also critically examines the solution that has been devised by the Organisation for Economic Co-operation and Development (OECD), an intergovernmental organization of developed countries. Finally, it outlines alternative policy options that are more suitable for developing countries to tax the profits of Big Tech.

(more…)

Tax Cooperation Policy Brief 26, 31 October 2022

Revenue Effects of the Global Minimum Corporate Tax Rate for African Economies

By Seydou Coulibaly

This policy brief provides the first piece of empirical evidence on the revenue implications of the recent global minimum tax rate reform agreement for African economies. We implement a regression discontinuity design to evaluate the effect of having an effective corporate tax rate of at least 15% on tax revenue collection for a panel of 28 African economies over the period 2000-2020.

The estimation results indicate that the implementation of the global minimum effective corporate tax rate of 15% proposed under Pillar II of the Organisation for Economic Co-operation and Development (OECD) Two Pillar Solution has a positive but not statistically significant likely impact on corporate tax revenue and total tax revenue at the conventional significance levels. This suggests that the global minimum tax deal is unlikely to increase tax revenue for African economies. These findings exhort the Inclusive Framework and all the stakeholders of the global tax reform negotiations to consider revising the global minimum tax rate rules to ensure that the agreement will effectively benefit African countries through better tax revenue collection.

(more…)

Research Paper 165, 4 October 2022

Evaluating the Impact of Pillars One and Two

By Suranjali Tandon and Chetan Rao

The proposed OECD Pillar One and Two reforms mark a significant shift in the way large multinational enterprises are taxed on their global incomes. However, while considering the reform at the proposed scale tax administrators must be able to compare the revenue gains with alternatives. This paper uses open-source data to provide tentative estimates of the impact of Pillars One and Two. The methodology has been detailed so that administrators can replicate it for comparison. Further, the paper provides an assessment from the perspective of developing countries of some of the key design elements of the proposals so as to understand whether they are administrable and to foresee possible challenges.

(more…)

0

Your Cart