With a number of recent and upcoming developments in the OECD’s international tax work, we invite you to join a live webcast with experts from the Centre for Tax Policy and Administration for an update on the work relating to the tax challenges arising from the digitalisation of the economy. Website: http://oe.cd/taxtalks

1. OECD TAX TALKS
11 June 2019
14:30 – 15:30 (CEST)
CENTRE FOR TAX POLICY
AND ADMINISTRATION

2. Join the discussion
Ask questions and comment throughout the
webcast via e-mail or Twitter:
CTP.Contact@oecd.org
@OECDtax or #OECDTaxTalks
2

3. INTRODUCTION

4. Panellists
4
• Pascal Saint-Amans
Director, OECD Centre for Tax Policy and Administration
• Mayra Lucas
Senior Advisor, Tax Treaties & Transfer Pricing Division
• Sophie Chatel
Head of the Tax Treaties Unit
• Achim Pross
Head, International Co-operation and Tax Administration Division
• David Bradbury
Head, Tax Policy and Statistics Division

5. Agenda
5
• G20 Update
• Programme of Work to Address the Tax
Challenges of the Digitalisation of the Economy
• Next steps

6. G20 UPDATE

7. G20 update
7
Secretary-General Report to the G20 Finance Ministers
Tax symposium
G20 Finance Minister’s Meeting on 8 and 9 June 2019
Communiqué

8. G20 Communiqué: BEPS
8
“We will continue our cooperation for a globally fair, sustainable, and modern international tax system, and
welcome international cooperation to advance pro-growth tax policies. We reaffirm the importance of the
worldwide implementation of the G20/OECD Base Erosion and Profit Shifting (BEPS) package and enhanced tax
certainty”.
• Progress to date and next steps:
3rd Annual Progress Report of the
OECD/G20 Inclusive Framework
• Update on tax certainty agenda:
2019 Progress Report on Tax
Certainty

9. BEPS implementation
9
Report of the Inclusive Framework on BEPS
• 80 jurisdictions have legislation in place to exchange Country-
by-Country reports. Over 2000 bilateral relationships in place
• 255 preferential tax regimes reviewed; 70 additional regimes
reviewed since June 2018 (BEPS Action 5)
• Information on an additional 4 000 tax rulings exchanged
amounting to a total of 21 000 (BEPS Action 5)
• Almost 90 signatories of the BEPS Multilateral Instrument
closing loopholes in more than 1500 tax treaties.
25 ratifications to date

10. G20 Communiqué
10
Tax challenges arising from digitalisation
“We welcome the recent progress on addressing the
tax challenges arising from digitalisation and
endorse the ambitious work program that consists of
a two-pillar approach, developed by the Inclusive
Framework on BEPS. We will double our efforts for a
consensus-based solution with a final report by
2020.”

11. • Overall decline of 34% in IFC
(USD 551 billion)
• Decline of 20-25 % of bank
deposits in IFC over the past
decade
Communiqué: Tax transparency
11
Information exchanged on over
47 million accounts worth around
EUR 4.9 trillion
More than EUR 95 billion in
additional revenue
“We welcome the recent achievements on tax transparency, including the progress on
automatic exchange of financial account information for tax purposes”.
SG report to the G20
• New figures on the impact of
the tax transparency work

12. Communiqué: Tax transparency
12
“We also welcome an updated list of
jurisdictions that have not satisfactorily
implemented the internationally agreed
tax transparency standards. We look
forward to a further update by the OECD
of the list that takes into account all of
the strengthened criteria. Defensive
measures will be considered against
listed jurisdictions. In this regard, we
recall the 2015 OECD report inventorying
available measures.”
SG report to the G20
• In December 2018, 15 jurisdictions were at risk
• 5 met the criteria by the end of 2018
• 10 jurisdictions still did not sufficiently
implement the international agreed standards
at the end of 2018
• Progress since end of 2018
• 2 out of the 10 identified have commenced
AEOI
• 3 out of the 10 identified have put in place
legislation

13. G20 Communiqué
13
Multilateral Convention
“We call on all jurisdictions
to sign and ratify the
multilateral Convention on
Mutual Administrative
Assistance in Tax Matters.”
Update as of 16 May 2019
• 128 signatories (129 with Serbia signature on 13/06)
• Entered into force in 113 countries and jurisdictions
• Instruments of ratification accepted or deposited for
2 countries and jurisdictions
• Protocols/ amended Conventions signed for
13 countries and jurisdictions

14. G20 Communiqué: Capacity building
14
“We continue to support tax capacity building
in developing countries, including
coordinating through the Platform for
Collaboration on Tax (PCT) and by applying
the experience with medium-term revenue
strategies and tailoring efforts to support
domestic resource mobilization in countries
with limited capacities.
We welcome the first progress report of the
PCT, as well as the Asia-Pacific Academy for
Tax and Financial Crime Investigation in
Japan.”
•Establishment of the new OECD Asia-Pacific
Academy for Tax and Financial Crime
Investigation
•Progress made with Platform for Collaboration
on Tax (PCT): Progress Report
SG report to the G20

15. PROGRAMME OF WORK TO
DEVELOP A CONSENSUS
SOLUTION TO THE TAX
CHALLENGES ARISING FROM
THE DIGITALISATION OF THE
ECONOMY

16. Overview (1/2)
16
Programme of Work endorsed by the G20 Finance Ministers
on 9 June 2019
Programme of Work approved by the Inclusive Framework on
28 May 2019
Public consultation (February/March 2019)
Policy Note (January 2019)

17. Overview (2/2)
17
Allocation of profits
and
new nexus rule
Minimum
tax
Consensus-based long-term solution by
the end of 2020
Pillar One Pillar Two
Economic analysis and Impact Assessment
Need for political
endorsement &
spirit of
compromise

18. Next steps
18
Technical work by working parties
First elements of impact assessment by fall 2019
Search for an unified approach by the end of the year
Public consultation by the end of the year
Milestones
•G20 Finance Ministers Meeting on 17 October 2019
•Inclusive Framework meeting in end of January 2020

19. PROGRAMME OF WORK
(PILLAR 1) PROFIT
ALLOCATION RULES

20. Proposed profit allocation approaches
20
• Modified residual profit split method
• Fractional apportionment method
• Distribution-based approaches
Methods to be explored
• Business line and/or regional segmentation
• Scoping limitations (e.g. size or nature)
• Treatment of losses
Cross-cutting issues
Explore different approaches to:
a) quantify the amount of profit for market jurisdictions, and
b) Determine how to allocate that profit among relevant market jurisdictions

21. Modified Residual Profit Split
Step 4: Spread profit to market jurisdictions
Step 3: Split the non-routine profit
Step 2: Remove the routine profit
Step 1: Determination of total profits
21
SIMPLIFICATION

22. Fractional apportionment
Step 3: Spread profit to market jurisdictions
Step 2: Select the allocation factors
Step 1: Determination of profits
22
COORDINATION

23. Distribution-based approaches
Step 3: Attribute return to market jurisdictions
Step 2: Adjustment based on group’s profitability
(or other factors)
Step 1: Determine baseline profit
23
MARKETING,DISTRIBUTION,
USER-RELATEDACTIVITIES

24. PROGRAMME OF WORK
(PILLAR 1) NEXUS

25. New nexus rule
Novel concept reflecting the
transformation of the economy
Remote but sustained and significant business presence
MNE group level
Revenue thresholds as evidence of the business presence
Additional factors
• targeted marketing activities
• digital engagement
• others
25

26. Elimination of double taxation
and tax disputes resolution
• Identification of the taxpayer
• Effectiveness of existing provisions and need for new multilateral approaches
• Alignment with new profit allocation methods
• Co-ordination with existing rules
Elimination of double taxation
•Effectiveness of current procedures (advance pricing agreements; mutual agreement
procedure; arbitration)
•Exploration of new multilateral approaches
Disputes prevention and resolution
26

27. Administration and implementation
27
• Collection, reporting, exchange of information
• Determining and reporting the location of sales
Administration
•Effective implementation and changes to existing bilateral tax treaties
•Use of the MLI or a new multilateral approach
Changing existing tax treaties

28. PROGRAMME OF WORK
(PILLAR 2)

29. Overview of the GloBE proposal
29
Rationale Given for Pillar Two
•Provide jurisdictions with the ability to “tax back” group
profits that are subject to a low effective rate of tax
•Multilateral solution to avoid uncoordinated rules, increased
complexity and risk of over-taxation
•Reduce pressure on developing countries to grant tax
incentives
•Address profit shifting risk from intangibles but not ring-
fenced to digital economy
•Recent tax policy developments (e.g. GILTI)
•IF members agreed to explore on a without prejudice basis
Income
not subject
to tax at a
minimum
rate
Income
inclusion
rule
Switch-
over rule
Undertaxed
payments
rule
Subject to
tax rule

30. Overview of the GloBE proposal
from the parent’s perspective
30
• Top-up to a minimum rate and use of a fixed percentage
• Effective tax rate test (including simplifications)
• Blending
• Substance and other carve-outs
• Other technical and design issues
Income inclusion rule
• Allow the state of residence to apply the credit method instead of
the exemption method for profits of a PE or for income derived from
immovable property
• Where such profits are not subject to an effective rate of tax above a
minimum rate
Switch-over rule
Income
not subject
to tax at a
minimum
rate
Income
inclusion
rule
Switch-
over rule
Undertaxed
payments
rule
Subject to
tax rule

31. Overview of the GloBE proposal
from the payer’s perspective
31
Income
not subject
to tax at a
minimum
rate
Income
inclusion
rule
Switch-
over rule
Undertaxed
payments
rule
Subject to
tax rule
•Denial of a deduction for payments made to related parties if the
payment was not subject to tax at a minimum rate
•Key elements:
•Scope of payments covered
•Mechanism to address conduit structures
•Effective tax rate test
•Measures to address over taxation
Undertaxed payments rule
•Domestic law and treaty changes that allow for imposition of source
country taxation when the income is not subject to a tax at a
minimum rate
•Consider broader policy questions
•Focus on interest and royalties
Subject to tax rule

32. Overview of the GloBE proposal
Co-ordination
32
•Co-ordination between the four different rules
•Co-ordination with other international rules, including
pillar one
•Possible use of thresholds and carve-outs
•Compatibility with international obligations and EU
fundamental freedoms
•Emphasis on simplification, avoidance of double
taxation and minimising compliance and administration
costs
Co-ordination, thresholds and compatibility
Income not
subject to
tax at a
minimum
rate
Income
inclusion
rule
Switch-over
rule
Undertaxed
payments
rule
Subject to
tax rule

33. ECONOMIC ANALYSIS &
IMPACT ASSESSMENT

34. Overview of the work
34
Overall assessment: pros and cons of the proposals
• Benchmark/counterfactual – unilateral measures
Incentive effects: for taxpayers and governments
• Taxpayers: e.g., profit shifting, investment and location of economic activity
• Governments: e.g., tax competition and providing an attractive investment landscape
Revenue estimates: effects on the level and distribution of revenues across jurisdictions
Overall economic impact: on investment, innovation and growth
• Examining variation across different types of MNEs, sectors and economies
• Economic incidence
• Regulatory costs
Data sources & methodologies: to support analysis by Inclusive Framework members

35. •Qualitative assessments will be necessary for some aspects
•Range (rather than point) estimates will be necessary for the expected fiscal and
economic impacts
Goal to produce estimates based on micro-data and macro-data sources
•Short time-frame and lack of available data
•The scope of the proposals is still under discussion, which makes it difficult to
analyse the fiscal and economic effects of the proposals with precision
Limitations and caveats
Estimates & their limitations
35

36. •Update to the Inclusive Framework at May 2019 meeting
•Bilateral engagement with Inclusive Framework members
•Other international organisations, academics and civil society
 Workshops and bilateral discussions
 Early engagement with the IMF and the EU
Process
•Intermediate Report by October/November 2019
•Ongoing analysis through until the end of 2020
Main output
Process and main outputs
36

37. BEPS WEBSITE

38. 38
Discover our new website
Base Erosion and Profit Shifting
An international collaboration to end tax avoidance

39. QUESTIONS?

40. Join the discussion
Ask questions and comment throughout the
webcast via e-mail or Twitter:
CTP.Contact@oecd.org
@OECDtax or #OECDTaxTalks
40

41. THANK YOU