Tax Conference Provides First Look at OECD’s Digitalization Roadmap

L-R: Pascal Saint-Amans (OECD), Gaël Perraud (French Ministry of Economy & Finance), Brian Jenn (U.S. Treasury), Pam Olson (PwC), Louise Weingrod (Johnson & Johnson)

Global companies are facing potentially seismic shifts in the taxation of their operations, with national tax authorities seeking to keep pace with a rapidly digitalizing business environment. This was the backdrop when more than 250 global tax professionals, government officials and other tax experts gathered in Washington, D.C. June 3-4 for USCIB’s annual OECD International Tax Conference. This year’s event provided an especially timely window into the Organization for Economic Cooperation and Development’s work to develop tax policy recommendations to governments.

On May 31, the OECD released a work program to develop proposals for allocating a company’s profits among countries that re-balance source and residence taxation and also result in a global minimum amount tax paid on earnings. Drawing from the views of nearly 130 jurisdictions (far broader than the OECD’s membership of 36 countries), the OECD roadmap could result in fundamental changes to national tax laws and bilateral tax treaties, including a move to a much more multilateral approach to international corporate taxation.

USCIB President and CEO Peter Robinson asked conference-goers in his opening remarks: “How will a new consensus form around reallocation of taxing rights? Many interests will need to be balanced to achieve a solution that will be ‘globally fair, sustainable and modern,’ to quote the G20. The OECD also needs to keep global growth front and center.”

This sentiment was echoed by Bill Sample, tax policy advisory at Microsoft and chair of USCIB’s Tax Committee.

“Unlike the OECD’s earlier BEPS [base erosion and profit-shifting] exercise, this project will reallocate tax revenues among various countries,” he said. “It’s a political exercise, requiring compromise and the balancing of many competing interests among governments. One thing parties generally agree on is the need to keep these revenue shifts modest, and to have a predictable, sustainable model for global tax policy going forward.”

The conference was the 14th annual gathering on global tax policy developments convened by USCIB, in cooperation with the OECD and its official private-sector advisory body, Business at OECD (also known as BIAC).

The G20’s mandate

G20 leaders have tasked the OECD, with a long and distinguished history of work on international tax policies, to lead work a consensus-based solution to address the impacts of the digitalization of the economy, with a target of developing recommendations by next year.

The OECD’s effort represents “a fundamental rethink of the basics of the international tax system,” USCIB Vice President and International Tax Counsel Carol Doran Klein told Bloomberg News. “The scope could not be broader.”

Economist Ngozi Okonjo-Iweala

G20 governments will review the OECD roadmap at a June meeting in Japan.

“Despite the fact that people have been listening to all the talk about this being the largest international tax project, it’s only when people read this and see how wide-ranging this is that they’ll be able to appreciate it,” Will Morris, chair of the BIAC Committee on Taxation and Fiscal Policy and deputy global tax policy leader at PwC, told Bloomberg. “It’s not just about changing technical rules. It’s about saying, essentially, the world has changed, and this system we’re looking at needs to change with it.”

Economist Ngozi Okonjo-Iweala’s keynote remarks focused on ways to improve the tax capacity of emerging markets, which are expected to receive a growing share of global private-sector investment in the years ahead.

Other panelists and speakers at this year’s conference included:
Pascal Saint-Amans, director of the OECD Center for Tax Policy & Administration
Martin Kreisenbaum, director general for international taxation, German Ministry of Finance
Chip Harter, deputy assistant secretary for international tax affairs, U.S. Treasury
Dr. Ngozi Okonjo-Iweala, an economist and former finance minister of Nigeria
Doug O’Donnell, commissioner of the Large Business and International Division, IRS
Mike Williams, director of business and international tax, HM Treasury (UK).

It’s not too early to mark your calendars for next year’s OECD International Tax Conference, which will take place June 1-2 in Washington, D.C.

Doran Klein Contributes Expertise on Taxation of Digitalizing Economy at Pacific Rim Conference

USCIB’s tax expert Carol Doran Klein presented at the ninth annual Pacific Rim Tax Conference on Digital Economy Tax Issues, held May 9-10 in California. Doran Klein’s panel covered the ongoing work on taxation of the digitalizing economy at the Organization for Economic Cooperation (OECD) and the United Nations. The panel provided an overview of the background including Action 1 of the OECD’s Base-Erosion and Profit Shifting (BEPS) project, digital services taxes and other unilateral interim measures, and the different options under consideration at the OECD.

Other topics covered at the conference included: International Aspects of Tax Policy and Enacted Legislation: Did it Work?; Corporate Restructuring in Light of Tax Legislation and BEPS; and Transfer Pricing, Documentation and International Tax. High-level government tax officials from Australia, Canada, India and Vietnam attended the conference as well.

USCIB will be hosting its own tax conference, alongside the OECD and Business at OECD June 3-4 in Washington DC. Now in its 14th year, this annual conference provides a unique opportunity for the U.S. business community to interact with key representatives from the OECD Centre for Tax Policy and Administration (“CTPA”) as well as key members of the OECD’s Committee on Fiscal Affairs.

For more information visit USCIB’s tax conference registration page.

New OECD Reports Outlines Business Investment Contribution to SDGs

The Organization for Economic Cooperation and Development (OECD) has recently published a report on “The Contribution of International Business Investment to the Sustainable Development Goals (SDGs).” The report surveys the main type of financing behind business investment in developing countries, recent trends, an evaluation of the contribution of these flows to the SDGs, and prospects going forward.

The report highlights that multinational enterprises (MNEs) have become one of the most important actors for channeling investment to the developing countries. A relatively new actor providing financing for development is the State-Owned Enterprise (SOE). Furthermore, mergers and acquisitions (M&A) is one of the primary vehicles that MNEs use to invest in foreign markets and a major component of foreign direct investment. M&A inflows in developing countries starting declining already in 2012.

An increasingly important source of international investment into developing countries is China; in 2017 China doubled its M&A in developing countries to $25 billion, making it their top resource of international M&A (ahead of Japan and the US). Meanwhile, private flows align naturally with the SDGs in the area of infrastructure: SDG 6, which focuses on clean water and sanitation), SDG 7 on affordable and clean energy, SDG 9 on industry, innovation and infrastructure, and SDG 10 which aims to reduce inequalities.

“The report calls to action for improving the global rules for trade and investment, pursuing domestic policy reform agenda to improve business climates, and addressing new areas of regulatory co-operation,” observed USCIB Senior Director for Investment, Trade and Financial Services Eva Hampl.

The OECD will be organizing a round table on investment and sustainable development on October 23, 2019, as part of the next OECD Investment Week.

USCIB Joins Coalition in Urging Specific US Government Action on US-China Trade

USCIB joined Americans for Free Trade, a multi-industry coalition consisting of over 150 members, to send a letter to President Donald Trump on April 22 regarding upcoming U.S.-China trade talks.

The Coalition letter urged the U.S. government to fully and immediately remove all recently imposed tariffs, including U.S. tariffs and China’s retaliatory tariffs as part of a final deal, while also encouraging the U.S. to come up with a deal that levels the playing field for U.S. companies by achieving meaningful changes to address China’s unfair trade practices that put American technology, innovation and intellectual property at risk.

Regarding unfair trade practices, the letter stated: “For too long, China has engaged in unfair trading practices, including forced technology transfer, cyber theft, intellectual property violations and more. We hope any final deal will resolve the structural issues that are at the core of the trade dispute in order to fully protect American technology, innovation, and intellectual property.”

The letter also urged the government to avoid any enforcement mechanism that would trigger further tariffs and obtain clarity on how the tariff exemption process will be carried out in the event of a deal.

Finally, the group also urged an economic assessment by the Administration examining the costs of tariffs for American businesses and consumers.

Americans for Free Trade represents companies that employ tens of millions of American workers and provide goods and services to virtually every corner of the United States.

Latest US Business Tax Dialogue With OECD to Focus on Digitalization

Washington, D.C., April 23, 2019 – With national governments weighing the tax implications of the digitalization of the economy, the G20 has called on the Paris-based Organization for Economic Cooperation and Development (OECD) to deliver a solution by 2020 to address the matter. Against this backdrop, American and other global companies will meet with key officials from the OECD and national governments at a high-level conference, June 3-4 in Washington, D.C.

The 2019 OECD International Tax Conference, which will take place at the Four Seasons Hotel, will provide a unique opportunity for business experts to interact directly with key leadership from the OECD’s Center for Tax Policy and Administration (CTFA), along with senior tax officials from the United States and other OECD countries.

The conference is the 14th annual gathering on global tax policy developments convened by the United States Council for International Business (USCIB), in cooperation with the 36-nation OECD and its official private-sector advisory body Business at OECD (also known as BIAC). Details on the event are available at www.uscibtax.org.

“With the taxation of the digitalizing economy on a fast-track at the OECD, this year’s conference comes at just the right time,” said USCIB President and CEO Peter M. Robinson. “All companies are potentially affected by the changes that are being considered. We will also be looking closely at tax and development policy, the latest developments in tax treaties, transfer pricing and the tax implications of Brexit. It’s really a must-attend event for global tax professionals.”

Key speakers at this year’s conference include:
Pascal Saint-Amans – Director of the Center for Tax Policy & Administration, OECD
Grace Perez-Navarro – Deputy Director of the CTPA, OECD
Martin Kreisenbaum – Director General, International Taxation, German Ministry of Finance
Lafayette (Chip) Harter – Deputy Assistant Secretary for International Tax Affairs, U.S. Treasury
Dr. Ngozi Okonjo-Iweala – Economist and International Development Expert (Nigeria)
Doug O’Donnell – Commissioner, Large Business and International Division, IRS
Mike Williams – Director of Business and International Tax, HM Treasury (UK)
Will Morris – Chair, BIAC Committee on Taxation and Fiscal Affairs
Bill Sample – Chair, USCIB Tax Committee

The tax event continues USCIB’s fruitful collaboration with the OECD and BIAC on digital economy topics, following upon a USCIB-hosted March conference in Washington, D.C. on the OECD’s “Going Digital” project.

About USCIB:
USCIB promotes open markets, competitiveness and innovation, sustainable development and corporate responsibility, supported by international engagement and regulatory coherence. Its members include U.S.-based global companies and professional services firms from every sector of our economy, with operations in every region of the world, generating $5 trillion in annual revenues and employing over 11 million people worldwide. As the U.S. affiliate of the International Chamber of Commerce, the International Organization of Employers, and Business at OECD (BIAC), USCIB provides business views to policy makers and regulatory authorities worldwide and works to facilitate international trade and investment. More information is available at www.uscib.org.

Contact:
Jonathan Huneke, VP communications, USCIB
+1 212.703.5043 or jhuneke@uscib.org

USCIB Joins Global Dialogue on Anti-Corruption and Technology

On March 20-21, 2019, the OECD hosted its annual Global Anti-Corruption & Integrity Forum in Paris. This year, the Forum’s theme was “Tech for Trust” and it focused on the risks and opportunities of new technologies for anti-corruption and integrity. USCIB Senior Director for Investment, Trade and Financial Services Eva Hampl represented USCIB at the Forum.

The sessions covered issues including data analytics, tax information sharing, parcels trade, regulation, state-owned enterprises, and lobbying.

The OECD is currently reviewing their 2009 Anti-Bribery Recommendation which was adopted by the OECD in order to enhance the ability of the States Parties to the Anti-Bribery Convention to prevent, detect and investigate allegations of foreign bribery. This document, which is open for review in a public consultation, was also the topic in several sessions last week in Paris. The lively debate that included USCIB and others representing Business at OECD raised issues such as the demand side of bribery, voluntary self-disclosure, incentivizing investing in compliance systems, and state-owned enterprises.

“The issue of bribery and corruption more broadly continues to be a significant cost to business,” said Hampl, reporting from the meeting in Paris, “Technology, including blockchain, big data analytics, AI and others are transforming the way business is done, but they also have the potential to address many of the anti-corruption issues. As this discussion continues at the OECD, business will be at the table providing valuable input from dealing with these issues at the front lines.”

Business at OECD Committed to OECD Digital Tax Project

Business at OECD welcomed the OECD/G20 policy note on January 31 titled, Addressing the Tax Challenges of the Digitalization of the Economy, which was approved by the Inclusive Framework (IF) on Base Erosion and Profit Shifting (BEPS), reaffirming commitment to a multilateral solution to addressing the tax challenges of the digitization of the economy.

According to Business at OECD, this initiative will impact all businesses and is of critical importance to the integrity of the international tax system. The OECD Inclusive Framework can reach international consensus in this area, and Business at OECD is committed to engaging a diverse and effective business network in the consultative process going forward.

“Broad consensus on measures for taxation of the digitizing economy is crucial to ensure innovation, growth, and stem instances of double taxation,” stated Will Morris, chair, Business at OECD Committee on Taxation and Fiscal Policy. “In this context, measures should also enable tax administrations to collect revenue needed for essential and efficient governmental functions.”

“The OECD is the appropriate forum to have a discussion about changes to the international tax system,” emphasized USCIB Vice President for Tax Policy Carol Doran Klein. “Countries should forego unilateral changes while that consensus develops.”

On January 21 Business at OECD released 11 foundational principles for international tax measures in the digital age.

US Tax Reform One Year Later

Carol Doran Klein, USCIB vice president and international tax counsel, was featured in a new report by Freshfields Bruckhaus Deringer LLP “Four Big Questions on U.S. Tax Reforms,” which assesses the implications of the Tax Cuts and Jobs Act.

Doran Klein weighed in by providing her perspective on the future of BEAT (Base-Erosion and Anti-Abuse Tax), an anti-avoidance measure that targets multinational groups with a significant U.S. presence, effectively applying a 10 percent minimum tax for taxable income adjusted for certain types of payments made by U.S. corporations to related non-U.S. corporations.

In her interview for the report, Doran Klein noted that the BEAT does not respect the arm’s length standard for transfer pricing, which is the internationally accepted principle in the OECD Model Tax Convention (the guidance underpinning the bilateral tax treaties of OECD members), or advance pricing agreements (APAs).

“One might argue that BEAT would violate existing principles because it doesn’t matter whether you have an APA or whether the payment is otherwise considered to be arm’s length, BEAT would effectively disallow a share of the deduction,” said Doran Klein. “However, the U.S. government could argue that it’s no longer clear whether the international accepted standard should take into account the arm’s length nature of the payments because Action 4 of the BEPS Action Plan concerning limitations on the deductibility of interest payments doesn’t actually rely on the arm’s length principle.”

 

Joint Conference Addresses Digital Taxation

The German business association BDI hosted the OECD, Business at OECD, USCIB and other business representatives at a joint conference in Berlin, Germany on November 6 to contribute to the current debate on digital taxation. The OECD is the leading organization in developing a consensus approach to this debate.

Leading global tax experts discussed current business models and value creation, profit allocation and nexus rules, and future challenges of profit taxation. Among them was USCIB Taxation Committee Chair Bill Sample (Microsoft Corporation) who gave a keynote on a panel, “Future Challenges of Profit Taxation.”

Sample spoke about a “borderless world,” with borderless businesses and borderless consumers, which increases the need for governments to work together to reduce the negative impact of hard borders on the digitalized economy.

The event, titled International Taxation in Light of Digitalization, also featured participation by OECD Deputy Secretary General Ludger Shucknecht and Director for the OECD Center for Tax Policy and Administration Pascal Saint-Amans, as well as Head of the International Tax Unit at the German Federal Ministry of Finance Christian Schleithoff.

Business Groups Fire Back Against Proposed Tax on Tech Firms

Following the United Kingdom’s plan to impose a new tax on sales by many technology companies, U.S. business groups, including USCIB, fired back warning that the proposal would violate tax agreements by targeting U.S. firms. The proposal includes a 2% tax on sales by large social media platforms, internet marketplaces and search engines from April 2020.

BBC reported on this development and highlighted comments by U.S. Treasury Secretary Steven Mnuchin, who according to BBC, voiced strong concern about different countries’ efforts to develop digital sales tax. “This tax is a proportionate and targeted interim response that reflects the changing global economy, and how digital businesses derive value from users – it’s not targeted at any country and seeks to ensure the tax system is fair,” said Mnuchin.

USCIB submitted a letter to EU Commissioner Pierre Moscovici in July in response to a proposed EU directive urging the directive not to be adopted.

“The directives reflect a lack of understanding of current and evolving business models and would distort the allocation of revenue or income to functions that do not accurately reflect value creation by the companies earning the revenue or income,” stated USCIB’s letter.

“USCIB supports a consensus-based comprehensive income-tax-based solution applied equally to agreed upon issues in segments of the digitalized economy,” added USCIB Vice President for Tax Policy Carol Doran Klein. “There is agreement that the global economy, businesses and the public sector are digitalizing. Therefore, any solution to agreed upon issues (if any) must apply to the economy broadly, not to narrow segments of the economy. Any solution must also be broadly agreed to by countries to minimize double taxation and controversy, therefore the G20-OECD Inclusive framework is the best forum for this discussion. The EU itself recognizes the importance of a multilateral approach.”