ICC calls for coherent and coordinated implementation of international tax agreement

ICC Secretary General John W.H. Denton AO said: “The agreement marks an important step in establishing a revised international tax framework for the 21^st century. The fundamental architecture and parameters of the agreement reached through the OECD set a solid foundation to modernise the global taxation system – however coherent and coordinated implementation is imperative to ensure the reforms are administrable for both tax administrations and taxpayers and will not impose double taxation on international business which creates undue friction for investment.”

The agreement outlines the high-level political architecture of a two-pillar approach to reforming the existing international tax landscape, together with a proposed implementation framework/timetable. The plan is substantively in line with the high-level principles set out in the G7 announcement in July and has received the agreement of all of the OECD, G20 and EU Inclusive Framework members.

As anticipated, Pillar 1 deals with the reallocation of certain profits from large multinationals to market jurisdictions, whilst Pillar 2 covers the introduction of a global minimum tax (of 15%) and related backstop/supporting measures.

In broad terms, Pillar 1 will apply to multinationals with worldwide revenues greater than €20 billion and profitability above 10%, whilst Pillar 2 will apply to multinationals with worldwide revenues in excess of €750m.

With 136 countries agreeing to the high-level plan, clear and predictable rules will need to be developed to minimise compliance and administrative cost and controversy for both taxpayers and tax administrations.

ICC notes that there are still multiple technical issues to be addressed in relation to the two-pillar approach, including in relation to the final design of sourcing rules, determination of the payer entity/country, the design of mandatory and binding dispute prevention and resolution mechanisms, the treatment of losses and deferred tax, the implementation of safe harbour / de minimis provisions, and the standstill and withdrawal of digital services taxes or relevant similar measures.

Christian Kaeser, Chair of the ICC Commission on Taxation and Global Head of Tax at Siemens said: “The economic implications of the global deal are of considerable importance particularly as countries seek to restore public finances and rebuild the economy in post-pandemic recovery. A clear path forward for consistent application of the new rules globally will be instrumental to maintain the integrity of international tax system, reduce administrative complexity and provide for the flow of much-needed additional revenues to the economy.

“Given the expected additional administrative burden, we encourage the Inclusive Framework to provide rapid clarity in relation to unresolved aspects of the technical and implementation parts of the two-pillar approach. The business community welcomes the political commitment to an ambitious timetable for providing model rules, commentary, and a multilateral convention in short order. Allied to this, enhanced tax certainty, including a strong process for arbitration and dispute resolution will be key to mitigate the risk of a damaging proliferation of double taxation disputes.”