Position | Tax policy | Digitax Taxing the Digitalization of the Economy: The Two Pillar Approach
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Early Tax Certainty Request
MNE groups that wish to have certainty in their evaluation of whether they are subject to Amount A or the MNEs determination and allocation is in line with the provisions will be given the opportunity to obtain “binding information” in advance from the leading tax authority.
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Representative panel mechanism – multilateral review
The IF considers it essential to resolve tax disputes regarding Amount A in a binding process, quickly and transparently. Although the design is still under political discussion, an initial review / ”final review” panel of the involved jurisdictions is envisaged. The main responsible jurisdiction would be the jurisdiction of the ultimate parent entity. The dispute resolution mechanism is to be available for various disagreements, probably essential with regard to the question of the existence of a sufficient nexus in a jurisdiction and the elimination of double taxation by a jurisdiction through the credit or exemption method. Given the importance of an administrable and timely process, the IF’s proposal to tie the duration of this process to the fiscal year and to resolve dispute resolution within 15 months of the fiscal year is welcome compared to the current duration of MAP.
Most recent US proposal to abandon the restriction to ADS and CFB The most recent proposal of the U.S. Treasury Department unveiled in April 2021 seems like a significant simplification by reducing the scope of Pillar One. However, a global consensus would have to be reached on this proposal as well and it does not achieve a significant simplification of revenue sourcing as the problem to determine the generation of revenues in each market jurisdiction would still not be solved.
Pillar Two The GloBE proposal bears the potential to set an overarching standard in international taxation. However, many fundamental questions have not yet been answered. Under the current design, an increase in complexity, double taxation and tax disputes would inevitably arise.
BDI Position
To address the concerns, the GloBE proposal should be focused by clarifying the underlying principles. If the objective of GloBE is to disincentive profit shifting by imposing a minimum tax, the rules should differentiate between genuine commercial transactions and wholly artificial arrangements. Additionally, the previous BEPS measures should be reviewed prior to the implementation of a new layer of rules in order to reduce complexity and to allow for continuity under the new rules. Careful attention must be paid to the design of the rules. The following sections address some critical design aspects for Pillar Two from an industry perspective.
Income Inclusion Rule Tax Base Determination via Financial Accounts Since the Income Inclusion Rule would tax a portion of the low-taxed income of a foreign subsidiary on shareholder level, the question how to determine the tax base has a fundamental nature. The preferable solution, calculating profit based on ultimate parent tax law for every subsidiary, would prove excessively costly. Therefore, the tax base should be determined according to the financial accounting standards applicable at ultimate parent level such as IFRS/US-GAAP. However, no uniform accounting standard which could be used for the purposes of GloBE exists since many MNEs use different accounting standards in parallel. Therefore, the use of financial accounts can only serve as a proxy and adjustments must be made to provide an approximation of taxable profit and taxes paid and to ensure fair and equal taxation.
Adjustments for differences in financial accounting standards Reflecting material differences between financial accounting and tax accounting as well as between the different accounting standards in adjustments requires a multilateral and harmonized view on the treatment of permanent and temporary differences through as many as possible simplifications to limit the administrative burden 35
