Position | Tax policy | Digitax Taxing the Digitalization of the Economy: The Two Pillar Approach
Summary
Summary In view of the expectation that a final agreement can be reached by mid-2021, BDI would like to emphasize once again the impact of this project on German industry. For BDI it is of utmost importance that the perceived tax challenges arising from the digitalization of the economy are addressed in a responsible manner. German business continues to support the work on the OECD project with the aim of finding a global solution. The remaining time until the extended deadline of mid-2021 must be used to solve the remaining political and technical differences. This extension is important as an international taxation order must provide legal certainty and coherence and since a failure of the OECD project is likely to result in further fragmentation of the international tax system through uncoordinated unilateral action. At the G20 finance ministers’ meeting on April 6, 2021, the United States presented a new proposal which would provide for the redistribution of tax revenues to be based on quantitative criteria such as turnover and profitability and abandon the restriction to Automated Digital Services (ADS) and Consumer-Facing Businesses (CFB). Instead, the 100 largest and most profitable corporations – regardless of industry affiliation or business model – should be targeted. Globally agreed proposals should include the binding abolition of any unilateral measures in place at the time of agreement such as Digital Services Taxes (DST) and a commitment for a stable and sustainable international tax system. In this context, it is important to highlight that a global consensus is required. We call on the European Commission to refrain from own initiatives and to urge national governments not to use the postponement at OECD level as justification for the introduction of national measures. For BDI it is important that a multilateral agreement will be reached in order to ensure uniform implementation and to minimize compliance costs. As the current proposals would revise the foundations of the international taxation order, it is critical to make public an economic impact assessment on a country-by-country basis, covering the effects on national tax revenue, investment, growth, employment and business models to allow for transparent public discourse as well as informed decision making by G20/Inclusive Framework members. The impact assessment should also explore the relationship between Pillar One and Pillar Two in more detail. If the proposal is judged to increase tax revenues on a net basis, emphasis should be placed on the effect on growth and jobs since workers and consumers are the most impacted. In the firm believe that a global consensus is preferable to unilateral action and recognizing that further work is needed to further develop the proposals and to meet the goal of finding solutions to the tax challenges arising from the digitalization of the economy, we encourage the OECD/Inclusive Framework to ensure that individual jurisdictions or their regional responsible bodies will not implement unilateral measures before a solution on OECD/Inclusive Framework level is agreed upon.
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