3 minute read
Preface
Oliver Nußbaum
Global Head of Taxes and Duties, BASF SE
Preface
The OECD is pushing one of the biggest reforms of international taxation in history. Policymakers must take the concerns of the business community seriously. Regarding the reallocation of taxing rights on corporate profits, maintaining the competitiveness of businesses must be the guiding objective of the reform. Hence, a level playing field must be created. It must be ensured that the new taxing right and profit allocation rules are only introduced if they are implemented uniformly by all participating jurisdictions.
Additionally, it is not enough to just reallocate profits to market jurisdictions, but it must be clearly and legally certain which jurisdiction forfeits the right to tax the reallocated profits. The latter is not sufficiently addressed in the current design of Pillar One. Without clear rules on the avoidance of double taxation, there is a risk of dispute among various jurisdictions over tax revenue. This would ultimately lead to double taxation and entangle businesses in chaotic dispute resolution procedures, since the current framework is not fit to deal with such an increase in multilateral disputes. Due to the complexity and increased risk of disputes, an agreement on a new tax architecture among all jurisdictions on a binding dispute avoidance and resolution procedure is a conditio sine qua non. The agreement must include a mechanism which ensures that no additional administrative burden is placed on businesses.
The proposed two-pillar approach bears numerous risks for German industry. Out of the lengthy list, the most prominent concerns of German industry are severe double taxation, excessive additional administrative burden, legal uncertainty and endless dispute resolution procedures. Since the digital economy cannot be ring-fenced, the proposals will have far-reaching consequences for German industry.
On the other hand, one must recognize that the outlook does not improve if a comprehensive international approach would fail. The political pressure to find a solution to the perceived tax challenges of the digitalization of the economy is high. Several jurisdictions have already implemented unilateral action and many other are planning to do so should the international initiative fail. Consequently, a global consensus between jurisdictions is required to avoid further fragmentation of the world tax order.
This being said, the reform must be carefully crafted in order to ensure continuity, especially because the impact of the BEPS 1.0 reforms has not yet been analysed. It is of utmost importance that the new rules are clear, modest and build on the existing principles of international taxation. Hence, scope and nexus under Pillar One must be defined delicately. The arm’s length principle (ALP) should not be abandoned, formulaic apportionments should form an exception. Regarding the global minimum tax under Pillar Two, genuine economic activity should not be subject to the tax on base eroding payments. To ensure uniform implementation, a multilateral convention should be passed. Considering that the global economy is expected to return to pre-crisis GDP levels only in 2022, the agreement should ensure that net losses in tax revenue for some jurisdictions are not reconciled with tax increases.
German industry advocates for a solid, long-term framework for an international, administrable and consensus-based tax architecture. Ensuring a coherent technical architecture and an implementation of a consensus-based solution is of utmost importance. No unilateral action should be taken for the time the negotiations continue.
Dr. Monika Wünnemann
Head of Department, Tax and Financial Policy, BDI e.V.
