The Confederations of Swedish Enterprise, the Finnish Industries, the Danish Industry and the Norwegian Enterprise have submitted joint comments on the OECD Blueprint Reports on digital tax (Pillar 1) and Global minimum tax (Pillar 2).
A public consultation to discuss the comments will be held on 14-15 January 2021.
As previously reported, the OECD presented their Blueprint Reports for comments on 12 October. An impact assessment was also released at the same time.
In our comments to the OECD, our Confederations stress the need to find a global solution to the challenges posed by the digitalisation of the economy; at the same time, we note that political agreement is lacking in several key issues. We seek a consensus-based sustainable international tax system; one which is predictable, practical and enforceable, and that also aids and supports future growth.
We urge the OECD to strike an appropriate balance between complexity and compliance issues and the overarching policy objective. To minimise the risk of divergent interpretation and double taxation, it is vital that the new rules are principle based. However, our Confederations share concerns that what the OECD has outlined in its Blueprints is neither simple nor principle based.
The new rules need to be compliant with EU law. The rules under Pillar 2 - in particular the income inclusion rule - must be analysed in greater depth, since they appear to target not only abusive “wholly artificial arrangements” but also genuine commercial activities.
We also seek to raise concerns over the shift of taxable income under Pillar 1 from smaller, net-exporting countries with high levels of R&D activity and associated entrepreneurial risk taking, to larger net importing jurisdictions with large consumer bases. From the perspective of smaller countries, we believe such a shift could undermine our relative attractiveness to international businesses and may disincentivise countries from developing a strong, competitive investment climate to support innovation and entrepreneurship.
For small, research-intensive open economies, a report from ECIPE has found that the OECD proposals would undermine future investments in R&D, innovation and business expansion. This would have adverse impacts on existing research clusters, education systems and high value-added jobs.
In our comments, we also request greater clarity on the treatment of losses. Many venture capital investments never generate any corporate tax revenue and fewer still become global players. With a residual profit split approach, the costs of innovation and development for all the failed venture capital investments would likely remain in the exporting country. At the same time, any future profits for the few successes that do emerge would - at least in part - be taxed in other countries, without proper recognition of the initial investments or pre-regime losses. Therefore it is important to ensure there are sufficient profits in the innovator jurisdiction to adequately reward R&D and incentivise discovery and to allow for losses - both pre- and in-regime - to be carried forward for an unlimited period.
Our Confederations are positive about the proposal to introduce an early certainty process. We encourage the OECD to focus on simplification and dispute prevention measures to reduce future disagreements. Mandatory binding arbitration is another essential component for accelerating mutual agreement procedures.
Introducing unilateral measures in many jurisdictions has fuelled the debate over the need to reach international consensus on a global solution. When an agreement is reached on Pillars 1 and 2, we believe that it must be accompanied by the removal of any unilateral measures currently in force, along with a political commitment by all the Inclusive Framework members not to introduce any such measures in future.
Fundamental changes to the international tax system are being considered. The impact assessment states that Pillar 1 and 2 could increase global income tax revenues by US$ 50-80 billion annually. Strangely, however, considering that this started out as a project to address the tax challenges arising from the digitalisation of the economy, only around 10 percent of the expected new tax revenue will come from digital activities. The remainder will be collected via a global minimum tax and business activities not linked to the digitalisation of the economy.Internationella skattefrågorSkatterDigitalskatt