The reform (who has the right to tax multinationals and where should that happen) has 3 steps (A, B and C). A being the major breakthrough. All companies with a certain turnover in a country even without physical presence have to allocate a part of their profits to that country.
How this step A looks like is the big question and it has been hard to visualize the reform and clearly indicate what still needs to be negotiated (cause a lot is still under discussion). I have tried to put it all in images and happy to hear comments and discuss #taxtwitter 
Once the scope is agreed, countries around the table need to agree on threshold of profitability for step A to kick in!
(e.g. only profits over a profit margin threshold are taken into account)
Developed countries seem only want to target highly profitable businesses.
(e.g. only profits over a profit margin threshold are taken into account)
Developed countries seem only want to target highly profitable businesses.
Subsequent image of the above.
Another crucial step is to find a percentage of residual profits that fairly reflects the value of the consumer market.
This percentage should be fixed per industry.
This percentage should be fixed per industry.
The final step is to agree on the profit allocation keys. Most probably sales and users.
Nothing has been said so for on ''surrender countries'', meaning those losing out in the current system.
Nothing has been said so for on ''surrender countries'', meaning those losing out in the current system.
CONCLUSION
The idea of negotiations of A is to come up with a fixed formula per industry that can be applied on the global profit margin of each company.
This would be the formula: (Z% - X%) x V% = W% / sales per country.
Easy and simple? No!
The idea of negotiations of A is to come up with a fixed formula per industry that can be applied on the global profit margin of each company.
This would be the formula: (Z% - X%) x V% = W% / sales per country.
Easy and simple? No!
My thread last week about the reforms:
Some excellent threads last week by @YohannesBecker , @D_Langenmayr, @phdskat and @alexcobham
And a thread about unilateral measures by @Hamza_M_Ali
And a thread about unilateral measures by @Hamza_M_Ali
Two must read blogs. By @martinhearson and @ali_readhead :
ictd.ac/blog/the-oecds…
and alexandrareadhead.com/blog
Last week's study of the IMF also crucial! imf.org/en/Publication…
ictd.ac/blog/the-oecds…
and alexandrareadhead.com/blog
Last week's study of the IMF also crucial! imf.org/en/Publication…
@martinhearson @ali_readhead What is missing in this thread:
(1) the very important step B for developing countries 👉 a fixed return for distribution and marketing activities in countries.
(2) the very contentious step C for a mandatory binding arbitration.
(1) the very important step B for developing countries 👉 a fixed return for distribution and marketing activities in countries.
(2) the very contentious step C for a mandatory binding arbitration.
What do NGOs want/say?
1. A should take employment into account in allocation key.
2. A should cover enough profits to be meaningful.
3. High fixed return in B
4. No mandatory binding arbitration
5. Scope of reform is not clear!
6. Fear for extra complexities & new grey zones
1. A should take employment into account in allocation key.
2. A should cover enough profits to be meaningful.
3. High fixed return in B
4. No mandatory binding arbitration
5. Scope of reform is not clear!
6. Fear for extra complexities & new grey zones
AND LET'S NOT FORGET PILLAR 2: the minimum effective tax rate!
Still under negotiation and this is the actual revolution if well designed and ambitious!
Still under negotiation and this is the actual revolution if well designed and ambitious!
For clarity. It is not sure whether the G20 ministers will approve the OECD secretariat proposal of last week today.
Also the reforms are far from being finalized. This is just the beginning.
Also the reforms are far from being finalized. This is just the beginning.
