Thread by @alexcobham

Disappointing but not entirely surprising - the 'Inclusive Framework' has been forced to accept the OECD secretariat 'unified proposal', in place of the IF's agreed work programme. A range of implications flow from this...
oecd.org/tax/internatio…

In terms of the OECD process, there is an insistence that things stay on schedule - all to be wrapped up by end-2020. But there are so many, quite large things still open in pillar one, from the scope of industries to be covered to the range of financial thresholds

The 11 elements of work remaining on pillar one demonstrate how much is still open, even after the Inclusive Framework has been forced to drop its own work programme

This remains extremely ambitious. Taking into account that the public consultation saw strong and widespread objections on everything from scope of pillar one, to thresholds, to concept of dispute resolution mechanisms, only further brute force will obtain a 2020 conclusion

This is without mentioning that the US proposal for 'safe harbours' (or opt-outs for multinationals, if you prefer...) is still noted in the OECD document. Unless the agreement was to note it and then never mention it again, that might well threaten the process again.

On pillar two, things remain very wide open - there's not much new detail in the document, just indication that work continues. One very welcome element: " Working Party 11 has set up a special subgroup on financial accounts" - it's fundamental to get common position on the data.

But stepping back, the broader implications of the politics seem rather bigger than the technical challenges that remain. A quick look at the timeline...

2018: Comprehensive recognition, including from OECD and with US support, that global reforms are needed and that they must *go beyond the arm's length principle*. Momentous shift, finally to unpick the League of Nations decisions of 1920s and 1930s.

Jan.19: Inclusive Framework agrees a work programme with three proposals on pillar one, including the G24 proposal for a relatively full formulary apportionment. All three proposals include a unitary approach; the big question is what element of transfer pricing may remain.

Summer '19: US-France deal, backed by G7. On the basis of which OECD secretariat brings forward 'unified proposal', which eliminates G24 approach and replaces it with much more complex and limited arrangements, per US-French position.

Public consultation and private responses, not least from G24, show widespread discontent with both the secretariat proposal itself, and the undermining of the agreed process. The failure ever to evaluate the IF work programme's three proposals is a particular issue.

For that reason, there is great interest and concern about our analysis @TaxJusticeNet & @icrict of the potential implications of the new proposal (a heavily simplified version - the blue bars), compared to the G24 approach osf.io/preprints/soca…

@TaxJusticeNet @icrict Then, as we have seen, the US goes back on the deal with France, and Dec.19-Jan.20 are spent in their public and private dispute and renegotiation, concluding only as the Inclusive Framework meeting begins.

@TaxJusticeNet @icrict And now the Inclusive Framework has 'agreed' to go ahead with the secretariat's 'unified proposal', tweaked for the US-French position which remains without full agreement, but with the continuing commitment to urgent finalisation within 2020.

@TaxJusticeNet @icrict What does this mean for the current reform process, and the longer-term dynamics?

@TaxJusticeNet @icrict A few things. First, for the current reforms, there is a real risk. Most of the ambition, in terms of redistributing revenues away from tax havens, has already been sacrificed in the unified proposal - this brings complexity without benefits, especially for lower-income countries

@TaxJusticeNet @icrict But that weak and complex outcome may still come with a high cost - because the spectre remains of mandatory binding dispute resolution, which would tie the hands of lower-income countries in particular in the face of multinationals' aggression

@TaxJusticeNet @icrict At the same time, any promised benefits of Pillar Two remain at best uncertain - and quite possibly entirely ephemeral, if a global blending approach were to be demanded by the US and others

@TaxJusticeNet @icrict Second, however, it is the broader political ramifications that may prove to be the most important.

@TaxJusticeNet @icrict The questionable credibility of the 'Inclusive Framework' is in tatters. As the Indian delegate said last year, 'just because you call something 'Inclusive', does not make it inclusive'.

@TaxJusticeNet @icrict The IF's agreed work programme has been thrown out, for a secretariat proposal designed purely to meet the demands of two big OECD countries, the US and France (the biggest member and the OECD's host country).

@TaxJusticeNet @icrict The OECD's claims that IF members have an 'equal say' have been shown to be completely hollow. The complete elimination of the G24 proposal in particular, and the IF's forced acceptance of the unified proposal this week, has confirmed lower-income countries' irrelevance at OECD.

@TaxJusticeNet @icrict It's hard to see how any future OECD process can make any credible claim to be inclusive. A good many OECD members may feel excluded; while the remaining IF members probably feel that their presence has done nothing but allow the OECD to bolster its claims to legitimacy

@TaxJusticeNet @icrict Listening now to Pascal Saint-Amans talk about the importance of this agreement to avoid a (US-France, or global) trade war, you can only feel sympathetic. Within the problems facing the secretariat was a tradeoff between being vaguely inclusive, or addressing this threat.

@TaxJusticeNet @icrict But that dynamic will always exist at the OECD, and so claims of inclusivity of non-members will never ring true.

A major question now is where the next global tax talks after 2020 will take place - or if unilateral splintering is the foreseeable future.

@TaxJusticeNet @icrict Those countries pursuing DSTs seem at least to have obtained some of the Trump administration's attention, confirming the value at one level of unilateral actions.

@TaxJusticeNet @icrict And the continuing resistance of OECD members to any meaningful UN process on international tax rules seems
unlikely to dissipate any time soon.

@TaxJusticeNet @icrict As the high-level participants at our virtual conference in December concluded, things will not be fixed by this OECD process - but 'the genie is out of the bottle' as far as unitary taxation is concerned taxjustice.net/2019/12/12/glo…

@TaxJusticeNet @icrict We had earlier identified three scenarios for the OECD process: taxjustice.net/2019/12/04/wil…
1. Limited reform.
2. Process collapses due to lack of trust.
3. Reset with concessions to IF.

@TaxJusticeNet @icrict We can say, today, that the OECD secretariat has avoided 2 and 3 for now. The IF has been forced to accept the path to limited reforms on the basis of US-French dominance.

Agreement of sorts by end-2020 is now more likely; but also certain not to be the last word.

@TaxJusticeNet @icrict If the IF does not bring concerted pressure to bear by June, there will be no reset and no prospect in this process of considering the more full unitary approaches that would deliver meaningful redistribution of taxing rights, as was the promise of the negotiations.

@TaxJusticeNet @icrict But the more complex and limited the outcomes, and the greater the insistence of the multinationals on binding dispute resolution, the greater the chance for a pyrrhic victory: a deal that creates great uncertainty itself, & is followed immediately by multiple unilateral measures

@TaxJusticeNet @icrict I guess the OECD should be congratulated for holding things together this week; but the longer-term implications seem likely to be substantially damaging for international tax coordination, and for the organisation's credibility as a broker of reforms.

@TaxJusticeNet @icrict I imagine that a number of G24 countries are now discussing their next moves - and those are unlikely to be in the IF.

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Not a surprising outcome overall, and perhaps it will ultimately prove to be for the best; but for now, frustrating all the same.

@TaxJusticeNet @icrict @threadreaderapp unroll please, maestro