Thread by @JohanLangerock

Earthquake in international #tax world with US pulling out or pausing the #OECD negotiations aka #BEPS2.

A quick personal take in this thread. #Oxfam reaction will come in the next hours.

What does this mean for the EU? Is the USA all bad?

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news.bloombergtax.com/daily-tax-repo…

Let's recall this process started with a high amount of ambition in January 2019 with buy-in from the USA. Actually the USA was the one opening up the discussion with its own tax reform. Let's also remember there are 2 pillars.

Pillar 1 = digital economy. Pillar 2 = minimum tax.

The pulling out of the US or the ask to pause the negotiations seems to only hit pillar 1.

Pillar 1 divided countries from the very start. Some countries wanted a very limited focus (only techgiants) and others wanted to broaden the scope.

Actually the USA wanted a broad scope.

Yes, the USA defended a broad scope (which is good) but in its own way. It also did not support the G24 proposal lead by countries like India and Colombia.

Also the USA was very aggressive in its response to unilateral digital taxes with trade retaliations and threats.

So in the end pillar 1 was becoming a very complex compromise between those who only want to target tech giants (EU countries play a negative role here) & those who seek a broader scope. Now the US pulls out or asks for a pause. Of course this kills it. Both good and bad perhaps.

So pillar 2 is still alive. HURRAY!

And who knows we could potentially expect a breakthrough in October 2020 in Berlin when Inclusive Framework meets.

Although important to note the US has been very stiff on this and wants to impose its own system (i.e. GILTI).

So also on pillar 2, the US interests go against the public interest and in particular those of developing countries.

A strong pillar 2 would be fundamental, in particular now with large budgetary deficits with COVID-19. But not just a pillar 2 based income inclusion rule.

What can the EU do. Very interesting.

The German presidency is starting in July and Germany has been very vocal on wanting a minimum tax.

The European Commission has also been very vocal on going unilateral if no deal is reached.

So perhaps these two forces could join.

The EU will need to act as a block and that might be a challenge. Also the EU will need to be strong against the threat of trade wars. A lot of member states will now have or start to implement unilateral measures.

The EU can (!) play a very positive role if it wants.

It will be interesting to see what other regions and countries will do. Looking at G24, ATAF, AU, etc.

As the IMF pointed out in March 2019, low income countries are in particularly harmed. We need to stop the race to the bottom. Only tax havens win if no action is taken.

Do also read this great thread by @alexcobham

https://twitter.com/alexcobham/status/1273301901619101697

ANNEX 1. We also have a new subcommittee on tax in the European Parliament, perhaps a good file to start with ;-) @paultang

ANNEX 2. Pillar 1 was divided in amount A, B and C.
So losing pillar 1 means losing:
- an overly complex amount A - but moving a bit away of arm's length.
- a potentially interesting but limited solution for Transfer Pricing in developing countries.
- mandatory arbitration

ANNEX 3. In terms of multilateralism this is deeply worrying.
Does a pause of pillar 1, mean the end of the negotiations as such?
The world needs to reform the international tax framework and needs to agree on a minimum tax to stop the race to the bottom.