Thread by @JohanLangerock

Hearing starting in #Belgium parliament on #OECD BEPS 2 negotiations.

I will be live tweeting. #TaxTwitter

Follow yourself here: dekamer.be/media/index.ht…

Belgium has been in the Steering Group since the very beginning of the process. Officially it has lost its seat now, but it will remain present till Oct 2020.

Belgium has defended so far a not too ambitious position. On pillar 2 it defends an extremely weak position. More below.

In pillar 2 Belgium defends a global blending with carve-outs. Doing so Belgium wants to protect its patent box. The patent box in Belgium leads to an ETR below 4%. It is one of the most aggressive patent boxes in the world.

taxfoundation.org/patent-box-reg…

In pillar 1 Belgium has more or less played a more passive role. Belgium has so far also not introduced any unilateral measure. It was in favour though of a European digital services tax. Belgium estimates it won't win significant revenues with pillar 1, but won't lose either.

So far Pascal Saint Amans (PSA) has been giving an excellent historical overview of international tax and the process of BEPS 2.0. Now he starts to dig deeper in the issue with the United States and possible trade wars (taking France as the top example).

Also reminder the United States started an investigation into 10 countries that introduced a digital services tax (Brazil, Austria, UK, Turkey, India, Czech Republic, Indonesia, EU, Spain and Italy).

Public comments still allowed till 15th of July.

federalregister.gov/documents/2020…

@PSaintAmans Just finished his introductory statement. He has solely focused on pillar 1. Hopefully he succeeds in challenging the weak Belgium position in pillar 2 in the Q&A.

Good to know is that Belgium is strongly considering to introduce a unilateral digital services tax.

The Belgian negotiator at OECD - Luc Batselier is now giving a technical explanation of pillar 1.

Interestingly:
(-) Nexus is still under discussion. Threshold of 1-3 million sales. Linking with GDP seems hard for a relative nexus.
(-) Amount C still under heavy discussion.

(-) Amount C is split in 2 countries. Those that want it to apply to all transfer pricing discussions and those that want it to be narrowed down to non-routine marketing and distribution activities.
(-) Less sectors will be excluded in pillar 2. But investment funds/vehicles will

(-) Belgium wants a carve-out for Forum Harmful Tax Practices conform tax incentives. But the OECD secretariat is now proposing a formulaic carve-out 😨
(-) Most likely there will be a turnover threshold applied to pillar 2 as well.

(-) The Undertaxed Payment Rule is hard to define. So there would be a fictional Income Inclusion Rule deducted from tax base.
(-) Subject to tax rule is a very divided discussion. Some believe it should not be part of pillar 2.
(-) Nothing on rule order.

(-) The budgetary impact is hard to define for Belgium. Pillar 1 would have no significant impact and pillar 2 would have an impact of around 100 million EUR (taking 10% minimum rate and taking into account pillar 1 and behavioral changes MNEs.)

First question and no surprise: ''what about our tax incentives for big pharma (read patent box)? Will we lose competitiveness?'' Let's get things clear here. With pillar 2 there would be a level playing field. Also patent boxes will still be possible even with [...]

an ambitious minimum tax with jurisdictional blending. The ETR of the patent box would just need to be increased slightly to make sure that the blended income is taxed at a higher level that the agreed minimum tax. Although preferably we would just get rid of patent boxes.

Excellent questions raised now:
(-) What is the best blending in pillar 2?
(-) Why does Belgium defend a weak position?
(-) Were there other scenarios calculated?
(-) BEPS 2.0 and COVID19?
(-) Will minimum tax lead to race to the bottom?
(-) Should BE go unilateral?

Incredible how many times the patent box is mentioned. The lobby of big pharma is strong and the belief it works as well (no evidence though, quite the opposite).

Johnson & Johnson exempted 1,4 billion EUR profits thanks to the Belgian patent box in 2018. Yes shocking.

Many other excellent questions raised:
(-) Why are rich countries against subject to tax rule knowing it is in the interest of developing countries?
(-) Should the EU act if the OECD fails?
(-) Out of scope but okay: why is the OECD blacklist so weak?

Proud of Belgian MPs going beyond Belgian self-interest and raising questions on developing countries' interests ! 💪👏 Hope we get good answers!

Belgian MP proposing Belgian digital services tax very well aware the tax revenues will be meager (around 150 million EUR) but its impact is mostly political in nature: increasing pressure on other countries to find a regional and global agreement !

Pascal Saint Amans replying:
(-) Countries are sovereign. Yes. But all other countries are sovereign as well. I.e countries can tackle transactions to another leading to trade/tax wars. Tax cooperation is better than unilateralism.
(-) We have had a non-regulated globalisation.

(-) We need to well separate tax secrecy and tax avoidance.
(-) Technically we are very well advanced on pillar 2. There is a proposal by UK, Spain, Italy & France to find a final agreement.
(-) Threshold on 750 million EUR for pillar 2. A lot of profits (93%), little companies.

(-) On blending: OECD proposes jurisdictional blending. This is not in line with Belgium. Global blending would not work for EU. Also it is much stronger.
(-) Carve outs: OECD is looking into substance. Confirming the formulaic carve out proposal.

(-) PSA criticizes that adding substance to tax incentives has mostly broadened the amount of exemptions given - read modified nexus approach was followed by a broadening of scope of patent boxes (this was valid in BE).
(-) No consensus needed in pillar 2! Watch out with vetos.

(-) In Income Inclusion Rule not enough is left for developing countries. As such there is the idea for subject tax rule. So before pillar 2 would be applied the subject to tax rule would have the right to tax!
(-) Negotiations through zoom are hard. No ''coffee-breaks''.

(-) Recalls that 10 countries are under scrutiny by US for digital services tax. So not only France is targeted.
(-) A tax war going into a trade war is not what the world economy needs.
(-) Understands frustration of not taxing digital giants, in particular now.

(-) Warns against unilateral measures. And hopes the OECD will be the place where an agreement will be found in the end. Also believes the EU is hesitant to act before the US elections.

Belgian negotiator-Luc Batselier:
(-) Keeps on defending the patent box & FHTP carve-outs.
(-) Defends global blending. Arguments are not clear.
(-) Somehow BE wants simplicity but does defend carve-outs.🤪 Love it when conservatives defend the undefendable with weak arguments.

(-) Inclusive Framework is where all decisions are taken. Disregards importance of the Steering Group.
(-) Criticizes the idea of the subject to tax rule as it would disrupt cash flow of companies and it would make it hard to recover WHT back.

END OF HEARING. Thanks for following. A lot of interesting information!

The hearing is now available in replay:
dekamer.be/kvvcr/media/in…