Tax Treaties, Transfer Pricing and Financial Transactions Division
Centre for Tax Policy and Administration
Organisation for Economic Co-operation and Development
By email to
tfde@oecd.org
Re: Business Roundtable comments on OECD public consultation on “Pillar One – Amount A: Draft Multilateral Convention
Provisions on Digital Services Taxes and other Relevant Similar
Measures”
Dear Sir/Madam,
Business Roundtable welcomes the OECD’s commitment to working
multilaterally and with the private sector to ensure sound tax policies and
straightforward tax administration, which are essential to protecting
investment and economic growth.
On behalf of more than 230 chief executive officers of America's leading
companies, Business Roundtable is pleased to submit comments in response to
the OECD’s public consultation document of December 20, 2022 on draft
Multilateral Convention provisions on digital services taxes (DSTs) and
other relevant similar measures.
The draft definition of “DST or relevant similar measure” is too
narrow
The definition in draft paragraph 38(2) of the Multilateral Convention,
together with the exclusions in paragraph 38(3), would permit the imposition
of certain harmful unilateral measures which, we believe, would not be
consistent with the intention of the Inclusive Framework in agreeing to the
Pillar One, Amount A proposal. For example, the definition should be
expanded to include withholding taxes on payments for digital services and
taxes based on a significant economic presence (SEP) that is not a taxable
presence under any other provisions of the relevant country’s tax
laws. In addition, we propose that SEP taxes, withholding taxes on
payments for digital services and other unilateral measures with similar
effect, such as the UK tax on offshore receipts in respect of intangible
property (ORIP) should be included in Annex A.
Recommended changes to the draft definition
We recommend replacing the conjunctive “and” at the end of paragraph 38(2)
with “or.” Article 38(2)(c) cannot be a requirement to ensure that SEPs
and novel withholding taxes are captured by this definition.
An alternative would be to strike 38(2)(c) and instead have a two-part test
(which can be conjunctive). In this alternative, we would recommend
certain additions to the test, i.e., paragraph 38(2)(b), as follows:
-
Additional language that would capture: (1) taxes that focus on Digital
Services Providers; and (2) extra-territorial and gross-revenue based taxes,
for example:
-
“the scope of the tax targets a specific company or group of companies in a
ring-fenced sector and/or protects certain companies by excluding them from
the scope; or
-
“the tax is extra-territorial and based on gross income (i.e., the tax is
applied on gross turnover or income imputed from gross turnover --such as a
revenue-based tax which is only reduced by using a formulaic or deemed
profit amount or which denies deductions in whole or in part in trying to
get to a ‘net’ income number, or income imputed from gross revenue (or
elements with similar economic effect))”; and
-
Additional language that would ensure that de facto discrimination
was covered and that the definition of DST and similar unilateral measures
is a “living”/ expanding definition that will capture future unilateral
measures (for example, “the tax creates an un-level playing field, for
example offline versus online, domestic versus foreign; or the tax has been
determined to be discriminatory under the provisions for review of such
taxes under the MLC”).
The denial of Amount A re-allocation should be full in all
circumstances
No consideration should be given to partial denial of Amount A reallocation as
mentioned in footnote 4 of the consultation document. The denial should
be full in all circumstances.
DST and similar unilateral measures imposed on a subnational level should
not be excluded
Subnational DSTs and similar unilateral measures imposed at a subnational
level should be captured in the definition of “DST or similar unilateral
measure,” as indicated in footnote 3 of the consultation document.
The exclusion in paragraph 38(3) should be clarified
The text of draft paragraph 38(3) appears intended to exempt anti-abuse
measures from the definition of DST or relevant similar measure, but it is
drafted vaguely enough to potentially exempt destabilizing taxes that should
be within the definition (e.g., could a “significant economic presence” rule
be excluded from the definition if it purports to address “artificial
structuring?”). The exclusion should have appropriate guardrails to
ensure that merely describing a rule as an anti-abuse rule would not bring
extraterritorial taxes targeted at digital service providers within the
exception. If this paragraph continues to be included in the MLC, we
recommend that the Inclusive Framework specifically include a list of
anti-abuse measures that qualify for this exclusion in order to reduce
uncertainty.
Moreover, to the extent that a Covered Group is liable for taxes which are
covered by the exclusion in paragraph 38(3), the taxes should be taken into
account for purposes of the Marketing and Distribution Safe Harbor to ensure
residual profit is not subject to double taxation.
DSTs and relevant similar measures should not be applicable to MNEs where
UPE is resident in a non-Party jurisdiction
In response to footnote 2 of the consultation document, we strongly believe
that all Parties to the MLC must refrain from imposing a DST or relevant
similar measure to constituent entities of an MNE Group whose Ultimate Parent
Entity is resident in a jurisdiction that has not signed or ratified the
MLC. Any other approach would be inconsistent with the goals of the
Inclusive Framework.
Need for further consultation
We note that the draft provisions in the consultation document have not
been agreed upon by the Inclusive Framework, and a significant number of
issues are likely to be the subject of debate within the Inclusive Framework
in the coming months. The public should be given the opportunity to
provide comments on a future draft of paragraphs 37 and 38 of the MLC after
open issues have been discussed within the Inclusive Framework.
***
Business Roundtable urges the Inclusive Framework to take the above comments
into account in its work on the Pillar One, Amount A rules in the MLC. We
appreciate your consideration of these comments. Please do not hesitate
to contact us if you have any questions.
Sincerely,
Catherine Schultz
Vice President, Tax and Fiscal Policy
Business Roundtable
cschultz@brt.org
Business Roundtable Comments on OECD Public Consultation on “Pillar One – Amount A: Draft Multilateral Convention Provisions on Digital Services Taxes and other Relevant Similar Measures”
Download the full letter here.
Tax Treaties, Transfer Pricing and Financial Transactions Division
Centre for Tax Policy and Administration
Organisation for Economic Co-operation and Development
By email to tfde@oecd.org
Re: Business Roundtable comments on OECD public consultation on “Pillar One – Amount A: Draft Multilateral Convention Provisions on Digital Services Taxes and other Relevant Similar Measures”
Dear Sir/Madam,
Business Roundtable welcomes the OECD’s commitment to working multilaterally and with the private sector to ensure sound tax policies and straightforward tax administration, which are essential to protecting investment and economic growth.
On behalf of more than 230 chief executive officers of America's leading companies, Business Roundtable is pleased to submit comments in response to the OECD’s public consultation document of December 20, 2022 on draft Multilateral Convention provisions on digital services taxes (DSTs) and other relevant similar measures.
The draft definition of “DST or relevant similar measure” is too narrow
The definition in draft paragraph 38(2) of the Multilateral Convention, together with the exclusions in paragraph 38(3), would permit the imposition of certain harmful unilateral measures which, we believe, would not be consistent with the intention of the Inclusive Framework in agreeing to the Pillar One, Amount A proposal. For example, the definition should be expanded to include withholding taxes on payments for digital services and taxes based on a significant economic presence (SEP) that is not a taxable presence under any other provisions of the relevant country’s tax laws. In addition, we propose that SEP taxes, withholding taxes on payments for digital services and other unilateral measures with similar effect, such as the UK tax on offshore receipts in respect of intangible property (ORIP) should be included in Annex A.
Recommended changes to the draft definition
We recommend replacing the conjunctive “and” at the end of paragraph 38(2) with “or.” Article 38(2)(c) cannot be a requirement to ensure that SEPs and novel withholding taxes are captured by this definition.
An alternative would be to strike 38(2)(c) and instead have a two-part test (which can be conjunctive). In this alternative, we would recommend certain additions to the test, i.e., paragraph 38(2)(b), as follows:
The denial of Amount A re-allocation should be full in all circumstances
No consideration should be given to partial denial of Amount A reallocation as mentioned in footnote 4 of the consultation document. The denial should be full in all circumstances.
DST and similar unilateral measures imposed on a subnational level should not be excluded
Subnational DSTs and similar unilateral measures imposed at a subnational level should be captured in the definition of “DST or similar unilateral measure,” as indicated in footnote 3 of the consultation document.
The exclusion in paragraph 38(3) should be clarified
The text of draft paragraph 38(3) appears intended to exempt anti-abuse measures from the definition of DST or relevant similar measure, but it is drafted vaguely enough to potentially exempt destabilizing taxes that should be within the definition (e.g., could a “significant economic presence” rule be excluded from the definition if it purports to address “artificial structuring?”). The exclusion should have appropriate guardrails to ensure that merely describing a rule as an anti-abuse rule would not bring extraterritorial taxes targeted at digital service providers within the exception. If this paragraph continues to be included in the MLC, we recommend that the Inclusive Framework specifically include a list of anti-abuse measures that qualify for this exclusion in order to reduce uncertainty.
Moreover, to the extent that a Covered Group is liable for taxes which are covered by the exclusion in paragraph 38(3), the taxes should be taken into account for purposes of the Marketing and Distribution Safe Harbor to ensure residual profit is not subject to double taxation.
DSTs and relevant similar measures should not be applicable to MNEs where UPE is resident in a non-Party jurisdiction
In response to footnote 2 of the consultation document, we strongly believe that all Parties to the MLC must refrain from imposing a DST or relevant similar measure to constituent entities of an MNE Group whose Ultimate Parent Entity is resident in a jurisdiction that has not signed or ratified the MLC. Any other approach would be inconsistent with the goals of the Inclusive Framework.
Need for further consultation
We note that the draft provisions in the consultation document have not been agreed upon by the Inclusive Framework, and a significant number of issues are likely to be the subject of debate within the Inclusive Framework in the coming months. The public should be given the opportunity to provide comments on a future draft of paragraphs 37 and 38 of the MLC after open issues have been discussed within the Inclusive Framework.
***
Business Roundtable urges the Inclusive Framework to take the above comments into account in its work on the Pillar One, Amount A rules in the MLC. We appreciate your consideration of these comments. Please do not hesitate to contact us if you have any questions.
Sincerely,
Catherine Schultz
Vice President, Tax and Fiscal Policy
Business Roundtable
cschultz@brt.org