TUAC’s position on the design of the OECD/G20 Inclusive Framework on BEPS, Pillar One

TUAC participated on 12 September to the OECD public consultations on the Progress report on Amount A of Pillar One of the BEPS Inclusive Framework. This chapter of the negotiation addresses the portion of the residual profits of large and highly profitable enterprises (i.e. Amount A), which can be taxed by the market jurisdictions where goods or services are supplied or consumers located. Damon Silvers, Director of Policy and Special Counsel for the AFL-CIO, provided introductory remarks for TUAC.

From the beginning of the BEPS process TUAC has expressed its strong support for the goals of the project—addressing the global erosion of the effectiveness of corporate taxation in the context of globalization, digitalization, and the shifting of nominal economic activity to tax havens. In the course of the BEPS process, TUAC has made clear what is in the interests of working people and the OECD’s goal of strengthening democracy in relation to corporate taxation. In our Comments to the December, 2020 Public Consultation on the Pillar 1 and Pillar 2 blueprints, TUAC made clear that, while it viewed the BEPS process as a whole to be a historic and positive effort to address growing inequities in the taxation of large corporations, the concept of Pillar 1 itself risked being inadequate to the intertwined problems of (1) the under-taxation of the world’s largest and most profitable corporations, and (2) the growing separation of taxes from activities through the location of digital assets in low tax jurisdictions.

TUAC’s view is that the international tax system should move to a fully unitary system, where internal transfer pricing plays no role in determining either the amount or location of corporate profits for tax purposes. Instead, Pillar 1 sets a minimum tax level for the largest and most profitable global corporations and reallocates the taxes on those profits to at least in part reflect where the underlying revenue came from. This structure authorised signatory governments to enact corporate taxes at a rate of 25% on profits in excess of 10% of revenues. In return (from a corporate perspective) signatory governments would agree to not levy Digital Services Taxes.

Since the adoption of the Inclusive Framework, TUAC has reiterated the view that in implementing the Inclusive Framework, the OECD should seek at every point to shape the Framework to minimise opportunities for the kind of tax manipulations exemplified by those associated with internal transfer pricing, and to build a system that seeks fundamentally to maximize overall tax revenues from the world’s most profitable corporations and ensure that those revenues are fairly shared with the governments of the countries where both production and consumption actually occur – in particular with the governments of developing countries where the need for revenue to address climate, public health, and general development goals are increasingly urgent.

In reviewing the Progress Report, the public comments that the OECD has received in advance of the Public Consultation, and independent studies made of the Inclusive Framework, we believe that our concerns have been borne out by the difficulties the OECD has faced in seeking to implement the Inclusive Framework.  The Progress Report in all its complexity reveals the severe difficulties in implementing a half way step of the kind embodied in Pillar 1 of the Inclusive Framework.