The OECD’s Global Tax Proposals Move Forward12th October 2021
The OECD’s Global Tax Proposals Move Forward
“Will they?” “Won’t they?” For months, we hung on the edges of our seats waiting to hear if the world could agree on a global tax deal. And on Friday, October 8, it finally happened: 136 countries agreed to the OECD’s groundbreaking global tax reform proposals. Of course, the goal of the two-pillar plan is to ensure that all companies—including digital companies—pay their fair shares of tax. And given our digital economy, those “fair shares” would be based on where companies do business as opposed to where they are physically located. Pillar 1 rewrites the rules for allocating profits above a certain percentage for the world’s largest companies, and Pillar 2 is the stomping grounds for a 15% global minimum tax. While the agreement may be the same for all countries, each one would be impacted uniquely. Naturally, negotiations didn’t come easily. In fact, many countries hemmed and hawed over the deal throughout the process, and it wasn’t clear if certain jurisdictions would be agreeable right down to the wire. Ireland wanted a “maximum 15%” global minimum tax not the “at least 15%” minimum that was originally touted. Hungary wanted more substance-based carve-outs. China wanted to limit the global minimum tax for companies that are starting to do cross-border business. The OECD met those terms, and in the end, only Sri Lanka, Pakistan, Nigeria, and Kenya refused to sign on. While the agreement is a big step forward, there is a still a long road ahead: Individual countries will have to adopt the proposal into local legislation, and countries with digital services taxes—a real thorn for the U.S.—are supposed to repeal them. The proposals are slated to take effect in 2023.
Country-by-Country Reporting Comes to the Dominican Republic
Better late than never—that just may be the transfer pricing motto in the Dominican Republic. Ten years after transfer pricing documentation requirements entered into force, the country added country-by-country reporting to its list of regulations. Now along with the Dominican Republic’s transfer pricing documentation, which consists of a transfer pricing report and an informative return known as DIOR, that’s short for the Declaracion Informativa de Operaciones entre Partes Relacionadas, some companies will have to submit the CBCR. Which ones exactly? Beginning in 2022, the ultimate parent entity of resident taxpayers in an MNE group that earn more than 38.8 billion Dominican pesos (roughly $680 million) must file a country-by-country report. The report is due 12 months after the last day of the fiscal year. Of course, there are times when a taxpayer doesn’t have to file the country-by-country report: For example, if the jurisdiction of the ultimate parent entity doesn’t have a competent authority agreement with the Dominican Republic or if the tax administration has been notified of a specific problem or of a filing of a surrogate parent entity. The Dominican Republic’s tax administration will use the country-by-country reports to establish a company’s transfer pricing risk. As you’d expect, non-compliance means penalties.
Is the EU’s Black List Effective?
When it comes to fighting tax avoidance and evasion, the EU Commission doesn’t back down. Need proof? Take a look at the EU’s well publicized blacklist of countries that, in the EU’s opinion, aren’t doing as much as they could to prevent base erosion and profit shifting. But last week, when the International Consortium of Investigative Journalists broke the story of the Pandora Papers, which revealed that certain heads of state along with other public figures, had their own questionable tax practices, the EU took some heat about the list. According to Law360, a Dutch Parliament member, for instance, said its list of tax havens and the criteria for determining them are “inadequate.” This week, while EU member states are expected to make some changes—including bumping Anguilla, Dominica, and Seychelles off the list—the Commission defends the list and its work against bad tax behavior. EU Spokesperson Daniel Ferrie called the Commission “extremely proactive” regarding tax transparency. And the group is certainly not backing down in the fight against aggressive tax planning. The EU’s next move? A proposal to prevent the misuse of shell companies—look for it before the end of the year.