Getting closer and closer to a global agreement on taxation of a sustainable digital economy

In her monthly Expert Take column, Selva Ozelli, an international tax lawyer and CPA, introduced the intersection between emerging technologies and sustainability, and provided information on taxation, AML/CFT regulations, and laws affecting encryption and blockchain The latest development of the problem.

Since 2013, the Organization for Economic Cooperation and Development (OECD) has been discussing tax base erosion and profit shifting (BEPS) The risks of large multinational corporations (MNEs)-the risks brought about by the digitalization of the global economy.

BEPS 2.0 report released 2018 and 2019 year, Aims to ensure a more equitable distribution of the profit taxation rights of large multinational companies and set the global minimum tax rate to build consensus and prevent the proliferation of unilateral measures such as digital service taxes that may escalate into a trade war. About 40 countries—including G20 countries such as France, India, Italy, Turkey, and the United Kingdom—have introduced or announced unilateral measures to undermine tax certainty, hinder investment, and drive up compliance and management costs.

At a meeting in June, G7 countries agree The OECD BEPS 2.0 framework requires multinational companies to pay their fair share of taxes at the lowest global tax rate of at least 15% in the countries where they operate. They also agreed to follow the example of the United Kingdom and mandate climate reporting to ensure that the market plays a role in the transition to net zero.

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July 1, before the G20 Tax Policy and Climate Change High-Level Tax Seminar hold Last month, the OECD release A statement stated that it is seeking to complete the technical details of the BEPS 2.0 report by October, with the goal of implementing them by 2023.

As of August, 133 of the 139 member jurisdictions had agree The OECD statement is a statement on the two-pillar solution to the taxation challenges brought about by the digitalization of the economy. In addition, the finance ministers of the G20 countries also reiterated that in order to achieve the common goal of net zero emissions by the middle of this century, the adoption of multilateral tax policies is the key to a successful response to climate change.

What are the new international tax rules for the global digital economy?

The acceleration of economic globalization and digitization during the COVID-19 pandemic has enabled multinational companies to earn considerable income in market jurisdictions without having to pay taxes in those jurisdictions. This is because the association rules require the company to have a physical presence in a country in order to obtain taxation rights. This makes it easier for multinational companies to transfer profits to low-tax jurisdictions.

The BEPS 2.0 framework represents the most significant innovation in international taxation rules in the past century and consists of two parts/pillars.

Pillar One

The first pillar focuses on the profit distribution and linkages of multinational companies. Multinational groups with a global turnover of more than 20 billion euros ($23.5 billion) and a profitability of more than 10% (pre-tax profit) will pay taxes in the countries/regions where they have users and customers, even if they have no business/physical presence. The broad scope of the first pillar-based on turnover, without distinguishing activities- Taken from The US April “Made in the United States Tax Plan” proposal.

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The first pillar is divided into two components: 1) the new taxation right (“amount A”) of the market jurisdiction (the region where the customer is located) on the remaining profit share calculated at the multinational corporate group level and 2) the fixing of a specific benchmark Repay routine marketing and distribution activities (“Amount B”).

The new distribution rules partly shelved the principle of fair trade, but did not completely abandon the transfer pricing rules. The new system is based on transfer pricing rules, and “Amount” applies to the percentage of remaining profits (20% to 30% to avoid double taxation.)

Second pillar

The second pillar focuses on setting a global minimum tax rate of at least 15%, and targets large multinational corporate groups with a global turnover of more than 750 million euros (883 million US dollars).

According to Pillar Two, if the effective tax rate of a multinational enterprise group’s jurisdiction is lower than the global minimum tax rate of 15%, its parent company or subsidiary will be required to pay supplementary tax in its jurisdiction to make up for the shortfall.

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U.S. digital taxation and regulatory development

To assist in the BEPS 2.0 negotiations, the Office of the United States Trade Representative initiated a “Section 301” investigation Austria, India, Italy, Spain, Turkey and UK Tax on their digital services in the same way Have done French Daylight Saving Time in January. It found that these measures were inconsistent with current international tax and trade principles, leading the United States to immediately suspend the collection of billions of dollars in retaliatory tariffs in June. As Nick Clegg, Facebook’s head of global public policy and communications, said, famous:

“For two years, a team of mine has been actively providing technical input to the OECD Secretariat to help them figure out how to do this.”

Facebook is Expected to launch stablecoin Called Diem (Libra before) This year.The Fed is Consider developing a digital dollar Achieve faster payments between banks, consumers and businesses, and Expanded the scope of research Including stablecoins and whether they can be effectively regulated.

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Gary Gensler, chairman of the US Securities and Exchange Commission, said that he believes that the agency needs more power-and more funds-from Congress to regulate the cryptocurrency market and provide investor protection. Have a “stable” cryptocurrency regulatory framework In the United States, especially in the emerging Decentralized Finance (DeFi) market, such as loans.

This funding can come from Infrastructure Act It was proposed by President Joe Biden’s government and approved by the U.S. Senate because it imposes tax reporting requirements on cryptocurrency brokers, similar to the way stockbrokers report the sales of their clients’ securities to the IRS. This clause provides a broad definition of brokers, assigning new tax reporting obligations to crypto “miners”-users who lend computing power to verify other users’ transactions and receive coins in exchange.

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William Quigley — cryptocurrency investor, co-founder of NFT blockchain platform WAX and co-founder of Tether, the first stablecoin backed by fiat currency (USDT) — Tell me: “The classification of cryptocurrencies by important federal agencies in the United States is different. The IRS calls them property, the SEC calls them securities, the CFTC considers them commodities, and the U.S. Treasury Department considers them money.” Also added:

“This confusion highlights the need for the U.S. Congress to step in and develop a cryptocurrency policy framework. A framework that will benefit both consumers and entrepreneurs.”

G20 and tax seminar

The finance ministers reiterated that achieving the common goal of net zero emissions by the middle of this century is a top priority, and taxation policies can help achieve this goal in an effective and inclusive manner. They recognize that, taking into account the specific conditions of the country, the different levels of technological development, and the different resources required to fund the green transition, countries may rely on multiple policy tools to reduce greenhouse gas emissions, and they may use different speeds and trajectories. Achieve its climate goals. At the same time, the finance ministers acknowledged the importance of strengthening international cooperation to avoid possible spillover effects of unilateral practices.

In two sessions—one chaired by the Vice President of the International Monetary Fund and the other chaired by the Secretary-General of the OECD—the finance ministers provided advice on how to use fiscal tools to contribute to ambitious climate change mitigation strategies, Experience and suggestions. They also discussed how to limit the impact of climate policy on vulnerable households and address the issue of carbon leakage in order to avoid adverse effects on the international trade and growth agenda.

The President of Italy has asked the International Monetary Fund and the OECD to prepare a report on this topic before the October G20 meeting of finance ministers and central bank governors. Based on the results of the workshop, the report will assess the mitigation and adaptation policy strategies of countries.

The Italian Minister of Economy and Finance Daniele Franco emphasized that taxation policies and a multilateral approach to climate change are the keys to successfully addressing this truly global challenge. All participants agreed that this dialogue should continue at the political level, and through the continued participation of the G20 finance ministers and central bank governors — and at the technical level, possibly through the G20 research team.

The views, thoughts, and opinions expressed here are only those of the author, and do not necessarily reflect or represent the views and opinions of Cointelegraph.