Country Digital Levies Will Have To Make Way For Global Tax Reform: Pascal Saint-Amans, OECD

Unilateral digital levies by countries will lead to trade wars which the OECD is trying to avoid, said Pascal Saint-Amans, director at the OECD Centre for Tax Policy and Administration.

They will need to be phased out for global tax reform to work, Saint-Amans said in an interview with tax lawyer Mukesh Butani, partner at BMR Legal.

In the past few months, first the G-7 and then the G-20 have endorsed a global tax reform to end profit-shifting to low-tax economies.

The OECD/G-20 backed reform has two pillars.

Pillar One: Between 20-30% of residual profit — defined as profit in excess of 10% of revenue — will be allocated to market jurisdictions with nexus using a revenue-based allocation key.

Pillar Two: Covers multinational groups with consolidated revenue of 750 million euros or more and provides a subject-to-tax rule — that allows source jurisdictions to levy a tax on certain related party payments subject to tax below a minimum rate.

These proposed changes will clash with the digital levies imposed by many countries such as France and India. The EU has postponed its push as it awaits consensus and finality over the global tax reform. France has pledged to withdraw its tax on tech giants in order to secure a global agreement. Meanwhile, the U.S. imposed — but immediately delayed the implementation of — tariffs in retaliation for duties levied on its tech companies.

Saint-Amans discusses these issues here.