Comments on the OECD Public Consultation on the Global Anti-Base Erosion Proposal (GloBE) under Pillar 2

Key messages

• We welcome the opportunity to provide comments on the significant steps the OECD intends to make in reforming the international tax system under Pillar 2, and we urge all participants to cooperate closely. Only through a global consensus can we hope to reform the global tax system in a coherent way. As the OECD considers the corporate tax as ‘the most harmful tax to growth’, we are concerned about the negative effects a likely increase of corporate tax rates will bring about. We are also concerned that transparent and fair tax competition may be reduced, in particular for smaller countries with few natural resources or viable policy options.
• While the GloBE-proposal is still under development, the overall reform should be focused on those cases where artificial arrangements are taking place, insofar as these were not addressed by BEPS or Pillar 1, and not on genuine commercial transactions. It will be essential that the GloBE is simple to apply and calculated on an aggregate basis as opposed to a per jurisdiction or per entity basis. Further clarification is needed, in particular on the calculation of a common tax base. The Inclusive Framework (IF) should also consider whether some BEPS-rules, such as for CFC and hybrids, could be improved, replaced or simplified rather than imposing an additional complex layer of rules, to keep the administrative burden as low as possible for both businesses and tax administrations.
• Any agreement made should be informed by a thorough impact assessment on a country-by-country basis, covering the effects on tax revenue, investment, growth, employment and business models. Prior to any agreement, the impact assessment should look at the results of the agreed BEPS-measures and Pillar 2’s relationship with Pillar 1, and whether this already not sufficiently counters the practice of artificial arrangements.

What does BusinessEurope aim for?

• Any solution found should tax net profits once and never revenue, and the new rules should be as simple and easy to administer as possible, focusing exclusively on artificial arrangements (with considerably strengthened dispute mechanisms), whereby the current transfer pricing rules and the arm’s length principles are retained as much as possible for transactions with commercial value. Existing unilateral measures must be repealed when the IF finds an agreement. A sharp increase in the effective corporate tax rate and compliance costs should be avoided as it would harm growth, jobs, R&D and the development of innovative business models.