Proposal for a unified approach under OECD Pillar 1 - BusinessEurope’s reply to the public consultation

Key messages

We welcome the OECD’s public consultation on Pillar 1 and the ambitious efforts the OECD is making in the area of digital taxation. Only through a global consensus can we hope to reform the global tax system in a coherent way in 2020.
The outcome of the OECD/Inclusive Framework (IF) negotiations should provide clear rules for businesses, in particular related to the distinction between residual profits and routine profits, and the treatment of losses and should contain from the outset more efficient methods of mandatory and binding dispute resolution and dispute prevention mechanisms. The reform should be focused and proportionate, recognising that the current rules are working well for activities with a physical presence.
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. We are particularly concerned that an allocation key based on sales would strongly disadvantage smaller countries, in particular advanced, open economies with high R&D intensity and net exports, who may lose considerable net revenues.

Any solution found in 2020 should only tax net profits once and never tax revenue, with the new rules being as simple and easy to administer as possible, focusing exclusively on B2C-transactions (with considerably strengthened mechanisms to solve double taxation), whereby the current transfer pricing rules and the arm’s length principles are retained as much as possible. Any new rules, whether on definition of scope, determination of what and how to re-allocate to market countries, correction-mechanisms for residence countries, as well as dispute management should be aligned and designed prior to any agreement and introduced once in the same way and at the same time.
Countries must make a clear commitment to repeal the existing unilateral measures, such as the so-called digital services taxes, when the OECD/IF finds an agreement. An increase in the effective corporate tax rate should be avoided as it would harm growth, R&D and thus the development of innovative business models.