This week in taxation: OECD pillar two model rules leaked


The EU and other jurisdictions relied on digital service taxes (DST) to mitigate losses to national budgets due to the COVID-19 pandemic. Yet, with DSTs likely to be revoked in favor of the OECD deal, governments will seek revenue from alternative taxes based on the OECD model rules for the second pillar.

Details on how companies will need to calculate a multilaterally agreed global minimum tax are nearing completion, as a document leaked this week shows.

The document, which was released to 140 countries on December 2, is a model for implementing the 15% global minimum tax. The model answers questions that have remained since countries agreed on the global tax in October, including how the rules will deal with timing differences between when profits are recorded and when taxes are paid.

The EU will issue a directive on December 22, forcing its 27 member countries to implement the rules themselves by 2022.

The OECD model answers key questions about exclusions, including income, labor costs, and tangible assets that companies might exclude from minimum tax rules. Eligible labor costs include wages and salaries, health insurance, pension contributions and social charges.

Qualifying tangible capital assets include items located within a jurisdiction, such as property and natural resources, as well as tangible capital assets that have been leased. Certain government licenses, including those for the exploitation of natural resources, are also eligible for exclusion.

The tax directors of the Confederation of European Companies (BusinessEurope) shared their concerns with SHOOT on the imminent publication of an EU directive on the second pillar.

BusinessEurope Managing Director Markus Beyrer even asked European Economic Commissioner Paolo Gentiloni to postpone the European directive. Beyrer criticized the short delay given to government experts to analyze the legislative language of the directive, after the publication of the model rules.

“Rushed implementation in the EU could be exploited by third countries to gain economic advantage,” Beyrer said. “Any rule deviation outside the EU, now or in the future, could have a significant impact on the competitiveness of the EU and the fairness of the system as a whole. “

The first test that will face the implementation of a global minimum tax will come from the EU directive. The directive could set European companies behind in terms of competition, if international trade and taxation are impacted by wide jurisdictional differences in the technical approach.

UK to increase TP requirements after consultation

The latest UK tax administration HM Revenue and Customs (HMRC) consultation on transfer pricing (TP) demonstrated an appetite for tighter guidelines aligned with the OECD. Yet the changes will also increase the burden of proof for large companies.

HMRC will require UK multinational groups falling under the Country-by-Country Reporting (CbCR) standard to provide a master file, local file and summary audit trail from April 2023, following of a public consultation launched in March of this year.

Multinational enterprises (MNEs) that come within the scope are likely to be well prepared, as they comply with the increasing alignment of jurisdictions with OECD guidance in recent years. Still, tax directors claim that an evidence log provided HMRC with more detailed information about the TP.

“The UK has been an exception for years by not having an obligation for multinationals to prepare OECD compliant PT documentation on a contemporary basis,” said Tim Sarson, Managing Partner of the value chain and Head of Tax Policy at KPMG UK.

“Almost all the big companies prepared local cases in the UK anyway, because that’s what the OECD guidelines told them to do, but there was no legal basis or need to do so, ”Sarson added.

Affected UK businesses will continue to adopt the OECD BEPS Action 13 requirements: a standard that requires a local file and master file to be provided to tax authorities. These companies will have different local and master files in place depending on whether they are headquartered in the UK or outside. If MNEs are based abroad, it is likely that they will already have a master file in place in countries that require it.

Local files are not as common. For example, if the multinational is based in the United States and follows CbCR standards, the tax team will likely have a local file ready. However, Philip Roper, TP Technical Manager at KPMG UK, warned that some companies may only have local files for countries requiring the requirement.

Taxpayers win against authorities in CJEU decision on DAC6 data fishing

Latest European Court of Justice (CJEU) result on Directive 2018/822 (DAC6) case shows companies can avoid penalties for intrusive data requests when EU tax authorities target individuals rather than groups.

The CJEU ruled in favor of the taxpayer in its preliminary ruling in the State of the Grand Duchy of Luxembourg (Luxembourg State) against L C-437/19. The case concerns a DAC6 investigation in which the French tax authorities asked the Luxembourg tax authorities to share data relating to the shareholders of a certain Luxembourg company. It was believed that shareholders could have property tax debts in France.

The Luxembourg company appealed against the local authorities’ data request order as well as the penalty for non-compliance, on the grounds that the information was not relevant to the minimum compliance standards under DAC6. Additionally, none of the shareholders were named in the DAC6 returns, and local tax authorities did not explain why the additional data was requested in the first place.

“It would be biased to target individual companies rather than groups with the DAC in these fishing expeditions,” said a tax director of a media company in Germany. “The decision is good because it restricts authorities to simply targeting broader programs that are damaging. “

Next week at ITR

The ITR team will analyze the model rules after their publication by the OECD on December 20. Many tax advisers expect the European Commission to move forward with publishing its draft second pillar directive on December 22, as the model rules will corroborate the directive’s legislative provisions. language and underpin the implementation of a global minimum tax by 2022 in several countries.

Meanwhile, the team is preparing a roundup of the TP trends expected in 2022, including the consequences of remote working on budget conditions, the technical consequences of pillars one and two, and how the increase in the trading activity will change the TP landscape.

Additionally, ITR will produce a series of newsletters featuring our most read content on direct tax, indirect tax and transfer pricing throughout 2021. Some highlights include internal features on hiring trends on the market, fiscal diversity and significant taxation. court cases.

Readers can look forward to these and more stories next week. Don’t miss the key developments. Sign up for a free trial of ITR.

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