As I report to you, the COVID-19 pandemic continues its course, resulting in global and sustained economic fallouts. Since the start of the COVID-19 pandemic, the OECD has monitored closely the tax and fiscal policy responses of countries and jurisdictions. Tax policy should prioritise supporting health systems and recovery above all and then be adapted in view of social and economic transformations that include but are not limited to COVID-19. Beyond domestic measures, as governments are adopting recovery plans to restore growth, the issue of international taxation and co- operation remains a priority. One pressing issue—which has been a priority of the international community for several years—is to reform the international tax system to address the tax challenges arising from the digitalisation of the economy, restore stability to the international tax framework and avoid the risk of further uncoordinated, unilateral tax measures which could trigger trade sanctions. The COVID-19 crisis has exacerbated these tax challenges even further by accelerating the digitalisation of the economy, increasing pressures on public finances and decreasing public tolerance for profitable MNEs not paying their fair share of taxes. In July 2020, you mandated the G20/OECD Inclusive Framework on BEPS (hereafter G20/OECDInclusiveFramework) to produce reports on the Blueprints of Pillar One and Pillar Two by the October G20 Finance Ministers meeting with a view to reaching consensus by year end. Pillar One is focused on nexus and profit allocation whereas Pillar Two is focused on a global minimum tax intended to address remaining base erosion and profit shifting (BEPS) issues. Despite the unprecedented times, the G20/OECD Inclusive Framework, which consists of 137 member jurisdictions, has worked tirelessly to deliver the reports on the blueprints of the two-pillar solution to these direct tax challenges. Since February 2020, the SteeringGroup and the Working Parties of the G20/OECD Inclusive Framework have carried out almost 70 days of mostly virtual meetings to advance the technical work. On 9 October 2020, the G20/OECD Inclusive Framework finalised a package consisting of a Cover Statement and the Reports on the Pillar One and Pillar Two Blueprints for public release (see Annexes I.A-C). This package reflects convergent views on a number of key policy features, principles and parameters of both Pillars, identifies remaining political and technical issues where differences of views remain to be bridged, and next steps. The 137 members of the G20/OECD Inclusive Framework recognised the Report on the Blueprint on Pillar One as a “solid foundation for future agreement that would adhere to the concept of net taxation of income, avoid double taxation and be as simple and administrable as possible”, and that the Report on the Blueprint on Pillar Two is “a solid basis for a systemic solution that would address remaining base erosion and profit shifting (BEPS) challenges”. In addition, as decided in the May 2019 Programme of Work, the OECD Secretariat released its report, Tax Challenges Arising from Digitalisation – Economic Impact Assessment (see Annex I.D), and analyses the economic and tax revenue implications of both Pillars, as set out in the blueprints. Pillar One and Pillar Two could increase global corporate income tax (CIT) revenues by about USD 60-100 billion per year or up to around 4% of global CIT revenues taking into account the combined effect of these reforms and of the US GILTI regime. Thus, while at this point the conditions for a political agreement have not yet been achieved, the Inclusive Framework now has a sound and solid basis for a future agreement to which it remains committed. Given, how far the architecture of each Pillar has advanced, political agreement could and should be reached soon. Meanwhile, the G20/OECD Inclusive Framework decided on 9 October 2020 to use the reports on the blueprints as a basis for seeking stakeholder input. These inputs will inform the ongoing work of the G20/OECD Inclusive Framework, which has also agreed to continue working to resolve the remaining issues quickly with a view to bringing the process to a successful conclusion by mid-2021.
Reaching a solution to the tax challenges arising from digitalisation will only be achieved with your strong leadership and unequivocal political support and involvement. The work on tackling other tax challenges arising from the digitalisation of the economy is also progressing. – As new technologies derived from digitalisation have emerged, they raise novel tax challenges that must be addressed as well. In this respect, the G20/OECD Inclusive Framework adopted in October 2020 the report, Taxing Virtual Currencies: An Overview of Tax Treatments and Emerging Tax Policy Issues. With coverage of over 50 jurisdictions, including all G20 and OECD members, this report is the first comprehensive analysis of the existing approaches and key policy gaps across the main categories of taxes for such a large group of countries. – Progress is being made in updating the Common Reporting Standard for the automatic exchange of information to extend its coverage to crypto assets. The update of the standard should be completed in 2021. – The implementation of the OECD’s standards for the effective collection of VAT on online sales of goods, services and digital products (included in the 2015 BEPS Action 1 report) have continued to influence VAT reform in a growing number of countries worldwide. Work on guidance for the VAT treatment of the sharing and gig economy, including on the role of sharing and gig economy platforms in facilitating VAT compliance, is on track for delivery by the end of 2020. Almost 65 jurisdictions have implemented these standards while over 40 additional jurisdictions are implementing these standards or are considering doing so. Among those, three jurisdictions have promoted a VAT/digital solution while abandoning their plans for a digital services tax (DSTs) based on turnover. The implementation of these standards is yielding impressive results. For example, the European Union reported EUR 14.8 billion of VAT revenues collected from these measures in the first four years of their operation. – Once implemented, the model reporting rules for digital platforms facilitating transactions in the sharing and gig economy, approved on 30 June 2020, will constitute an efficient tool to ensure digital platforms report to tax authorities the identity of sellers active on the platform, as well as details on the transactions they have concluded. Further progress on the tax agenda. In the aftermath of the COVID-19 crisis, the public’s tolerance for tax evasion and tax avoidance is expected to reach historic lows. The international tax transparency and BEPS Minimum Standards are valuable tools to tackle increasingly sophisticated, non-compliant taxpayers and aggressive tax planning, to collect missing and much needed tax revenues. The implementation of the tax transparency standards has been one of the success stories of the G20. With continuous G20 support since 2008, multilateral co-operation has delivered significant results, notably the end of bank secrecy marking a new era of tax transparency, with close to 100 jurisdictions automatically exchanging information on financial accounts in 2019. While in 2008, only 40 exchange of information (EOI) relationships were in place between secretive jurisdictions and other countries; the Convention on Mutual Administrative Assistance in Tax Matters now covers 141 signatories (4 jurisdictions have joined since July 2020), which brings the number of EOI relationships to 8 500 today. – In 2019, more than 6 100 bilateral automatic exchanges of information (AEOI) took place among 95 jurisdictions. In 2020, the number of bilateral AEOI rose to 7 000, which is 900 more than in the previous year. – Voluntary disclosure programmes, offshore tax investigations and related measures before the start of automatic exchange in 2017 and since then, have so far led to the identification of 102 billion euros of additional tax revenues worldwide. – In 2019, this exchange of information concerned more than 84 million bank accounts, totalling almost EUR 10 trillion. To ensure a level playing field, the G20 Finance Ministers have requested the OECD to regularly report on the jurisdictions that fail to comply with the tax transparency standards. Since December 2018, the number of identified jurisdictions has decreased from 15 to 5 today; i.e. one additional jurisdiction since July 2020. The implementation of the G20/OECD BEPS Project continues to deliver results. Since I last reported to you three months ago, we continue to see progress: – Since July 2020, four additional countries deposited their instruments of ratification for the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (Multilateral Convention or MLI). – Overall, the landscape is now more transparent with respect to the tax affairs of MNEs, with almost 30 000 information exchanges on previously secret tax rulings since 2016; and with 90 jurisdictions having engaged in the exchange of Country-by-Country (CbC) reports on the activities, income and assets of MNEs, which began in June 2018. Jurisdictions have also amended or abolished an important number of preferential tax regimes, which allowed MNEs to avoid tax on their international activities, contributing to base erosion. Since 2015, almost 290 regimes have been reviewed and virtually all of the regimes that were identified as harmful have been amended or abolished. Finally, multilateral co-operation to prevent treaty shopping has become a reality with the MLI, signed by 94 jurisdictions, 53 of which have ratified it as of 29 September 2020. As per your mandate, we keep working to improve developing countries’ capacity to strengthen their tax systems and mobilise their domestic resources – thus supporting the achievement of the United Nations Sustainable Development Goals. Domestic resource mobilisation and taxation in particular, will remain as the only long-term viable source of financing for sustainable development, including critical services such as health care and education. As the COVID-19 crisis continues to unfold and with fiscal headroom highly constrained, the work to build effective tax systems in developing countries has never been more important and must remain a priority during the recovery phase. The combination of domestic and international actions will help broaden the tax base and contribute to strengthen domestic resource mobilisation. The OECD is continuing its support to developing countries on tax, including through expanding the Tax Inspectors Without Borders (TIWB) initiative with 40 programmes completed, 40 ongoing and 19 forthcoming as of 15 September 2020. It is developing toolkits on issues such as VAT on e-commerce and tax treaty negotiations, enhancing multilateral training, including through e-learning, incorporating developing countries into OECD tax databases, and providing in-depth bilateral capacity building. Lastly, tax certainty has also been a priority of the G20, dating back to 2016, when G20 Leaders first tasked the OECD and the IMF to work on tax certainty in addition to prow-growth tax policies. In an increasingly uncertain world, providing tax certainty is becoming even more important to facilitate global growth and cross-border investment. Work continues to improve tax dispute prevention and dispute resolution processes, particularly with respect to advance pricing agreements (APA), mutual agreement procedures (MAP), and the use of benchmarks. Tax certainty has also been a priority throughout the ongoing G20/OECD Inclusive Framework negotiations on a two-pillar solution, with members recognising the need to include concrete measures to bolster tax certainty as part of any final agreed package. In just a bit more than a decade, thanks to the G20 leadership, the international tax framework has been changed fundamentally. Until 2008, lack of co-operation, secrecy, base erosion and aggressive tax planning had undermined the sovereignty of countries and increased the sense that the system was unfair. Since then tax co-operation has become the rule, with multilateral instruments to facilitate it, and strong and inclusive institutions to support it. Bank secrecy is over, aggressive tax planning has been reined in and we are at the eve of completing the last mile to make the system more robust and fairer at the time of the digitalisation of the economy.
