OECD SECRETARY-GENERAL TAX REPORT TO G20 LEADERS. NOVEMBER 2020

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 cooperation 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.

OECD – Revenue Statistics in Africa 2020

The publication Revenue Statistics in Africa is jointly undertaken by the OECD Centre for Tax Policy and Administration and the OECD Development Centre, the African Union Commission (AUC) and the African Tax Administration Forum (ATAF) with the financial support of the governments of Ireland, Japan, Luxembourg, Norway, Sweden and the United Kingdom. Achieving the United Nations’ Sustainable Development Goals (SDGs) and implementing the Addis Ababa Action Agenda and the African Union’s Agenda 2063 require mobilising additional finance, in particular domestic resources, to fund public goods and services. This report presents internationally comparable indicators on tax and non‑tax revenues that can be used to track progress on domestic resource mobilisation (DRM) and to inform tax policy analysis and future reform. Additionally, it provides an important backdrop in understanding the fiscal capacity of the African region to respond to the COVID‑19 crisis. The report and its data also contribute to the implementation of the Pan‑African Statistics Programme, a joint effort between the European Union and the African Union to support statistical capacity in Africa. Revenue Statistics in Africa 2020 provides data on 30 countries: Botswana, Burkina Faso, Cabo Verde, Cameroon, Chad, the Republic of the Congo, the Democratic Republic of the Congo, Côte d’Ivoire, Equatorial Guinea, Egypt, Eswatini, Ghana, Lesotho, Kenya, Madagascar, Malawi, Mali, Mauritania, Mauritius, Morocco, Namibia, Niger, Nigeria, Rwanda, Senegal, the Seychelles, South Africa, Togo, Tunisia and Uganda. It includes a special feature discussing factors likely to affect the future of DRM in Africa in the aftermath of the COVID‑19 pandemic, including the impact of the African Continental Free Trade Area (AfCFTA ) on trade and public revenues.

OECD Taxation Working Papers No. 49 – Reassessing the regressivity of the VAT

This paper reassesses the often-made conclusion that the VAT is regressive, drawing on tax microsimulation models constructed for an unprecedented 27 OECD countries. The paper first assesses the competing methodological approaches used in previous distributional studies, highlighting the distorting impact of savings patterns on cross-sectional analysis when VAT burdens are measured relative to income. As argued by IFS (2011), measuring VAT burdens relative to expenditure – thereby removing the influence of savings – is likely to provide a more meaningful picture of the distributional impact of the VAT. On this basis, the VAT is found to be either roughly proportional or slightly progressive in most of the 27 OECD countries examined. Nevertheless, results for a small number of countries highlight that broad-based VAT systems that have few reduced VAT rates or exemptions can produce a small degree of regressivity. Results also show that even a roughly proportional VAT can still have significant equity implications for the poor – potentially pushing some households into poverty. This emphasises the importance of ensuring the progressivity of the tax-benefit system as a whole in order to compensate poor households for the loss in purchasing power from paying VAT. In the broader context of the COVID-19 crisis, the findings of the paper suggest there may be scope in many countries for VAT reform to help address revenue needs, as this revenue may be generated with less significant distributional effects than previously thought. While standard VAT rates are high in many countries, OECD evidence shows that scope exists to broaden VAT bases. Nevertheless, any VAT increases, including VAT base broadening measures that impact the poor, should be accompanied by compensation measures for poorer households, such as targeted tax credits or benefit payments. (Alastair Thomas).

OECD Taxation Working Papers N. 49 – Reassessing the regressivity of the VAT

This paper reassesses the often-made conclusion that the VAT is regressive, drawing on tax microsimulation models constructed for an unprecedented 27 OECD countries. The paper first assesses the competing methodological approaches used in previous distributional studies, highlighting the distorting impact of savings patterns on cross-sectional analysis when VAT burdens are measured relative to income. As argued by IFS (2011), measuring VAT burdens relative to expenditure – thereby removing the influence of savings – is likely to provide a more meaningful picture of the distributional impact of the VAT. On this basis, the VAT is found to be either roughly proportional or slightly progressive in most of the 27 OECD countries examined. Nevertheless, results for a small number of countries highlight that broad-based VAT systems that have few reduced VAT rates or exemptions can produce a small degree of regressivity. Results also show that even a roughly proportional VAT can still have significant equity implications for the poor – potentially pushing some households into poverty. This emphasises the importance of ensuring the progressivity of the tax-benefit system as a whole in order to compensate poor households for the loss in purchasing power from paying VAT. In the broader context of the COVID-19 crisis, the findings of the paper suggest there may be scope in many countries for VAT reform to help address revenue needs, as this revenue may be generated with less significant distributional effects than previously thought. While standard VAT rates are high in many countries, OECD evidence shows that scope exists to broaden VAT bases. Nevertheless, any VAT increases, including VAT base broadening measures that impact the poor, should be accompanied by compensation measures for poorer households, such as targeted tax credits or benefit payments. By Alastair Thomas.

OECD Taxation Working Papers N. 47

What drives consumption tax revenues?  Disentangling policy and macroeconomic drivers. This paper decomposes consumption tax revenues in OECD countries into the implicit tax rate (ITR) and consumption relative to GDP, to identify how economic downturns affect consumption tax revenues. It further considers the impact of changes in VAT efficiency and VAT rates on ITRs. The analysis finds that the observed stability in consumption tax revenues results from offsetting changes in the ITRs and in consumption as a share of GDP, arising from both macroeconomic changes and intentional policy changes. During the economic crisis in 2007-2009, lasting changes in consumption patterns, notably increases in government spending and in private consumption of necessity goods, adversely affected the efficiency of VAT systems. These changes have not since been reversed, suggesting that consumption tax revenues are now less robust to economic shocks. Broadening the VAT base and narrowing the scope of reduced rates can help to stabilise consumption tax revenues during economic downturns.

BEPS Action 13 on Country-by-Country Reporting. PEER REVIEW DOCUMENTS. October 2020

BEPS Action 13 on Country-by-Country Reporting. PEER REVIEW DOCUMENTS. October 2020. The Action Plan on Base Erosion and Profit Shifting (“BEPS Action Plan”) identified 15 actions to address BEPS in a comprehensive manner. In October 2015, the G20 Finance Ministers endorsed the BEPS package which includes the report on Action 13: Transfer Pricing Documentation and Country-by-Country Reporting (“the 2015 Action 13 Report”, OECD (2015)). The Country-by-Country (CbC) reporting requirements contained in the 2015 Action 13 Report, OECD (2015), form one of the four BEPS minimum standards. Each of the four BEPS minimum standards is subject to peer review in order to ensure timely and accurate implementation and thus safeguard the level playing field. All members of the Inclusive Framework on BEPS commit to implementing the Action 13 minimum standard and to participating in the peer review, on an equal footing. The purpose of a peer review is to ensure the effective and consistent implementation of an agreed standard and to recognise progress made by jurisdictions in this regard. Peer reviews should be conducted in a manner that is clear; targets the core elements of the standard and areas of risk; ensures that jurisdictions a re treated fairly and equally; and is resource efficient. The peer review is a review of the legal and administrative framework put in place by a jurisdiction to implement the CbC reporting standard. This peer review is a separate exercise to the 2020 review to evaluate whether modifications to the CbC reporting standard should be made. The peer review will evaluate the Inclusive Framework member’s implementation of the standard against an agreed set of criteria. These criteria are set out in terms of reference, which include each of the elements that a jurisdiction needs to demonstrate it has fulfilled in order to show proper implementation of the standard. The Action 13 Report, OECD (2015), recommended that the first CbC Reports be required to be filed for fiscal years beginning on or after 1 January 2016. It was however acknowledged that some jurisdictions may need time to follow their particular domestic legislative process in order to make necessary adjustments to the law. In this respect, the peer review will take account of the specific timeline followed by certain jurisdictions, and the review will focus on the efforts taken by these jurisdictions in order to meet their commitment to implement the minimum standard. The manner in which the peer review is undertaken is set out in an agreed methodology. The methodology 1 sets out the procedural mechanisms by which jurisdictions will complete the peer review, including the process for collecting the relevant data, the preparation and approval of reports, the outputs of the review and the follow up process. The terms of reference and methodology do not alter the Action 13 minimum standard. Any terms used in the terms of reference or methodology take their meaning from the language and context of the 2015 Action 13 Report, OECD (2015), and the references therein. The peer review will be undertaken by an Ad Hoc Joint Working Party 6 – Working Party 10 sub-group (hereafter referred to as the “CbC Reporting Group”). 1. The peer review applies to reviews conducted in the context of the Inclusive Framework for BEPS Implementation. The modalities for reviews of jurisdictions of relevance, which may be identified in the future and which have not joined the Inclusive Framework, will be agreed in due course.

OECD – Green budgeting and tax policy tools to support a green recovery.

Recovery from the social and economic disruptions caused by the COVID-19 pandemic will require concerted policy action. As countries consider recovery packages, there are opportunities to prioritise green policy choices that help promote environmental objectives and speed up structural change towards the low-carbon transition, increasing society’s resilience to future shocks and reducing future risks. This policy brief focuses on practical ways in which countries can use green budgeting and tax policy tools to implement stimulus packages that support a green recovery, and the inter-linked role of both tax and spend measures in aligning stimulus programmes with decarbonisation objectives.

OECD – Tax challenges from digitalisation: A global two-pillar solution could increase tax revenues and support economic activity

The international corporate tax system faces growing challenges. While the OECD/G20 Base Erosion and Profit Shifting (BEPS) project represented an unprecedented multilateral effort to tackle profit shifting, many questions over the allocation of taxing rights remain unresolved. Digitalisation and globalisation have highlighted certain vulnerabilities in the existing framework, which allocates taxing rights principally on the basis of physical presence. In addition to this, some BEPS issues remain. In this context, an increasing number of jurisdictions are taking uncoordinated and unilateral actions (e.g. digital services taxes), contributing to an increase in tax and trade disputes and growing tax uncertainty. The COVID-19 crisis is exacerbating these tensions by accelerating the digitalisation of the economy and increasing pressures on public finances. The fact that many firms have benefitted from direct or indirect government support during the crisis is also likely to intensify public dissatisfaction with tax avoidance by multinational enterprises (MNEs). (…) By David Bradbury, Tibor Hanappi, Pierce O’Reilly, Ana Cinta González Cabral (OECD Centre for Tax Policy and Administration), Åsa Johansson, Stéphane Sorbe, Valentine Millot, Sébastien Turban (OECD Economics Department).

OECD Secretary-General Tax Report to G20 Finance Ministers and Central Bank Governors – October 2020

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.

International community renews commitment to address tax challenges from digitalisation of the economy

The international community has made substantial progress towards reaching a consensus-based long-term solution to the tax challenges arising from the digitalisation of the economy, and agreed to keep working towards an agreement by mid-2021, according to a Statement released today.
The OECD/G20 Inclusive Framework on BEPS, which groups 137 countries and jurisdictions on an equal footing for multilateral negotiation of international tax rules, agreed during its 8-9 October meeting that the two-pillar approach they have been developing since 2019 provides a solid foundation for a future agreement.