April 9 2021

Biden Administration Targets World’s 100 Largest Companies in New OECD Proposals

Source: IBFD Tax Research Platform News

As the clock ticks down to a July deadline to reach consensus on digital taxation, the Biden administration has circulated a ground-breaking plan to break the current stalemate over the OECD's digital tax proposals. In a document leaked to the press earlier this week, the US Treasury laid out for the 139 members of the BEPS inclusive framework its proposals on Pillars 1 and 2. As to the former, the United States proposes to narrow the scope of Pillar 1 to cover just those international businesses with annual global revenues of at least USD 20 billion – targeting the largest companies in the world. And as to Pillar 2, the United States proposes a simplified, but robust, global minimum tax system. Finally, the Biden plan calls on countries that now impose a digital services tax to replace that tax with the new regime.

International reactions were generally positive. Pascal Saint-Amans, Director of the OECD's Centre for Tax Policy and Administration, welcomed the US proposal, tweeting that the proposal "reboots the negotiation of a comprehensive solution to address a comprehensive issue: digitalisation and globalisation. Very interesting and positive dynamic. Good prospect of a simplified but meaningful P1 and robust minimum tax." The Netherlands welcomed the US proposal, as "fully in line" with its efforts to modernize the international tax system. Italian Prime Minister Mario Draghi welcomed the US proposal, particularly on the global minimum tax. Other world leaders, including French Finance Minister Bruno LeMaire, were more circumspect, promising to study the US proposal, but withholding full endorsement for now.

Some industry analysts reacted negatively, noting that the plan would disproportionately affect US-based tech companies.

And leaders in the US Congress, which will eventually have to approve any deal the US makes, have asked to be briefed on Treasury's proposals, and how they would affect US businesses.

More details will be reported as they emerge.

Note 1: The OECD is attempting to reach a global deal with the 139 nations of the BEPS inclusive framework on two initiatives (Pillar 1 and Pillar 2) addressing profit allocation and creating a global minimum tax by the end of June. These initiatives, years in the making, target the practice of base erosion and profit shifting (BEPS) by multinationals, and seek to create a system where profits are taxed in the location where the economic activities occur and the value is created. Addressing tax challenges resulting from an increasingly digital economy remains a top priority.

Note 2Pillar 1 seeks to reallocate certain taxing rights over so-called "residual profits" from producer nations to consumer nations.

Pillar 2 seeks to establish some form of global minimum tax.