Pillar One – a prediction

The G20 Riyadh Summit concluded today. On international taxation, there was (as expected) broad support for the work of the OECD Inclusive Framework.

The G20 Leaders expect that the work will be concluded (as earlier promised by the OECD) in mid-2021.

Well, I don’t think this will be achieved. The outstanding technical issues are a big obstacle, moreso as any agreement would require the unanimous approval of the members of the Inclusive Framework.

As far as digital taxes are concerned, here is my prediction: over the next few months, there will be an increase in unilateral measures to tax digital businesses. Countries that have held back up till now will begin to introduce these new taxes. While many countries had held back, waiting instead for a ‘global solution’ from the OECD Inclusive Framework, there is an understandable impatience in the air. Countries don’t want to miss out on tax revenues, and the recent delay (by the Inclusive Framework) is already prompting some countries to introduce their own measures. In this, they would be joining those other countries that had earlier on decided not to sit back and wait for a global solution, but rather to introduce their own rules in the meantime.

And this will, of course, lead to double, and even multiple, taxation across jurisdictions. Eventually, countries will negotiate bilateral agreements to reduce or eliminate this double taxation.

This is most likely how the digital taxes issue will be resolved. We will also likely see common features emerge in the various unilateral digital taxes being introduced, making it easier for there to be standard treaty provisions for double tax relief.

This ‘organic’ approach will render Pillar 1 redundant. The combination of unilateral (taxing) measures and treaty provisions (for double tax relief) will see to that.

I think this is the way that things will go. I would be very surprised if Pillar 1 ever saw the light of day as a concrete plan.

And as for my prediction for Pillar 2, I’ll leave that for another blog post.