So how have my earlier Pillar One predictions (in this post here) turned out so far?
First, I had predicted that the mid-2021 target date (for securing Inclusive Framework agreement) would be missed.
Well, we don’t have unanimous agreement of all Inclusive Framework members, so we can safely say the target has been missed. Most members are on board, but there are some notable holdouts – for Africa, that would be Nigeria and Kenya.
Next, I had predicted an increase, during 2021, of digital tax measures, to be introduced by various countries, as they wait for the global solution to take wings.
This prediction has come to pass. In fact, even now in 2022 (even after the publication of more concrete proposals from the Inclusive Framework), such unilateral measures are still being introduced. For example, Nigeria has recently announced a 6% digital services tax. Perhaps this particular move should come as no surprise, as Nigeria had already indicated its dissatisfaction with the Pillar One outcomes, and declined to sign the agreement. That said, it’s a bit strange to see this new tax, given that Nigeria had only recently (in 2020) introduced a significant economic presence tax regime, ostensibly targeting (among others) revenues from digital businesses.
I had also predicted that the slew of unilateral taxes would lead to the introduction of standard tax treaty provisions providing relief for double taxation, and that, this ‘organic’ approach ‘will render Pillar 1 redundant’.
This prediction has not (yet) come to pass, but I still believe that things will pan out this way. There’s an added complication, though. In the months since my post was published, the scope of Pillar One has been expanded beyond digital businesses. As a result, it no longer focuses solely on high revenue-yielding digital businesses. As such, the risk of double (or multiple) taxation has increased in scope, albeit for different reasons. However, focusing strictly on digital businesses, I still believe that we will see tax treaty solutions begin to emerge.
I had also stated that I would be ‘very surprised if Pillar 1 ever saw the light of day as a concrete plan’.
I remain of this view. Despite its adoption by most members of the Inclusive Framework, there remain misgivings about certain key aspects of the proposals. For one thing, we are far from clear on all the technical aspects of Amount B, an issue of particular relevance for developing countries. There is still some way to go.
Overall, I stand by my earlier predictions. Let’s keep watching, see how things go.