Developing nations to gain 1% corp tax from digital tax deal: top OECD exec

In a Q&A, Pascal Saint-Amans, director at Centre for Tax Policy and Administration, OECD says global digital tax and digital service tax by individual countries can't co-exist

As countries negotiate on digital tax under the aegis of OECD, director at the Centre for Tax Policy and Administration, Organisation for Economic Co-operation and Development, Pascal Saint-Amans tells Dilasha that the global digital tax and digital service tax by individual countries such as equalisation levy can’t co-exist. The issue is the timing of the withdrawal of DST, which can be decided in the negotiations on digital tax that likely conclude by Friday. Edited excerpts:

How justified are the concerns raised by the G-24 on the two-pillar solution to address the tax challenges arising from the digitalisation of economies going through in October?

In the negotiations, all members of the inclusive framework can make their voices heard. The views of the G-24 are also taken into account and its participation is valued. The demands of the G-24--but more broadly developing countries--have influenced the outcomes of the agreement reached in July on many features. The final agreement in October is most likely to show some more concessions made due to the influence of the G-24 and developing countries in general, particularly India. The features addressing the interests of developing countries include tax certainty aspects, reduction of the threshold under Pillar One after seven years, etc. It is fair to say that it is a balanced agreement, resulting from compromises, and one element cannot be taken in isolation.

What are the prospects of the deal going through amid concerns raised by the developing countries?

We can expect an agreement on October 8, 2021, which will finalise elements of the package and agree on an implementation plan for 2023.

How justified is the G-24 stand that unilateral measures like equalisation levy should not be withdrawn at one go, but in phases?

While unilateral measures like equalisation levy or digital service taxes (DSTs) were legitimate when there was no global solution in sight, they actually do not bring in much income or revenues for countries. Instead, they bring in a lot of trade tensions and problems. It is estimated that the global solution will bring in much higher revenues for developing countries, including for India.

Several economists and a report by the IMF (Digitalisation and Taxation in Asia) suggest developing countries may not have much to gain in revenue under the current form of the framework, which only covers top 100 companies under Pillar-1. IMF has estimated that emerging markets would lose revenue or have a modest revenue gain.

While it is a good initiative to estimate the revenue from Pillar One, I fear your reference is not to a report, but to a blog based on outdated data. We have estimated conservatively, based on the elements of the current negotiations and up-to-date data, that developing countries are expected to gain revenues from both pillars and we have communicated the results to the relevant countries. For Pillar One, developing countries are expected to gain an additional 1% of corporate income tax (CIT) revenues, on average. On Pillar Two, the minimum tax is expected to increase developing country revenue by approximately 1.5-2 per cent of CIT revenues on average.

But are there no estimates by the OECD to suggest how much the gains will be?

I have just mentioned our conservative estimates, but negotiations are still taking place and certain aspects are still not fully decided. For instance, it the quantum of profits to be allocated is yet to be decided. However, I mentioned the lower band of our estimates.

Will it be possible for the deal to succeed if developing nations don't completely withdraw unilateral measures?

Firstly, under the agreement, the reallocation of profits to market jurisdictions aims to replace the unilateral measures. There will be no rationale for these taxes with the new rules coming in. Second, there is a timing issue, which can be negotiated between countries. The question is about the timing of roll back of these unilateral measures,once the solution is implemented. While some countrieswant an immediate roll back, other countries want more time to roll back these measures. In any case, the movement for withdrawal of DSTs is clear and will appease trade tensions brought up by their enactment.

Recently the OECD secretary general suggested that with the experience on digital taxation deal, a similar carbon pricing deal can be thrashed out. Have some preliminary discussions started on that?

Consultations have not yet started. But we hope to start this conversation very soon. We hope to have India on board, as it is a member of an inclusive framework.  

Is there any progress on the framework for taxation of cryptocurrency? What is the response that you are getting from countries on that?

We are working to develop a reporting framework to exchange information on crypto assets. The goal is to deliver this reporting framework in 2022. This work follows the delivery of a report on the tax policy implications of virtual currencies to the G20 FMCBGs (finance ministers and central bank governors) in October 2020, the first of its kind looking at tax aspects of crypto-assets.