Inclusive Framework issues Statement on the Two-Pillar Approach to Address the Tax Challenges Arising from the Digitalisation of the Economy

This is the fifth in ATAF's series of TechnicalNotes on the tax challenges arising in Africa from the digitalisation of the economy. The fourth Technical Note CBT/TN/04/2019 titled "The changes needed to the global tax rules if Africa is to address the tax challenges arising from the digitalisation of the economy" provided an overview of the conclusions of the in-depth discussions of the ATAF Cross Border Taxation Technical Committee (CBT) in October 2019 on the current Inclusive Framework proposals. The CBT identified the key policy issues for Africa and the key recommendations that ATAF will make to the Inclusive Framework on the changes that are needed to the current global tax rules.

On 23rd and 24th January the CBT met in Pretoria, South Africa, to discuss the upcoming Inclusive Framework meeting taking place in Paris on 29th and 30th January. The CBT discussed the OECD Secretariat’s Unified Approach proposals on Pillar One and the work being done on Pillar Two.

The outcomes of the CBT discussions were shared with all of the African delegates participating in the Inclusive Framework meeting to assist them in making their interventions at that meeting.

Unified Approach on Pillar One

At its January 2020 meeting the Inclusive Framework agreed that the Unified Approach will be the basis for a new nexus rules and new profit allocation rules. The Unified Approach endorsed by the Inclusive Framework is largely based on the Unified Approach proposed by the OECD Secretariat in October 2019.

It is expected that any consensus-based agreement must include a commitment by members of the Inclusive Framework to implement this agreement and at the same time to withdraw relevant unilateral actions.

A key discussion at the meeting was the U.S. safe harbour proposal which would mean that multinational enterprises (MNEs) could elect whether to be subject to the new nexus and profit allocation rules. Many countries expressing concerns about the feasibility of such an approach, but the Inclusive Framework agreed that the final decision will be taken after other elements of the consensus-based solution have been agreed upon. The Inclusive Framework members will carry out further work ATAF shares the concerns of many Inclusive Framework members that a safe harbour regime, whereby MNEs could elect out of being subject to thenew rules, would seem to make the rules tantamount to a voluntary tax which would not be workable in practice.

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