October 18, 2020
U.S. International Tax This Week for October 16
Ernst & Young's U.S. Tax This Week newsletter for the week ending October 16 is now available. Prepared by Ernst & Young's National Tax Department in Washington, D.C., this weekly update summarizes important news, cases, and other developments in U.S. taxation.
The OECD and the Inclusive Framework on BEPS on 12 October released a series of documents in connection with the ongoing project on addressing the tax challenges arising from the digitalization of the economy, commonly known as the BEPS 2.0 project. The project, which began in early 2019, consists of two elements: Pillar One focused on developing new nexus and profit allocation rules and Pillar Two focused on developing global minimum tax rules. The released documents include detailed reports on the Blueprints on Pillar One (Report) and Pillar Two (Report); a lengthy Economic Impact Assessment (Report) of the Pillar One and Pillar Two proposals; a Cover Statement by the Inclusive Framework on the work to date and the next steps; a Public Consultation Document requesting comments on the Blueprints on both Pillars; and a Report to the G20 Finance Ministers for their 14 October meeting.
The OECD held both an on-line press conference and a webcast to update the press and the public on the latest developments in the BEPS 2.0 project.
According to the Inclusive Framework Cover Statement, even though substantial progress has been made on the BEPS 2.0 work, key political and technical issues still need to be resolved. As a result, the initial timeline for delivering a consensus-based solution by the end of 2020 cannot be met. The Inclusive Framework has now agreed to continue working to bring the process to a successful conclusion by mid-2021, specifically noting the need "to resolve technical issues, develop model draft legislation, guidelines, and international rules and processes as necessary to enable jurisdictions to implement a consensus-based solution."
The OECD is hosting a webcast to report on the Economic Impact Assessment Report on 20 October. The public consultation on the Pillar One and Pillar Two Blueprints will be open for stakeholder input until 14 December 2020 and all written comments received will be made publicly available. Public consultation meetings on the Blueprints will be held in January 2021.
On 14 October, the G20 Finance Ministers and Central Bank Governors met via teleconference and at the conclusion of the meeting issued a joint communiqué that touched on the BEPS 2.0 project. The communiqué reaffirmed the G20's commitment to making further progress on the two-pillar approach and stressed the importance of addressing the remaining issues in order to reach a global and consensus-based solution by mid-2021.
For details on this development, see EY Global Tax Alert, G20 Finance Ministers and Central Bank Governors' meeting communiqué extends mandate of Inclusive Framework to continue negotiations on BEPS 2.0 project until mid-2021, dated 14 October 2020. A series of upcoming Global Tax Alerts will provide additional analysis including implications. An EY Global Thought Center webcast Taxation of the digitalized economy: What's next is scheduled for 28 October 2020.
The extension of the BEPS 2.0 mandate to mid-2021 raises questions regarding the implications for existing and pending Digital Services Taxes (DST). In particular, France has suspended the collection of its DST until the end of 2020 under the condition that a global agreement would be reached by then. In light of the new G20 timeline, it is expected that France will communicate soon on whether it will extend the suspension pending the continued OECD negotiations. Other countries have been contemplating potential action on new DST legislation by the end of the year.
A European Commission (the Commission) spokesperson quickly provided the European Union's (EU) response to the latest developments. The official was quoted as saying the EU will not take unilateral action and will wait and abide by the new OECD Inclusive Framework timeline. The official indicated, however, that the EU will take unilateral action if the BEPS 2.0 process breaks down.
Going forward, the Commission may include discussion of a digital levy in the Commission Communication "Business Taxation for the 21st Century" that is expected to be released on 28 October 2020. Therefore, over the next few weeks, it will be important to monitor responses of individual G20 and non-G20 jurisdictions and the EU to these G20 developments.
In a related development, a United Nations (UN) digital taxation subcommittee on 11 October issued a note that includes a new proposed model treaty article and commentary on taxing the digital economy. New Article 12B (Income from Automated Digital Services) is proposed to be incorporated in the UN Model Double Taxation Convention Between Developed and Developing Countries.
Latin America ‘nearshoring’ webcast series: Panama session (October 21)
As companies evaluate their global supply chains in light of recent disruptions, there is heightened interest in the concept of “nearshoring,” i.e., the transferring of a business operation to a nearby country from a more distant one. During this Thought Center Webcast, Ernst & Young is sponsoring a series of webcasts featuring our local country professionals. We will kick off the series with a session on Panama.
Recent Tax Alerts
— Oct 15: Egypt amends income tax and stamp duty law provisions (Tax Alert 2020-2476)
— Oct 09: Kenya adjusts specific excise duty rates for inflation (Tax Alert 2020-2442)
Canada & Latin America
— Oct 14: Peruvian tax authorities address merger of nonresident entities with one entity having a PE in Peru (Tax Alert 2020-2471)
— Oct 14: Peruvian Tax Court rules Peruvian payor may not consider double tax treaty benefits when determining the withholding tax because the Certificate of Residency was issued retroactively (Tax Alert 2020-2469)
— Oct 12: Argentina issues guidance on foreign exchange regulations (Tax Alert 2020-2458)
— Oct 15: Portuguese Government submits Draft State Budget Law for 2021 to Parliament (Tax Alert 2020-2477)
— Oct 14: Ireland issues Budget for 2021: Review of indirect tax and environmental measures (Tax Alert 2020-2470)
— Oct 13: UK issues new guidance on Brexit and UK imports (Tax Alert 2020-2463)
— Oct 12: Norway proposes 15% withholding tax on interest, royalty and certain lease payments to related parties tax resident in a low-tax jurisdiction (Tax Alert 2020-2459)
— Oct 12: European Union imposes further anti-dumping duties on steel imports (Tax Alert 2020-2456)
— Oct 12: European Commission requests feedback on proposed directive to transform EU's VAT Committee into a "Comitology Committee" (Tax Alert 2020-2455)
— Oct 09: Dutch Government publishes details on proposed changes to loss set-off rules (Tax Alert 2020-2444)
— Oct 15: Oman ratifies automatic exchange of information (Tax Alert 2020-2478)
— Oct 13: Saudi Arabia extends economic relief initiatives until 31 December 2020 (Tax Alert 2020-2464)
— Oct 09: Turkey's election regarding Article 5 of the MLI may impact certain tax treaties (Tax Alert 2020-2443)
— Oct 14: G20 Finance Ministers and Central Bank Governors' meeting communiqué extends mandate of Inclusive Framework to continue negotiations on BEPS 2.0 project until mid-2021 (Tax Alert 2020-2472)
— Oct 13: OECD's Inclusive Framework releases BEPS 2.0 documents and agrees to continue work with target of conclusion by mid-2021 (Tax Alert 2020-2462)
— Oct 12: OECD BEPS 2.0 blueprint reports released (Tax Alert 2020-2451)
— Oct 12: OECD issues reports on BEPS Pillar One and Pillar Two blueprints (Tax Alert 2020-2449)
Ernst & Young Client Portal, the leading source for news, analysis, and reference materials for corporate tax professionals, has a variety of content of interest to international tax practitioners, including:
— International Tax Online Reference Service. Key information about, and important tax developments from, 56 foreign jurisdictions, including information on tax rates, interest rates and penalties, withholding, and filing dates.
— EY/Passport. EY/Passport is your guide to planning ventures in the global economy, offering a wealth of tax and business knowledge on more than 150 countries.
Because the matters covered herein are complicated, U.S. International Tax This Week should not be regarded as offering a complete explanation and should not be used for making decisions. Any decision concerning matters covered herein should be reviewed with a qualified tax advisor.