October 21, 2022
G20 Finance Ministers welcome progress made on BEPS 2.0 and call for swift implementation
On 12 and 13 October 2022, the G20 Finance Ministers and Central Bank Governors met in Washington, DC. The G20 Chair's summary issued at the conclusion of the meeting includes the G20 Finance Ministers' welcome of the progress made on the two-pillar project to address the tax challenges of the digitalization of the economy (the BEPS 2.0 project) and reaffirmation of their commitment to swift implementation of the new rules.
In advance of the meeting, on 10 October 2022, the Organisation for Economic Co-operation and Development (OECD) released the OECD Secretary-General's Tax Report to the G20 Finance Ministers and Central Bank Governors (the Secretary-General's Tax Report), which provides an update on activities with respect to the G20's international tax agenda, including updates on the BEPS 2.0 project, the work on tax policy and climate change and the OECD's other tax work. In parallel, the OECD released a report requested by the G20 providing an OECD/G20 Roadmap on Developing Countries and International Taxation that takes stock of progress since 2021 and a brief report from the OECD Secretary-General on the Establishment of the Inclusive Forum on Carbon Mitigation Approaches (the IFCMA Report)
G20 Chair's summary
At the conclusion of the 12-13 October G20 Finance Ministers and Central Bank Governors meeting in Washington, the Indonesian Chair issued a summary of the discussion. The summary welcomes the progress made on the BEPS 2.0:
We reaffirm our commitment to the swift implementation of the OECD/G20 two-pillar international tax package. We welcome the progress on Pillar One. We also welcome progress on Pillar Two Global Anti-Base Erosion (GloBE) Model Rules, which pave the way for consistent implementation at a global level as a common approach, and we look forward to the completion of the GloBE Implementation Framework. We call on the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) to finalize Pillar One, including remaining issues and by signing the Multilateral Convention in the first half of 2023, and to complete the negotiations of the Subject to Tax Rule (STTR) under Pillar Two that would allow the development of a Multilateral Instrument for its implementation.
The summary also notes the G20/OECD Roadmap on Developing Countries and International Tax and reaffirms the G20 Finance Ministers' objective to strengthen the tax and development agenda. The summary further expresses the G20 Finance Ministers' support for the progress made on implementing internationally agreed tax transparency standards and welcomes the recently released Crypto-Asset Reporting Framework and amendments to the Common Reporting Standard.1
October 2022 OECD Secretary-General Report
The October 2022 Secretary-General's Tax Report provides a summary of the latest activity and developments with respect to the G20's international tax agenda, including updates on the BEPS 2.0 project, tax policy and climate change, tax transparency, tax and development, tax administration, tax and crime, and the implementation of the original BEPS project.
On the BEPS 2.0 project, the Secretary-General's Tax Report indicates that many countries have started the legislative process to implement the Pillar Two global minimum tax or have announced plans to do so shortly. In this regard, it notes that the OECD will release later this year the GloBE Implementation Framework and will launch a series of pilot programs to assist developing countries in assessing the impact of the GloBE rules and how they interact with domestic tax policies. Work also is continuing on the Pillar Two STTR draft model provision and related Commentary, as well as the draft multilateral instrument to facilitate the implementation of the STTR. On Pillar One, the Secretary-General's Tax Report indicates that the Inclusive Framework has issued regular, rolling public consultation documents on various building blocks, which have helped to advance and adapt the draft rules. A public consultation document on the withdrawal and standstill of digital services taxes and other relevant similar measures and another consultation document on Amount B will be released by the end of 2022, with a view to completing the ongoing work in the first half of 2023.
On tax policy and climate change, the Secretary-General's Tax Report refers to the role the OECD Inclusive Forum on Carbon Mitigation Approaches could play in providing a platform for multilateral dialogue on carbon issues. The Report notes that a temporary working group of some OECD Member States has met to look at procedural matters related to the Inclusive Forum. The OECD Secretary-General expresses the hope that G20 countries will join this initiative.
The Secretary-General's Tax Report notes that significant work has taken place in recent months on tax transparency issues. Together with the Secretary-General's Tax Report, an overview of the results of the Global Forum peer reviews with respect to the Automatic Exchange of Information (AEOI) standard that have taken place so far, including the first results of the initial reviews of the effectiveness of the implementation of the AEOI Standard in practice, was also published. The results show that the AEOI legal frameworks in jurisdictions are generally complete, with a high level of compliance identified. However, there are some commonalities regarding the areas where recommendations remain to be addressed and the Global Forum continues to work with those jurisdictions to assist them in addressing those. In terms of effectiveness in practice, the report shows that almost two thirds of the jurisdictions that committed to commence exchanges in 2017 or 2018 have been rated as "On Track" with respect to their frameworks and activities to ensure the effectiveness of the AEOI Standard in practice. Also, the OECD released a new Crypto-Asset Reporting Framework and amendments to the Common Reporting Standard.
On tax administration, the Secretary-General's Tax Report mentions that a new focus group has been established to help identify the main practical implementation challenges as well as common solutions on the implementation of the two Pillars. This group will also support further work on establishing where new technology tools can help to smooth implementation and reduce burdens for both taxpayers and tax administrations.
According to the Secretary-General's Tax Report, tackling tax crimes and other financial crimes is another area where capacity building is increasing. In 2022, over 400 participants joined training programs of the OECD Academy for Tax and Financial Crime Investigation.
The Secretary-General's Tax Report also notes that progress continues to be made on the implementation of the measures delivered under the G20/OECD BEPS project. The results of the peer reviews for the four BEPS minimum standards show strong implementation by the Inclusive Framework members.
The Report contains seven annexes encompassing recent OECD tax documents:
G20/OECD Roadmap on Developing Countries and International Taxation
On 6 October 2021, at the G20's request, the OECD published the G20/OECD Roadmap on Developing Countries and International Taxation. This Roadmap provides a follow-up to the 2021 report to the G20 on Developing Countries and the OECD/G20 Inclusive Framework on BEPS by taking stock of progress since 2021 and setting out key priorities for interested G20 members and other stakeholders.
The Roadmap notes that while there has been continued progress by developing countries and some response to the recommendations in the 2021 report, there remains much to be done. Developing countries have made good progress in eliminating harmful tax practices, and most have benefitted from receiving information on tax rulings from other countries. However, country-by-country (CbC) reporting continues to be a challenge. Only two more developing countries now have access to CbC reports filed abroad in comparison to the previous year, for five developing countries in total, but the vast majority do not. Also, developing countries continue to have a material impact on the development of Pillar One and Pillar Two, but additional support will be needed to help developing countries evaluate tax incentives in light of the GloBE rules and on implementation of both Pillars. Further, on multilateral dialogue beyond the implementation of the BEPS Actions and the development of BEPS 2.0, the Roadmap indicates that the launch of the Inclusive Forum on Carbon Mitigation Approaches provides a new forum from which developing countries could benefit.
On the key priorities, the Roadmap includes a number of measures that G20 members and other Inclusive Framework stakeholders could take, for example: (i) supporting developing countries in assessing the potential benefits of implementing the remaining BEPS Actions, including facilitating faster progress on securing developing country access to CbC reports; (ii) putting in place the resources and expertise to provide the additional capacity building needed to implement Pillars One and Two, including actions to help amplify the voices of developing countries in the negotiations; and (iii) exploring other areas for enhanced multilateral coordination with developing countries, including assessing the opportunities to support sustainable development goals and consolidating knowledge on digitalization of tax administration.
OECD Secretary-General Report on the Establishment of the Inclusive Forum on Carbon Mitigation Approaches
On 13 October 2022, the OECD published the Secretary-General Report to G20 Finance Ministers and Central Bank Governors on the Establishment of the Inclusive Forum on Carbon Mitigation Approaches. According to the Report, the Inclusive Forum on Carbon Mitigation Approaches will involve the participation on equal footing of OECD member and non-member jurisdictions. This initiative will not serve as a standard-setting body, nor will it "rank" countries. The main aim of the work will be to build a database of cross-country and country-level mitigation policy approaches and to estimate their effectiveness in terms of emissions reductions. Over time, this approach could form the basis for a more rigorous assessment of the cost-effectiveness of different policy approaches. The first meeting of the Inclusive Forum on Carbon Mitigation Approaches will take place in Paris in February 2023.
The BEPS 2.0 project contemplates significant changes in the overall international tax architecture under which multinational businesses operate. The continuing endorsement by the G20 Finance Ministers of the progress made on both pillars and their call for swift action is intended to encourage jurisdictions to move quickly to implement the new rules through changes in their domestic laws and the negotiation, signature and ratification of the multilateral instruments necessary to adjust their treaty relationships.
However, there still is significant work to be done in the Inclusive Framework to fill in the technical details of the new rules and address administrative matters. Going forward, the implementation process for each of the pillars will require coordination among countries around the world, which will create further complexity.
It is important for companies to follow these developments closely as they unfold in the coming months and to evaluate the potential impact of the proposed international tax changes on their businesses. In addition, companies will need to monitor activity in relevant countries related to the implementation of the agreed rules through changes in domestic tax law and bilateral or multilateral agreements.
Companies also should take note of global developments with respect to tax policy and climate change, including ongoing activity in the G20, OECD and European Union.
For additional information with respect to this Alert, please contact the following:
Ernst & Young Belastingadviseurs LLP, Rotterdam
Ernst & Young Belastingadviseurs LLP, Amsterdam
Ernst & Young LLP (United States), Washington, DC