US Letter Threatens to Upend OECD Digital Tax Discussions

In a letter to the OECD dated 3 December US Treasury Secretary, Steven Mnuchin stated that the US has serious concerns regarding potential mandatory departures from arm’s-length transfer pricing and taxable nexus standardslongstanding pillars of the international tax system upon which U.S. taxpayers rely, Nevertheless, we believe that taxpayer concerns could be addressed and the goals of Pillar 1 could be substantially achieved by making Pillar 1 a safe-harbour regime”.

Were the Pillar 1 proposals to take the form of a safe harbour, this would allow governments to choose to adopt the regime, as opposed to it being mandatory to adopt it. If the approach were to be mandatory for the countries signing up, as was planned up until the US letter being sent, this would become mandatory for example by way of signing a new MLI. It would appear that the US is now proposing the measure be designed as a “safe harbour”, meaning that companies could choose to apply or ignore Pillar 1. 

In the response to the US letter, Angel Gurria, Secretary-General of the OECD, stated that “throughout the extensive consultation process, however, we had so far not come across the notion that Pillar 1 could be a safe-harbour regime”, emphasising that the public consultations held to date “clearly identified the need for greater tax certainty and administrability”, noting that this “is why the OECD proposal on a “Unified Approach” contains a very strong tax certainty dimension”. The letter notes that the US raising this issue may impact on the ability of the OECD to adhere to the deadlines agreed by the Inclusive Forum.

The US has been invited to meeting with the OECD prior to Christmas to discuss the issue further.

Ref.: CFE’s Global Tax Top 10 – December 2019

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