Digital service taxes are merely the first wave of unilateral hazards, according to government officials and OECD leaders, if not enough nations adopt the two-pillar strategy.
A fundamental component of the two-pillar architecture is tax certainty, which is needed to prevent the international tax system from breaking down. Similar worries about double taxation from digital services taxes (DSTs) and other national measures, such as withholding taxes and transactions taxes, which would broaden the tax base in various countries, were voiced by corporate directors on a panel at the IFA/OECD conference on September 7.
The French Finance Ministry's deputy director for international tax and European relations, Gael Perraud, asserted that the two-pillar system must be successfully implemented.
Regarding the double tax concerns that might arise if international coordination fails and the two-pillar approach does not reach the "critical mass" of participating nations it need to succeed, Perraud stated that DSTs are "just the tip of the iceberg."
He stated, "Waiting for longer does not help developments, we have to conclude the deal sooner than later," implying that discussions with stakeholders can last for a very long time with reviews.
The two-pillar solution's alternative is a series of unilateral actions, such as DSTs, which would probably ignite a trade war on a global scale. This was seen when the US imposed tariffs and trade limitations on EU nations as a result of unilateral actions, many of which began and concluded in 2020.
The other six panelists included Ruth Mason, professor of tax law at the University of Virginia, Lisa Wadlin, head of tax at Netflix, Peter Shaw, head of tax audit and litigation at Maersk, Pascal Saint-Amans, director of the OECD's Centre for Tax Policy and Administration, Achim Pross, head of the OECD's International Cooperation and Tax Administration Division, Manal Corwin, tax principal at KPMG in Washington, D.C., and Saint-A
"Governments are on the Titanic," according to Corwin, "if DSTs are the tip of the iceberg."
Many nations are inclined to improve their taxing rights on their own, according to Saint-Amans, who has spearheaded many of the current discussions on the two-pillar framework, rather than delaying implementation of the final versions of pillars one and two past the deadline in 2024.
The concerns of not having enough nations implement the two-pillar system and align the technical regulations by the deadline were also emphasized by the panelists.
On the panel, advisors and government representatives argued that participation is not encouraged if the standards are too stringently stated to attract a sufficient number of nations.
"It’s a huge disincentive for any one country to contribute the whole Amount A," according to Corwin.
She said, "You need a critical mass [of countries] to move forward and achieve stability in the international tax system."
Reaching that threshold will put pressure on other nations to support the tax revisions.
The technique was described by panelists as a triumph of "diabolical engineering" and "devilish logic," and several praised its ability to bring about significant changes in world policy.
Saint-Amans pointed out that further consideration may be given to a sufficient critical mass for the Amount A regulations in the design of pillar one. He added that without the US participating in pillar 1, there would not be a critical mass.
The Biden administration does not view pillar one as the focal point of its policy objectives, according to Corwin, who has expertise in international tax policies at the US Treasury.
Corwin said that while the administration continues to support pillar 1, there must be a compelling business case for its regulations to be implemented in the US market.
It has not been developed sufficiently to reach Congress, she claimed.
She said, "However, we do not want to rearrange the deck chairs on the Titanic either."
All parties involved desire a two-pillar approach that is manageable, dependable, and adequately based on accepted international tax standards.
There is a growing possibility of worse cracks in the global tax system as government discussions continue and the OECD races against an ambitious deadline to persuade enough nations to accept these policies.
By fLEXI tEAM