G7 Attempts to Reconcile US & EU Tax Arrangements for Global Standard

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Finance ministers of the G7 have voted to support the OECD’s proposed new rules for taxing transnational corporations and international companies using revisions of current profit allocation and partnership regulations, as well as new global minimum tax regulations.
Tensions were high last last week, as the annual G7 Summit took place at Chantilly in France. The G7 is made up of Canada, Japan, the UK, the US, France, Germany, and Italy with all members in attendance to discuss negotiations on the international variances regarding the OECD’s inclusive framework initiative for tax reform.

Another new issues was raised regarding bridging the gap between the US’s marketing intangibles’ proposal being promoted by the US, and the ‘user participation’ proposal favoured by France, the UK, and other EU Members who consider the suggestion from the Trump Administration to be siding too much in favour of “highly digitalised business models” which refer heavily to US-based online companies and fintech start-ups.

The finalised proposal announced by the G7 reflects all members desires to progress with both ‘pillars’ of the OECD’s international tax and reforms, with a ‘practical and effective solution’ to be adopted by January 2020 for transfer pricing regulations.

Pillar 1- Revised Profit Allocation & Nexus Regulation
It was agreed that the OECD will work on an approach under which the new taxing rights, under Pillar 1 would be determined by the level of a business’ active participation in its customers’ or users’ jurisdiction “such as valuable intangible assets or the implementation of a highly digitalised model”.

Pillar 2- Global Minimum Taxation Level
Under the so-called Pillar 2 effort, relating to new global minimum tax rules, the G7 agreed that the global minimum level of effective taxation would “contribute to ensuring that companies pay their fair share of tax”, although the actual figure of taxation to be set has not been decided yet.

The G7 statement noted that the current US administration had already implemented a similar notion in the US GILTI (Global Intangible Low Tax Income 2019) programme, implemented under the US Tax Cuts & Jobs Act 2017.

Another vital section of the pillar approaches will be a ‘robust and effective tax dispute resolution through compulsory out-of-court settlements’ in order to avoid double taxation and to maintain confidence in the current global arrangement.

Who Will the Amalgamation Affect the Most?
According to expert reports, the countries that will be amongst those most likely to lose corporation tax revenues as a result of the G20 and OECD reforms are: Singapore, the Scandinavian states, Ireland, Luxembourg, the Netherlands, and Switzerland.