By Daniel Kaeser, Chair of the ICC Commission on Taxation
For many years, the main focus of ICC’s Commission on Taxation has been on the subject of effective dispute resolution. There are a couple of reasons for this, e.g. that in a globalized economy with increasing tax complexity, cross-border trade and investments will unavoidably trigger double taxation. Read more But it has been mostly ICC’s unique position as the global business organization and trusted partner of both the industrialized and developing world, as well as ICC’s history and experience in commercial dispute resolution (i.e. in its International Court of Arbitration), which inspired our work into this very direction. Dispute resolution is a sensible topic for many countries, especially when it is about arbitration procedures, and improvements can only be achieved by close cooperation, open and transparent communication and continuous capacity building. We have partnered in this regard with the ‘Wirtschaftsuniversität Wien’ (WU) and developed handbooks and manuals displaying a multi-step approach towards avoiding double taxation. The work on dispute resolution mechanisms is certainly far from being finished but we believe we have contributed a good piece to it so far.
In 2019, ICC’s Commission on Taxation started to participate in the work of the Belt and Road Tax Administration Cooperation Mechanism (BRITACOM), later becoming an official observer to it. The BRITACOM is where the tax administrations of Belt and Road Initiative member countries have the opportunity to meet and exchange on various tax challenges. It is no surprise that resolving tax disputes effectively has been a priority for the BRITACOM and we have contributed to various conferences and workshops. Besides dispute resolution, ICC contributed to the ongoing work in the field of digitalizing tax administrations and tax procedures and collected input from ICC member countries all around the globe to consolidate it in a report published in the tax journal of the BRITACOM. We believe that the exchange with tax administrations like it is enabled and facilitated by the BRITACOM is the right way for global business to improve the public perception as good taxpayers, build trusted relationships and contribute to global capacity building in understanding new business models and respective compliance challenges.
Another recent focus topic for ICC’s Commission on Taxation has been the role of taxes in achieving the UN’s Sustainable Development Goals (SDGs), a matter on which we have issued a paper explaining how taxes can be vital in achieving each and any of the 17 SDGs. And no, it is not only because taxes do raise funds which in turn are a necessary precondition for many improvements in SDG core areas. But rather that in a consistent agenda all the various items should be consistent so that they nicely fit together like pieces of a complicated economic and societal puzzle. Taxes are more than a mere source of funding for jurisdictions in this regard: they do steer behavior, can attract investments, inspire taxpayers to behave in a certain way or to avoid specific activities. That is why we believe that taxes need to be incorporated into a holistic approach working towards achieving the SDGs.
No tax commission’s working list would be complete these days without reflecting on Pillar I and II, the new world tax order designed by the OECD as a result of the OECD’s Action Item 1 in its plan to fight Base Erosion and Profit Shifting, the so-called ‘BEPS’. With BEPS Action Item 1, the OECD wanted to find an answer for taxing the digital business world but finally ended up with the conclusion that it would not be possible to ringfence this digital world, thus recognizing that isolated approaches focusing on digital services are doomed to fail. After various discussions and different ideas, the OECD presented what they called a two-pillar approach. With Pillar I for MNEs with revenues of more than 20 billion euros and a profitability of more than 10 percent, a so-called ‘Amount A’ will be calculated and allocated to market jurisdictions. The whole approach seems to be complicated, and it is. But as a flipside, taxpayers will be granted mandatory dispute resolution for tax-related transfer pricing and other nexus-related disputes. A small goodie for the increase in compliance burden, but again a sign of how important effective dispute resolution mechanisms have become. Pillar II in turn has a wider scope than Pillar I and encompasses all MNEs which are in scope of the country-by-country reporting (having revenues of more than 750 million euros p.a.). In essence, Pillar II creates a global minimum tax allowing countries to ‘top up’ taxes when income is not subject to an effective tax burden of at least 15 percent. The rules are, diplomatically speaking, highly complex. They might well end up in a compliance nightmare for many taxpayers given the global reach and the rather short time for implementation as the rules kick into effectiveness starting 1 January 2023, requiring substantial data manipulation and system adaptations. We will accompany the developments and it seems obvious, that with Pillar I and II, ICC’s Commission on Taxation will have plenty to do in the future!
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