Remarks by Angel Gurría
Riyadh, Saudi Arabia - 23 February 2020
(As prepared for delivery)
Ministers, Central Bank Governors,
I’m happy to report on the positive progress towards a consensus-based solution to the tax challenges arising from digitalisation, achieved last month at the G20/OECD Inclusive Framework on Base Erosion and Profit Shifting, gathering over 350 delegates.
All 137 jurisdictions of the Inclusive Framework agreed on a “Statement on the Two-Pillar Approach to Address the Tax Challenges Arising from the Digitalisation of the Economy”, reaffirming the commitment to reach an agreement around a consensus-based solution by the end of 2020.
Encouragingly, the Inclusive Framework also agreed upon an outline of the architecture of a Unified Approach on Pillar One, dealing with the allocation of taxing rights, as the basis for negotiations going forward – thus officially ending the gridlock that existed before the OECD Secretariat first released this approach last October, which at the time drew upon three competing proposals. Since then, improvements to the draft “Unified Approach” have been made. For example, the scope of Pillar One was broadened to include businesses that conduct “automated digital services”, and the definition of consumer-facing businesses was further clarified. Further refinements were made regarding thresholds, as well as on industries to be carved out (extractives, financial services and international transport). Nexus rules were further fleshed out as well.
These recent developments move us closer to an agreement on the key policy features of the package, which would in turn, become the basis for a political agreement.
The Inclusive Framework also welcomed the progress achieved thus far on the technical design of Pillar Two. Further headway has also been made regarding the OECD’s ongoing economic analysis and impact assessment. The preliminary analysis released on 13 February puts the combined effect of the two-pillar solution under discussion at around USD 100 billion annually. As a share of corporate tax revenues, the revenue gains are broadly similar across high-, middle- and low-income economies.
However, the Inclusive Framework also identified several challenges that remain to be resolved with respect to both pillars, notably the proposal to make Pillar One a global “safe harbour” regime. Although concerns were raised by members about this proposal, the Inclusive Framework noted that a final decision on this matter will be taken only after the other elements of the consensus-based solution have been agreed upon.
Other elements that need to be resolved include the binding nature and scope of dispute prevention and resolution mechanisms. “Digital differentiation” and regional segmentation also pose certain challenges, as does the continued application of unilateral measures such as digital services taxes.
These challenges are surmountable! And the stakes are high. If we fail, tax wars could turn into trade wars, further impacting global growth and investment. Therefore, every effort should be made in the coming months leading to the G20 Finance Ministers and Central Bank Governors Meeting in Jeddah in July to bridge these differences and find solutions. Beyond the hard work to be done by the Inclusive Framework delegates, success will require your personal involvement. We encourage you to do everything in your power to support our path towards consensus.
Finally, let me report further progress on tax transparency, which is in the report you have. Information on close to 50 million bank accounts was exchanged by the end of September 2019 for a total value of around EUR 5 trillion and already close to EUR 100 billion of additional tax revenues have been identified.
Changes are likewise massive in countering BEPS by multinational enterprises, with almost 30’000 information exchanges on previously secret tax rulings since 2016, and with 84 jurisdictions now engaging in Country-by-Country reporting on the activities, income and assets of such companies. Since 2015, almost 290 regimes have been reviewed and virtually all of the regimes that were identified as harmful have been amended or abolished.
Multilateral co-operation to prevent treaty shopping hubs has become a reality with the Multilateral Convention to Implement Tax Treaty Measures to Prevent BEPS, covering 94 jurisdictions, 42 of which ratified it. At this stage, all treaty shopping hubs have signed the BEPS Multilateral Instrument and tax administrations are reporting that they can see meaningful behavioural changes among taxpayers.
I would like to thank Saudi Arabia again, not only for hosting us, but for all of their efforts to ensure we can deliver on our mandate to achieve a consensus-based solution to the tax challenges arising from digitalisation by year-end 2020. Thank you.