Presentation used during the SUOPSI seminar on the Minimum tax tax and the OECD Pillars Based approach

1. The US Proposal and the Pillars Based Approach:
Another View of the Cathedral
Marco Greggi
Lugano, October 26th 2021

2. Outline of the Presentation
1. Follow up to Professor Avi-Yonah
presentation on the US Proposal;
2. The State of the Art of the OECD work
on the new Tax System (if any);
• … and the scenario in the Old Continent;
3. A Forecast for the G-20 Meeting on
the next Friday.
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Claude Monet’s View of the Rouen Cathedral (Series, 1892 – 1894)

3. Common Grounds
• OECD and US proposals:
• (Gentle) Shift of the focus on the source state: US MNEs to pay more in
foreign countries where they do business, Foreign MNEs to pay more in the
US;
• Centrality of residence (or equivalent criteria) is partially eroded;
• In Europe, some sort of VAT-centric approach
• US innovation:
• Minimum taxation of income should crowd out investments in low-tax
jurisdictions.
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4. The Rise of a New System?
• New rules not for many, qualitative and quantitative limitations are
introduced:
• Qualitative limitations:
• Oil, Gas, extraction industries and financial services are excluded;
• Switzerland: why not pharmaceuticals ?
• Quantitative limitations:
• The Pillars based approach provides for thresholds:
• $20 billion revenues plus profit margin (…) for Pillar I
• $ 750 million revenues for Pillar II;
• …
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5. Preliminary Findings
• Taxing power attribution according to different patterns for specific
cases, while the overall pictures remain unchanged;
• We still look at the same Cathedral (Calabresi-Melamed) in Tax Law:
• Taxpayer residence central to the discussion (OECD doctrine);
• Allegiance of taxpayer to a system to be assessed trough personal
benchmarks although with some corrections;
• We have to deal with the fracture within the OECD …
• … and be prepared for the big players of the future (Tencent, Bytedance, … ?).
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6. A New Scenario unfolds
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US system
(GILTI / BEAT)
US system new
(Minimum tax)
OECD Strategy
(Pillars I and II)
Other states
(unilatral claw
back)

7. The US Situation
(as seen from Here)
• Same concern, different ways and means;
• BEPS: Base Erosion and Profit Shifting:
• In the US: measures to claw back wealth and revenue allocated abroad and
kept abroad (common background to the two latest administrations) giving
priority to residence;
• “Make America tax again”;
• In Europe: measures to claw (back?) wealth and revenue emphasising source
rules;
• VAT philosophy influencing taxing power on income.
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8. A Collision Route ?
• All the stakeholders agree on the necessity to tackle base erosion
and profit shifting;
• Yet opinions diverge as to where such power to tax should be
restored;
• US: pacta sunt servanda (the Classic Word Tax Order);
• Europe: a Westphalian approach consistent with her history (cuius religio, eius
tributum).
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9. Continued …
• Is this contradiction ?
• Two souls within the OECD founding members (US vs EU);
• US more conservative during the BEPS debate (on the defensive line, the
status quo), the EU more innovative (aggressive line, overhaul of the
traditional rules);
• Deciphering the Biden administration step forward:
• Still in a “Fog of War” scenario ?
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10. Connecting with Numbers
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11. Intermediate Findings
• Biden’s stimulus to boost domestic economy increasing the overall
amount of goods and services consumed, with several consequences:
1. Increase in supply demand;
2. Increase in prices;
3. Increase the import of goods (and services) from abroad in the short period
due to rigidity of internal production systems (?);
• Finding:
• Mix of factors allowing taxation would be of some interests for the Country
given the limited impact of consumption taxation (as compared to VAT).
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12. The European Scenario
• Digital taxation proposals and Digital tax policy (see Professor Sartori’s
presentation);
• Zeitgeist less income-centric then before:
1. Recovery plan;
2. Green taxation and Carbon emission taxation;
3. Environmental taxation;
4. Green certificates emission trading (and taxation);
5. Itemized approach.
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13. A Different Set of Priorities
• Carbon Border tax adjustment (proposal):
• Qualitative approach to selected business and production models;
• Pigouvian Tax to nudge business towards more sustainable models
and more responsible use of natural resources;
• Noteworthy: extractive industries excluded from the minimum tax
application!
• Necessity to address intra-EU asymmetries and internal unfair
competition.
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14. Unilateral Approaches
• Before the Minimum tax:
1. The British Diverted Profit tax ?
2. The Digital tax solution;
3. The Indian equalization levy;
4. The UN variations to the Model (Articles 12A and 12B);
• Technical services;
• Automated digital services;
• An Enigma from the East: the Chinese strategy towards the Pillars
approach and the US strategy:
• One belt and one road project: a commodities-based developments;
• In the short run: more aligned to the US proposal rather than to the OECD
one?
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15. Der Staub der Geschichte
• Italian approach to Base erosion (wating for minimum tax / Pillars) in
a mix of traditional interpretive tools together with a touch of
criminal charges pressed to push foreign MNEs to an accommodation
with the Tax office;
• Old but gold: a successful strategy in the short run;
• An example: the Netflix case in Italy.
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16. Forecasts
https://www.miamarket.it/en/netflix-news-about-it-are-coming-in-italy-from-2022/
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17. Conclusions
Looking at the same Cathedral, yet from different perspectives.
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