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- 1. Welcome to theTransfer Pricing webinar! We are waiting for all the participants to join and we will get started shortly…
- 2. Transfer Pricing webinar: NavigateOECD’s Taxing of the Digital Economy initiative with Pillar I Modelling 30 June 2020
- 3. 3 Introduction to Zoom Howcan you interact? Webinar support Eleonora Zelger Zoom Master • If you have any technical difficulties or require assistance with Zoom, please write to Eleonora Zelger in the Chat box and she will try to help you as soon as possible Chat for technical difficulties Ask questions • You can use the “Q&A box” to ask your questions On sound • Everyone is on mute by default in the beginning of the webinar • During the Q&A session at the end of the webinar, you can click on the Raise Hand icon on the bottom to let us know you would like to unmute yourself to comment/ ask questions Optimising your view • To optimize your view, you can toggle between speakers and slides by clicking on the button in the right top corner
- 4. 4 Partner, Transfer Pricing atDeloitte Switzerland M A R T I N K R I V I N S K A S Managing Director, Tax at Deloitte US B O B S T A C K Manager, Transfer Pricing at Deloitte Switzerland A R J A N O O S T E R H E E R T Director, Transfer Pricing at Deloitte Switzerland J E F F S M O L E R O F F Managing Director, International Tax at Deloitte US R Y A N D U C H E N E With you today
- 5. 5 Pillar 1 –Update on recent developments
- 6. 6 2015-2020 Work to date 2018OECD interim report - March 2018 OECD policy note - January 2019 - Sets out the two pillar approach Public consultation document - February 2019 - Comments sought on policy issues and technical aspects - Followed by public consultation meeting - March 2019 Programme of work - May 2019 - Roadmap towards agreeing consensus solution by the end of 2020 Pillar One Secretariat proposal – Oct. 9, 2019 - Unified approach to nexus, profit allocation rule - Public consultation Pillar Two consultation document – Nov. 6, 2019 - Global Anti-Base Erosion Proposal - Public consultation Inclusive Framework statement – Jan. 31, 2020 - Reaffirms commitment to reaching consensus solution - Outline of a unified approach to Pillar One
- 7. 7 Pre COVID-19 Timeline 2020 Inclusive Framework statement January 31 Agreement on key policy features Final report on consensus- basedlong- term solution Initial economic analysis and impact assessments February 13 By October IF Meeting By November Technical work Drafting statutory and treaty text 2021 2022 2023 Implementation Enacting laws and ratifying treaties
- 8. 8 Position Swiss government •Switzerland has said there would be no “digital tax”, decided by the National Council’s Economic Commission (June 23) • The Commission feels that by introducing a national "digital tax", Switzerland would reverse its previous position. • The Commission’s preference is not to shift away from taxation of profits to taxation of turnover - and if a shift is required, to do so only within the framework of an international agreement rather than via national solo efforts. • Feeling that such efforts would create chaos. Decision of Swiss national council commission
- 9. 9 Digital services taxeson the march Austria France India Italy Turkey UK Uruguay Zimbabwe Tunisia Czech Republic Spain Canada Indonesia Poland New Zealand Norway Slovenia
- 10. 10 Position US government •The office of the United States Trade Representative announced on June 2, 2020 trade investigations into nine countries’ plus the EU’s proposed or enacted “digital services taxes” (DSTs). • The countries/jurisdictions being investigated are: • Austria • Brazil • the Czech Republic • the European Union • India • Indonesia • Italy • Spain • Turkey • the United Kingdom • The investigations could lead to the imposition of tariffs on those countries’ exports to the US. USTR Announcement – Investigation under 1974 Trade Act
- 11. 11 Position US government •On June 17, 2020 U.S. Treasury Secretary Mnuchin sent a letter to four European finance ministers (France, Italy, Spain and UK) claiming that discussions with respect to a new global tax framework occurring at the OECD’s Inclusive Framework had reached an “impasse.” • The U.S. remains opposed to measures that focus solely on digital businesses. • In light of COVID-19 and the health and economic challenges it poses, the U.S. does not believe 2020 is a suitable time to be conducting such negotiations. • The Secretary calls upon the OECD to “pause discussions of Pillar 1, with a view towards resuming later this year.” • The letter threatens “appropriate commensurate measures” if countries choose to go forward with DSTs. • In response, the finance ministers of the U.K., Italy, France and Spain urged moving forward on a phased basis, starting with automated digital services. • Furthermore, the OECD Secretary-General now recommends that all members of the Inclusive Framework on BEPS remain engaged in negotiations, with the goal of reaching a multilateral solution by the end of 2020. Secretary Mnuchin Letter of June 17, 2020 to Finance Ministers of the U.K., Italy, Spain and France
- 12. 12 Pillar 1: Recapof new nexus and profit allocation rules Unified approach
- 13. 13 Profit allocation Pillar One:Three-tier mechanism New taxing right—beyond the arm’s-length principle Allocates a portion of deemed residual profit to market jurisdictions using a formulaic approach Amount A Fixed “baseline” return for marketing and distribution functions, based on the arm’s length principle Amount B Additional return beyond Amount B based on transfer pricing analysis and subject to robust dispute resolution processes Amount C
- 14. 14 Scope Amount A: Newtaxing right Two broad groups of business have been identified as in scope, which: • Can participate in a “sustained and significant manner” in the economic life of a market country, • With or without local physical operations Automated digital services Consumer-facing businesses Activities may need to be segmented to separate in-scope from out-of-scope segments.
- 15. 15 Thresholds Amount A: Newtaxing right De minimis test on the total aggregated group in-scope revenue from consumer-facing activities and/or automated digital services A carve-out where the total profit to be allocated under Amount A does not meet a de minimis amount Group gross revenue threshold Possibly in line with the €750 million revenue threshold used for country-by-country reporting A number of thresholds are being considered but are not yet agreed:
- 16. 16 New profit allocationrules Amount A: New taxing right Determine the total before-tax profit or loss of the group Exclude “deemed” routine profit to calculate a deemed residual or excess profit Treat a total percentage of deemed residual profit as attributable to market jurisdictions Allocate profits between eligible market jurisdictions using allocation key • Use consolidated group financial statements • Consideration is being given to the use of business line and/or regional segmentation • Fixed percentages • Possible variation by market jurisdiction size and industry • A “rough justice” approach • Based on sales generating nexus • Possible variation by business model 1 2 3 4
- 17. 17 Pillar 1: Impactmodelling
- 18. 18 Modelling tool Pillar OneModelling
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- 20. 20 Thank you for joiningus and see you next time!
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