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US proposes opt-out from OECD's new transfer pricing and nexus rules

Thursday, 5 December, 2019

The US government has suggested that it could retain its own international taxation rules rather than accepting the OECD's efforts to reform the current global standards.

The OECD is promoting international negotiations aimed at reaching a multilateral agreement on digital taxation, so that large multinational enterprises that conduct business over the internet cannot assign their taxable revenues to low-tax jurisdictions.

According to OECD president Angel Gurria, the international tax system is 'under intense strain' and a global solution is needed quickly; to stop individual countries launching 'a proliferation of unilateral measures' that will tax digital companies' gross revenues in each jurisdiction, rather than taxing their net profits. France, Italy, the UK and several other countries have already announced such taxes.

Instead, the OECD wants a stable international tax system that 'avoids double taxation and taxes net rather than gross income'. It hopes to do this by reforming the existing 100-year-old rules on arm's-length transfer pricing and permanent establishments, and by setting a minimum rate of corporation tax calculated by an income inclusion rule and a tax on base-eroding (profit-shifting) payments. A provisional deadline of January 2020 has been set for reaching an outline agreement.

However, the 135 countries engaged in this process have not yet been able to agree the reforms. There are significant differences between the positions of the US, which is home to the largest digital companies, and Europe, as well as the developing world.

In the latest development, US Secretary of the Treasury Steven Mnuchin has told the OECD that the US has 'serious concerns' about moves to abandon existing taxation structures, which could have severe financial impact on the larger digital players, as well as the jurisdictions where they are domiciled. Instead, he proposed they could be addressed by creating a 'safe-harbour regime', which would allow US companies to opt out of the final international agreement, as long as they play by Washington's own international tax rules.

In his reply to Mnuchin, Gurria objected that this was the first time the 'safe-harbour' proposal had been suggested, although several consultations have been conducted. Raising it now might prevent the 135 countries participating in its so-called Pillar One process from reaching agreement by the January 2020 deadline, he warned. He has now invited Mnuchin to visit Paris for talks with himself and French Minister of the Economy and Finance Bruno Le Maire before Christmas.



Submitted by Jason Tian on Fri, 06/12/2019 - 06:28

USA is gradually disengaging from the rest of the world. Maybe that is their strategy of attracting foreign investment, like what they have done with CRS.