Towards multilateral reform in Digital Service Tax

Marianne Schneider-Petsinger

Hello and welcome to this webinar on Towards Multilateral Reform in Digital Services Tax. My name is Marianne Schneider-Petsinger. I’m a Senior Research Fellow in the US and Americas Programme here at Chatham House, and delighted to be moderating this discussion today.

International tax framework, I mean, it’s been around for about 100 years and really is no longer fit for purpose, and I think the simple fact is that the digital economy recognises way fewer borders than international tax authorities do, and this also has led to concerns that multinational companies and tech giants, in particular, are not paying their fair share of corporate tax. And the entire debate around taxing the digital economy has also now gained even more relevance because of the pandemic. Not only has COVID-19 forced many more companies into the digital space, but also, governments around the world are looking for new sources of revenue to finance their recovery programmes and digital services taxes might be one of those revenue sources.

Now the OECD’s been leading efforts to co-ordinate a multilateral solution, but until recently, progress really have been very, very slow, but the Biden administration’s recent plans have injected new momentum, but at the same time, there’s still a number of countries that have taken unilateral measures. So, we are going to be discussing what’s been accomplished thus far, the level of the OECD, where we stand with regards to unilateral measures, and what we can expect, over the next couple of months and the years ahead.

I’m thrilled to be joined by a distinguished panellist, Eva Joly. She’s a Lawyer and a Member of the Independent Commission for the Reform of International Corporate Taxation. She’s a former Member of the European Parliament, where she was Vice Chair of the Committee of the Inquiry into Money Laundering, Tax Evasion, and Fraud, quite a title there. I’m also joined by Ross Robertson. He is an International Tax Partner at BDO, and previously worked at EY, based in London and New York. And last but not least, we have Dame DeAnne Julius with us today, a dear colleague of mine, she’s a Senior Advisor to Chatham House and a Distinguished Fellow in our Global Economy and Finance Programme, and as many of you will know, she was also a Founder Member of the Monetary Policy Committee of the Bank of England.

Before we get started, let me just say that this session today will be on the record, and it’s being recorded. We’re very much hoping for an interactive discussion, so please use the ‘Q&A’ function to indicate that you would like to join in. I might ask you to unmute yourselves, so that you can ask your question directly to our panellist, but if you prefer to just have me read out the question, just indicate that when you submit your question.

Now without further ado, Eva, let’s start with you to, kind of, give us the lay of the land, if you will. Where are we and what is at stake?

Eva Joly

Yes. Good afternoon, everybody, and thank you for inviting me to this webinar. I’m very happy to be here. I think that the event created by the Biden decision to install a minimum tax of 21% on all subsidiaries, foreign subsidiaries, of American multinational companies is really a gamechanger. We have had a race to the bottom for more than 40 years, and the world has been unable to stop it.

I remember after the 2009 crisis of a President said, “Tax havens are finished.” After this crisis, the G20 asked the OECD to find a solution to stop the benefit shifting, and the OECD was supposed to come up with a solution by the end of 2020. They never did so because the OECD did not do anything that the Americans do not approve. So, it was stopped, and now that Biden gives this instruction and says that he will unilaterally introduce this 21%, this is an historical possibility for the world to change because the OECD has no excuse anymore not to come up with a minimum tax. And the European countries, member of the G20, must make a coalition of the willing countries, the big European countries, Europe, Italy, Spain and the UK, should introduce voluntarily this minimum tax also, and we at ICRICT, we think that 25% would be better than 21, but 21 is still a very good figure.

We should not wait for the small countries to come aboard because Europe, other problem is that there is a lot of tax havens here, and they will never ever give in on the rent they have. They are living on free, stealing other countries’ tax revenues. So, we must make the coalition of the willing and then it is in the common interest of all countries to have this minimum rate, because if they don’t have it, that means that the US will be a tax collector in last resort.

If, like for instance Uber, having 50 companies in Netherland, dodging six billions income in tax, they will have to pay a 21% on their benefit, in spite of that to the US, so the interest of the Netherland will be to have this minimum tax, like it will be the interest of all other tax havens in reality. So this is a gamechanger, it will change the game in Europe, there is no excuse not to go there.

We know that the problem is absolutely tremendous, that the income from a corporate taxation that used to be about 20% of the total resources in the US is now down to 3.9. This cannot go on, and I think Biden has understood that this is the last chance we have, in order to be able to make the transition, the green transition, but also to stop the endless race to the bottom, creating these huge inequalities that are dangerous for other democracies.

Marianne Schneider-Petsinger

Thank you so much for really providing a view of the landscape, the challenges, and also again broadening the, kind of, viewing lens and opening it up within the larger context. But Ross, let me turn to you now. A number of countries have either proposed, prepared, or even actually introduced digital services measures. So, kind of, looking at similarities and some differences, do you see certain trends stand out, and, again, what do you expect for the months and years ahead?

Ross Robertson

Thanks, Marianne. Hello, everyone, great to be here today, and I’ll apologise in advance for my background noise. The next great problem for the OECD to solve is background noise on Zoom, so hopefully we’ll get onto that at some point.

So, I’ll just, sort of, start by saying that there’s certainly, sort of, two counterbalancing efforts that we’re seeing currently. There’s the multilateral effort led by the OECD on the one side, and that’s increasingly splitting into a variety of multilateral measures, which we’ll no doubt come on to discuss with the proposals of the EU and the UN, as well. But then, you’ve also got a variety of unilateral measures coming in across the world, and they’re really reflective of the same pressures that Eva’s just been talking about on both sides.

So, firstly, a view that the current international tax framework is too restrictive and does not cater for a modern, highly digitised economy, and secondly, a desire to raise new tax revenue, and both of those have really been galvanised by the current pandemic. We’ve seen a shift to remote working, which has increased the ways in which businesses are seeking to access the economies of others, through digital means, and we’ve also seen huge hits to tax revenues and to budgets around the world, and therefore there’s a desire, by many countries, to find new ways to raise new tax revenues, to, sort of, build out of the pandemic and ‘build back better’ is a phrase that many use.

And I think that what was a very hot topic, before the pandemic, has become even more so because of those two factors that have shifted the global economic environment. And whilst the multilateral conversations are clearly hugely important, we’re not going to reach resolution on the issue, without also looking at what’s being proposed on the unilateral side. Famously, sort of, creating a lot of trade tensions with the US, with a view that unilateral measures are seen by their design as unfairly targeting US multinational businesses, leading to the imposition of tariffs or the threats of tariffs at least. And I think then you’ve also got this view that’s emerging that the multilateral solution that’s being proposed doesn’t go far enough, for many nations around the world, in particular the more developing nations, in terms of what they need or feel they need, in order to be able to participate in the global economy on a level playing field with larger, more established nations.

And I think that’s really what we’re going to see playout over the rest of this year. As the multilateral conversation progresses, the tension that we’re going to see with, sort of, local countries looking at whether the multilateral solution really gives them what they’re looking for, gives them enough additional revenue potential, and protects their right to introduce measures on a unilateral basis, if they don’t feel that the multilateral solution goes far enough. And that’s what I see as the key tension now because the US has very firmly put its foot down and said, “We want to see a multilateral solution, but we want to see a rollback and a cessation of a – of unilateral measures.” Whereas I think that’s quite a big ask for a number of nations around the world who will be pinning their hopes on unilateral measures as being a way to raise new revenue in a post-pandemic environment.

So how that, sort of, plays out over time will be really interesting, and my personal view would be that we’re likely to see the OECD soon have to acknowledge that there is a place for unilateral measures in a future ec – sort of, international structure for the tax world. But that there needs to be some level of co-ordination of those measures to try and prevent some of the more distortive, higher risk effects that come with what are, by definition, typically taxes on gross revenue and therefore, have the potential for multiple taxation and a really distorted impact on the economic environment. So, I think we’re going to have to see the OECD try to create a, sort of, multilateral digital services tax type measure, in order for us to really get all sides to agree to the future solution.

Marianne Schneider-Petsinger

Fantastic, that was a very helpful overview of the dynamics and the tensions. DeAnne, let’s bring you into the discussion, and again, what’s your view on how this discussion around digital services taxes fits perhaps in the overall context of corporate taxation and also, particularly, you know, how do you see the Biden plan sit with the OECD plans?

Dame DeAnne Julius

Well, thank you, Marianne, and good afternoon, everyone. I’m happy to be here, and be surrounded by tax experts because, as Marianne has said, I’m an Economist by background, not a tax expert, but I have spent the last 15 years of my career sitting on corporate boards of international companies. And one of the downsides of that is that I’ve spent a lot of time on audit committees debating tax planning issues, debating just where one should locate certain activities, in order to be legally consistent with the current regime of business taxation.

So what I’d really like to do is to make sure that our discussion looks a little more broadly not just at digital taxes, but at the system right now, the current system, which I think is – we’d all agree is highly complex, it’s economically inefficient, in that it causes companies to do things that they otherwise wouldn’t, if it’s just a matter of serving their customers, and politically unfair, as Eva has said, because it allows companies that have international operations to benefit from tax havens, rather than paying the taxes that they actually should be paying, in the countries where they operate. So, I’d like to just elaborate by saying that I think this problem does go beyond the digital industries, beyond digital companies. It’s essentially this general mismatch between the location where profits are made, and the location where the economic activities of global businesses occur, and that indeed is roughly what the OECD used as its definition when it embarked on the studies that Eva has mentioned.

This mismatch is particularly prevalent in internet companies, but they, in my view, are a subset of companies where intellectual property makes up a large share of the value added that that company provides. Now, of course, that is indeed very true of companies like Google, like Apple, I think, in fact, Apple had a slogan for a while saying, “Designed in California, manufactured in China,” and when you looked at where Apple pays taxes, it certainly wasn’t in China, even though that’s, of course, where a lot of their sales happen.

But it’s not just the platform internet companies, although I think they’re probably the extreme example. If you think about intellectual property in pharmaceuticals, something which, during the pandemic, we’ve all become even more familiar with than we were, there too a great deal of the profit is due to the intellectual property, the embedded research, in fact the failures of other research that led to the eventual success, and many of the country – many of the companies that produce pharmaceuticals, sell a very small proportion of what they produce in the country that they’re located in. I have experience from the Roche case, for example, where it’s only about 3%, at least when I was on the board, of their sales happen in Switzerland. They’re a global company, they’re one of the top ten pharmaceutical companies.

So, this kind of mismatch really goes far beyond the digital arena, and I would also mention those kinds of companies in the luxury sector, where branding is their intellectual property. You’re certainly not – if you’re in China, you’re not buying a plaid raincoat from Burberry because it’s so difficult to produce plaid, it’s because it’s such a fashionable item, and of course the quality of it. So, it’s luxury companies, it’s also artistic productions, the whole model of Netflix, of Spotify, not to mention the fact that Bob Dylan recently sold his back catalogue for reportedly, $300 million. This is intellectual property, and it’s more and more important in the global economy.

Digital is one part of that, and that’s particularly why I think one of the – for me, one of the novel elements of the Biden-Dylan plan is that it is not focused just on internet companies. It is focused on large global players of whatever sector that fall under this rubric of being able to profit shift quite easily. So, I think that’ll be one of the interesting elements of the debate because in some respects, the Biden proposal is a broadening of what the OECD came up with, in terms of scope, but it’s a narrowing, in terms of the size of company that it will impact, and I hope that in the discussion, we can get into some of those questions. Thank you.

Marianne Schneider-Petsinger

Thank you. Again, terrific setting the scene there, but if I – let me give you the opportunity to perhaps respond to some of the things that Ross and DeAnne put on the table, perhaps in particular, again, the perspective of the US and key European players, and also, beyond that, what do you see as the kind of key countries that might be supporting it, but perhaps also opposing the plans that the Biden administration has put forward? You’re still muted, Eva. Perfect.

Eva Joly

I hope you hear me now. Yes, the key players must be the big European countries, and they must support this measure. This is what they have promised, I mean, over Minister of Finance, he says that he agrees to a minimum tax, there is a discussion about the level, and here, I think the tension we will have will be on the level of the minimum tax.

Inside Europe, you will have many countries who don’t want things to change, I mean, like Ireland, Netherland, Luxembourg. They will want a very low tax, like 12, 5% or 13, so, here, we must not let them – they are – I mean, they do not represent a lot of inhabitants in Europe. They do not represent an important GDP, but they have been successful in getting a rent by this [inaudible – 21:19]. We must sideline them by the coalition or the willing and that must be France and Germany first, that has been the victims of this aggressive tax planning, and I think also Spain, they have said that they will come onboard, and Italy will come, I am sure, and then Portugal and other countries that has suffered. And I think once you have the willing, that can introduce unilaterally in the day of sovereignty this minimum tax on – for their companies, and then we can hope that the others will come, and we will have a critical mass, and this subject is also very much supported by the public opinion.

I mean, as Ross said, the COVID epidemy has given a lot of actuality to these issues, but this – the public opinion, thanks to Tax Justice Network, or to CICTAR in Austria, are very much aware of how unfair the system is, and it creates a lot of democratic problems that you – that huge companies, paying thousands or ten thousands on Lawyers, in order not to pay taxes, that issue really has always been for me and also a moral problem.

So, to see that this comes to an end, I think that that would be really something very good happening to the world. So, creating this critical mass by sovereign states taking unilateral steps before it becomes a recommendation from the OECD, because I think inside the OECD, you have also a lot of tax havens. And you have the UK, I don’t know what position they will take, because they are the head of a web of tax havens that has been very important for the UK economy.

So, here I think that Boris Johnson has a card to play, with the others, in order to improve people’s life and now to stop giving in for them – for the lobbying of the multinational companies, and they know that they are very powerful, and they will lobby a lot. And we must train people in recognising the words they are using, they will tell us that this reform will not be good for, I mean, low-income countries, and so on, so we have to do also lobbying of the willing here.

I think that the – we will come at the end for a multilateral digital service tax, but waiting for that moment to come, I think that having individual digital service tax put the pressure on the system to get the multilateral solution, and the request of the US before starting the negotiation to give in on this, is not acceptable, I think.

Marianne Schneider-Petsinger

Ross, I mean, many countries are not participating in the discussions at the OECD. So, what does that mean for, again, those not at the table, developing countries in particular, and there is also movement at the UN level where discussions are taking place, so do you see that there is tensions developing there? Is there going to be a divergence between, you know, different approaches?

Ross Robertson

Yeah, I mean, so, if I address the second point first around what we’re seeing from the UN, and I’d also put some of the EU conversations in a similar bucket, that the multilateral conversation at the level of the OECD is progressing more slowly than many would like. I think that is a function of quite how complicated and how seismic some of the changes would be to the international tax system, but we’re seeing that result in a fracturing of the global effort into different ways of trying to achieve the end means. And I think the UN’s approach of trying to come at it through the tax treaty and a broadening of the right to apply withholding tax on the provision of digital services, in a much broader way than the current treaty network applies is, in many ways, a simpler approach than what the OECD is proposing, but it also carries its own complexities with it.

And I know the business communities is not generally in favour of what the UN is proposing, because of the breadth of measures that would become subject to – or the breadth of services that would become subject to withholding tax being viewed as potentially going beyond where the issue really lies. So I do think that we’re going to see some continuing tension around that, and that tension will increase the longer it takes the OECD to try to get to resolution, and as Eva said, the unilateral measures are doing a job of putting pressure into the system, that is for sure, and trying to move us further forward.

I think the topic of the developing nations is going to be a really important one. I think there’s a lot of focus, and we’re starting to see it playout through the COVID narrative, as well, of vaccine distribution not being equal amongst wealthy and developing nations. So, I think there’s going to be increasing focus on ensuring that whatever international tax system is built, is built for all and not just built for the wealthy nations.

Clearly, the likes of the US, the EU, and China will have very powerful voices in the debate, but I think ignoring the developing nations is just kicking the can down the road, and we’re going to see another issue evolve in the future. And we may be ending up having another conversation about a fundamental reform of the international tax system, in ten or 15-years’ time if we don’t properly address the needs and desires of the developing nations. And I think those needs and desires are twofold. So, on the one hand, there’s a question of simple revenue, how much revenue do they stand to gain from these proposals, but on the other hand, there’s also a question of administration.

A lot of these countries do not have large, sophisticated tax authorities that are able to administer complicated regimes. So, they’re very much pushing for simplification of the OECD proposals, which in places read like an economic thesis, to be honest, they’re – it’s difficult to see how a number of countries and companies around the world could administer them in a fair way, and I think we shouldn’t lose sight of the fact that yes, we want to achieve global redistribution, but it can’t be at any cost. We need these businesses to be able to continue doing what they’re doing to drive economic growth and support their local economies, and yes, tax is an important part of that, but we can’t put such burden on them in just trying to comply with a complex regime that they’re distracted from their day jobs.

Marianne Schneider-Petsinger

Thanks so much, and I’m going to start bringing in some of our audience members into the discussion, we have our first question from Lesley McKinnon, who wants to know “What does Biden’s proposed tax reform tell us about a change in relations between the US Government and big corporates more broadly and what domestic challenges might we see through Biden’s proposals?” DeAnne, I’m going to put that to you first, but if Ross and Eva want to come in, please do so. DeAnne.

Dame DeAnne Julius

Yeah, thank you. I think – I mean, the Biden proposal, looking at it from the perspective of that questioner, is really quite novel, quite innovative, I think, because a large number of the elements of his proposal really are aimed almost entirely at US corporations. And of course, the US Congress can only effect taxes on its own corporations, so that elements of his proposal, such as equalising the rate of tax on capital gains for individuals with what they earn – what they pay on their income is something which gets right at the core of whether an economy wants to tax capital, as well as labour. And I think in the US case, that particular element will probably generate more discussion, more conflict, and more aggression on the part of US business than the idea of a global minimum tax. I think the idea of a global minimum tax, from the point of view of many US companies, including the very large ones, is important, it’s something that some of them will object to, but it’s not nearly as fundamental, from a political point of view in the US, as are some of the other elements of that Biden proposal.

I think the – the other element that I think is really quite interesting is that if there’s a – no agreement really on a global minimum tax, the Biden proposal, as I understand it at least, does include elements whereby the US tax authorities can tax the overseas earnings of those companies, the overseas profits of those companies, as though there were a minimum tax.

There’s something called the alternative minimum tax for individuals in the US, which I’ve paid in the past, and I think what they’re trying to do is to come up with something similar for corporations, so that even if you have all these deductions because some of your profitability is taxed in tax havens, nonetheless, you recalculate the tax as though those loopholes were not there. And if that were the case, you’d pay a minimum tax to the US on that, sort of, normalised profit situation. So, I think that the Biden administration is trying to negotiate both internally, where there certainly will be opposition to many of the elements of the tax plan, but also internationally, by linking this element of the consumption tax in other countries, consumption-based tax on part of the profits earned in those countries, with the global minimum tax, the Pillar One, Pillar Two part of the OECD proposal. It is an extremely complex negotiation going on, at many different levels, so it’s hard to predict where it’ll come out.

Marianne Schneider-Petsinger

Thank you, that was extraordinary. There is one question from Rebecca Duggard that I think is probably mostly addressed to Eva. “What challenges within the EU could Eva’s proposed unilateral approach to tax reform create and how could they be resolved?” Eva, please. And again, please unmute yourself.

Eva Joly

Yes. The problem within the Council in the EU is that you need unanimity to change the tax rules, that is a weakness of the treaty, and so there will be huge discussions. But I think the mix between the pressure of the public opinion, of the American minimum tax, will create the impossibility not to introduce these rules within the EU. It will not be easy because Ireland will really camp on their position of keeping a law of minimum tax of 12 and a half, and they will be joined by the Netherland, Luxemburg, Malta and Cyprus. But I think this time, the alliance between the willing states within the EU, the big countries, and the OECD and the Americans, will make it – they’ll make it happen.

You know that the texts are ready, and they were voted in, I think was it 2018 called the CCCTB, and there were no minimum tax voted, but we lost the vote with three voices, so that can be corrected in the trialogue. So, I think that will happen, and maybe it will happen quickly because Europe will need badly public resources. They are behind, they are largely behind, unfortunately, now in growth from what is – what we are seeing elsewhere in the world, and that is also because of their prudent plan of freelance. In Europe we only have 750 billion, while the US have five trillions.

The US are engaged in 25% of their GDP, totally in the coming years. They really want these changes to happen. They really want to create better life conditions for the poor, and they want – they will create better infrastructure. Here, Europe, it’s much better equipped than the US, so they have also a longer way to go, but this creates huge, huge changes, and I do believe that if France and the – and Germany takes the lead here – and we can also hope that in Germany, they will get a green Councillor in this bottom, and the greens are in favour of this minimum tax and they will be able to work along with the other European countries. It is not easy, because we don’t have the legal binding way to oblige member states to change the rules, but I think it will be like tidewater, it will be irresistible.

Marianne Schneider-Petsinger

Ross, I know you wanted to come in, in this discussion, but also perhaps a second question for you directly to answer and others to come in, as well. To what extent – you know, is it really political will that now needs to move forward the discussions or is it really about very technical discussions that need to move the needle?

Ross Robertson

Sure. So, just firstly picking up a bit more on the EU piece. I think one of the things that’s interesting about the EU is, as Eva says, there is the challenge of unanimity required to move forward with tax measures. But the EU also has the advantage of potentially being able to come up with different and crea – more creative ways of raising own revenues to fulfil budgetary needs. And I think that we don’t hear the carbon border tax talked about in the same breath as taxes on the digital economy, but I think they are, in many ways, replaceable one with the other. And I suspect that if the EU were to, for example, seek to move forward with a EU-wide digital service tax or a digital levy or something of that measure and that got blocked because of lack of unanimity, I think the EU could fairly easily pivot towards recouping those lost revenues through a carbon border adjustment tax because it’s a very valuable trading block for a number of territories around the world. And basically, imposing a tariff on access to that trading block, in the guise of a carbon adjustment is, I think, very politically clever at the moment because it’s very difficult to argue against an adjustment that is, at least on the face of it, seeking to address climate change.

It would take a brave leader of a nation to say, “Actually, I don’t support that,” and I think with the Biden administration being as focused on climate change as it is, it would be hard for Biden to stand up and say, “Actually, I think that that is detrimental to the US interests and therefore I’m not going to support that.” So I suspect we’ll see a bit of jockeying around what the source of the revenues is, and I suspect, when push comes to shove, the EU may not care that much, so long as it gets access to revenues that create own resources for its budgetary needs.

And then in relation to the second point that you asked, Marianne, around is it political will or is it technical? I think it’s a bit of both. But I think fundamentally, it’s going to come down to the political negotiations of how far different nations around the world are willing to go to solve this issue. And there’s going to need to be a recognition that all sides are going to need to capitulate in some respect, and not everyone’s going to get what they want. We are talking about as a zero-sum game with a reallocation of value around the world, at least in the case of Pillar One. I think Pillar Two is an easier job to get over the line in principle, but as I think Eva and DeAnne have both said, and the question is what is the rate that is going to, sort of, satisfy the political appetite?

And I think what’s going to play strongly into that is the role of innovation incentives, so there’s a lot of economic research out there about the role that investment plays in driving economic growth and innovation incentives support that investment. I think in some areas, innovation incentives have been seen to be used in a, sort of, ineffective or artificial way to try and attract businesses into a particular territory, and that manifests in patent box regimes, innovation box regimes and the like. And I think the really interesting part of the debate around what the minimum tax rate is going to be is how broad that is. Is it a true minimum tax or is it a minimum tax subject to certain exceptions for innovation incentives? And if it’s a true minimum tax, how do you still find a way to support innovation, given that it’s so important to driving economic growth? If it’s not a true minimum tax, and there will be exceptions for innovation, then what criteria do you put around those exceptions to ensure that they’re seen as being valuable and useful in the global context?

Marianne Schneider-Petsinger

A lot of questions that still need to be answered. One of the participants is asking particularly about the implications for the UK of these tax reforms and what the UK role should be either in supporting them or not. DeAnne, do you have any thoughts on that?

Dame DeAnne Julius

My thought is I think we should bounce that one over to Ross, but before I do that or suggest that I’d like to just respond to a couple of things that he’s just said. I think the – this is one of these cases where the best is the enemy of the good. We are definitely not, either at the OECD or anywhere else in the UN, going to solve the problem of what I’ve characterised as the role of intellectual property, or one may even think about it as innovation, as it affects international trade and investment and international taxation.

I think that what we need to think about here is trying to pick either what might be low-hanging fruit, and I agree that the minimum, global minimum tax is probably easier to come to an agreement on than the basis for consumption taxes, although I think that – personally, I think the second is more important, and we should really consider what is the next block in this – the next brick in this wall. You know, we are going to be arguing about taxation, we, our governments, are going to be arguing about this ad infinitum.

The argument is particularly strong now because of the pandemic and the deficits that governments are facing, but I’m not sure that it’s right to think of it in terms of an either/or. Either we work on digital taxation, or we work on carbon border adjustments. Certainly, from an economic point of view, I think carbon border adjustments are both technically more difficult and more – and have the potential for – to be economically more damaging as a protectionist device, but I think that’s an argument for those of us who are Economists, and maybe some in finance ministries. It’s not really an argument against trying to make progress on both, because I think progress is going to be slow here.

It seems to me that in terms of the international business – the corporate business tax debate, we’re at the threshold of making a – making major progress, and I think this is a point that Eva was making, as well. You know, we’ve come actually quite a long way in doing all the research, in doing a number of scenarios, we have a lot of data. And we have a couple of gamechangers, one being that the US game has changed, not only do we have a President in the US who wants to move in this way, but he’s actually put on the table a bigger game for the rest of the world by saying, “It’s not just digital companies, we’re willing to apply this to big companies generally across other sectors, as well,” and that’s where the US has more to lose than if it’s simply an argument about digital companies.

And then, of course, the second gamechanger is that everybody does need more revenue right now, wherever they can get it, and this is, you know, one of those cakes that’s just about been baked and we need to get it out of the oven, put the icing on, and go with it, even though it’s not as big a cake as we maybe would have liked. Doesn’t solve all our problems.

Marianne Schneider-Petsinger

Thanks, I think you raised a very, very important point, DeAnne, let me just say that Economists have disparaged, you know, digital services taxes for raising relatively little income. The French Government, for example, estimates that its digital services tax would only raise 400 million in 2020, which based on 2019 corporate tax revenue, would amount to less than 1% of corporate profit taxes, so, again, we have to keep that in perspective. But Ross, let’s come back to you now on that question of implications and the role of the UK in all of this.

Ross Robertson

Yes, so I think the implications differs, depending on exactly what we’re talking about, so if we talk first about Pillar One, the attribution of income to member nations or to destination countries. That is essentially a question of, are you more of a hub territory or are you more of a market? And I think the UK is both. There are some large multinational enterprises based out of the UK who would, you would expect, lose, or the UK would lose revenue, in respect of a reattribution of part of their profits to their customer jurisdictions, but equally, the UK is a reasonably sizeable market in its own right. So, I think it may be relatively balanced, from the UK’s perspective. I think there are other nations that would be much more strongly affected by that. I think the likes of Germany, in particular, which is a very strongly export-driven market, would see more of a loss. So, it’s – I think it’s going to come down to that question of is it a hub or is it a destination territory? And I think the US – the UK, sorry, probably sits pretty central in that.

In terms of the global minimum tax, my view on this is it’s a function of what the rate is set at. So, broadly speaking, I’d expect a minimum tax rate that’s set above a domestic tax rate to result in loss of corporation tax revenue to the local market. And there’s been some studies done, in respect of Ireland in particular, of what the impact of a 21% minimum tax rate would be for Ireland, if that were brought in, and it suggested 20% loss in corporation tax revenues for Ireland, as a result in shifting policy decisions or strategic decisions of businesses in response to that. I think the UK, with a current rate of 19%, but due to go up to 25%, if the minimum tax rate is set at anything less than 25%, then I wouldn’t expect there to be any real significant impact on the UK in relation to that.

So, I think where that positions the UK is that the UK can be a reasonably neutral head, in these conversations and just try to work towards something that makes sense at a global level, that is administrable by taxpayers and tax authorities alike, and seeks to achieve a fair outcome.

Marianne Schneider-Petsinger

Great, and doubly great since you’ve already answered one of the other questions that was focused on the implications of the reforms for Ireland, I’m not going to come to criticising you on that, but again, thanks for being so on top of that, Ross, and covering that already. Eva, again, coming to you now on some of the, I guess, you know, forward-looking things that still need to be tackled. I mean, how optimistic are you ultimately that a breakthrough can be reached at the OECD and to what extent, you know – do you see that happening anytime soon, what’s the timeline that you’re looking at?

Eva Joly

Well, I am rather optimistic, and I hope that the G20 meeting in July, chaired by Italy, will achieve consensus already, and that it can be put in place by the different member states this autumn. And I do hope that Biden gets his reform through in the Congress because that is still not done and could be difficult maybe. So, I think that if things goes well, the OECD would have no more reason not to recommend a minimum tax of at least 21% by the end of this year, and then they will be one year behind what they had promised.

In a way, you see, the King is naked. Now, everybody was able to hide behind the offer of Mr Trump, and they could say, “We are not moving on this minimum tax issue, as long as he is there.” Now we have Biden and he has given the top, he gives the 21%, so there is no reason now that the OECD should not achieve, and all the hesitations that we could see in France, for instance, I think that they are not sayable really, and that the public opinion is really waiting for this.

I also wanted to say a lit – give a little comment on the European border carbon tax. I think that has a very strong initiation, initiative, to have access to the market because you noted probably all that when this was voted in July last year, at that time, China hadn’t decided, hadn’t committed, to be carbon neutral by any time. And probably, in order not to have to pay this tax, because this tax will be higher for people that has not decided to lower their carbon emission. China ag – China complied, or they said that they will be carbon neutral by 2060, ten years later than the others, but they have taken the engagement, and for me, this is the major diplomatic victory of the – this border carbon tax. And I do not believe that this carbon tax can replace a tax on corporations, on the national corporations, that we really need, and the outcome for every country will be high, I believe.

Marianne Schneider-Petsinger

Thanks. DeAnne, let me pose the same question to you, what do you see as the prospects for reaching multilateral consensus on this issue in the near-term?

Dame DeAnne Julius

Well, I think I take the same view as Eva in a way, that it’s going to be a coalition of the willing. Now, whether there can be enough willing across the OECD membership, she has a – she’s closer to that in Paris than I am here in London. But, you know, we’re having the G7 meetings in – here in the UK in June, that’s very soon, and I’m, you know, reasonably confident that this is one of the items on the agenda, the global minimum tax and the OECD proposal.

I think the – with Biden, there is a definite preference that something concrete comes out of the G7 meetings, and this would be a very concrete step. Even if, in the end, it doesn’t lead to immediate agreement by all of the countries of the OECD, it would still be an important step that says that, you know, the large – these large seven countries at least, and of course China’s not there, India’s not there, well, I think India may be there as an observer, but in any case, that these countries, which are the home countries of many very large international companies, if they agree that there should be a global minimum tax, at least as a best practice benchmark that other countries can be measured against and can be shown up if they’re not complying, I think that would be a very positive step and not impossible to agree very soon because we are talking about, well, a month from now. I’m sure that discussions are underway now. I think the prospect of an agreement, a universal agreement at the UN is a long, long way away, but it may be another step on this long road to sorting out the problems that we have with global company taxation.

Marianne Schneider-Petsinger

Yes. Eva, please, yes, you wanted to come in on that one again.

Eva Joly

Yes, I want to comment on the UN convention, tax convention, and to make reference to the UNCAC, to the UN Anti-Corruption Convention. You know, it was negotiated I think it was in three years, and it went into force within five or six years, so it was rather quick. It – and it didn’t cost that much, I remember because Norway, where I originate from, did finance the Secretariat at the time, and I think it was $2 million to get this convention up and stand. So, I think it should be possible, it is such an important issue, and it’s absolutely true that the OECD is not a proper forum because the developing countries don’t have strong voice here, in spite of the inclusive framework, which is a progress, but it’s not good enough, and I think that we should really start working on the UN tax convention.

Marianne Schneider-Petsinger

Thanks for jumping in on that, but, Ross, again, do you share DeAnne and Eva’s overall optimism, and even if there is a consensus reached at the level of the OECD, do you think there’s still going to be remaining stumbling blocks? So, for example, you know, how would the current unilateral measures be phased out, is there a mechanism envisioned for that, are there still going to be issues around double taxation? So, what are the, again, ongoing hurdles that we might be facing even if a consensus is reached?

Ross Robertson

Yeah, so I wouldn’t necessarily call myself an optimist, but I’m a realist in that I think that the issue is there and it’s not going away, and so one way or another, it needs to be solved. I think that puts pressure in the system to find a solution. I think that the solution would be easier to achieve if a decision was taken to detach Pillar One from Pillar Two. I think it’s likely to be easier to get Pillar Two over the line quickly than it would be Pillar One, personally, but I know that there’s a number of nations that are fundamentally opposed to detaching the two, they see them as part and parcel of the same package.

But I think if you look at it in terms of impact, I think Pillar One sets a – sends a message about the me – the taxation of international businesses, which of course is important, but it’s a relatively insignificant economic impact compared to Pillar Two. So anywhere between $400 and 500 billion of global profit, subject to reattribution, let’s say we’re talking about 150 billion of global corporation tax that shifts as a result of that, not big numbers in the context of global taxation, but it sends an important message.

I think that we’ve got the inherent tension though between the EU and developing nations who want to see the scope of Pillar One go broader, and the US saying, “Okay, let’s have it applicable to all businesses and let’s not ringfence it to digital businesses, but let’s set the threshold at such a level that only 100 companies in the world are subject to it.” I think those are very much competing against one another, and we’re going to have to see some compromise, but that feels harder to reach compromise to me on because that’s a zero-sum game where there are winners and losers, whereas Pillar Two, in principle, everyone’s a winner because it just raises the bar of taxation for everyone. So it’ll be interesting to see if we get the detachment of Pillar One from Pillar Two.

In relation to unilateral measures, I think that – I mean, I said it earlier, I personally can’t see an outcome, which results in unilateral measures being banned unless the scope of Pillar One broadens immensely. Because I just think it’s too big an ask on constrained fiscal purses at the moment to try and say to some of these smaller, more developing nations, “You have to buy into this global approach, but by the way, you’re not going to be allowed to implement unilateral measures to support your own tax revenues.” I just can’t see that getting over the line at the moment, based on how Pillar One is currently shaped.

So, I think we’re going to see unilateral measures persist, but what I’d hope is that they become more coherent and co-ordinated in their implementation. So, at the moment we’ve got 50 countries, by my count, that have implemented something on a unilateral scale, and they all look different. It’s an absolute nightmare for businesses to comply with, so I’d like to see some sort of uniformity brought to the unilateral measures, and there, I think, the OECD can play a role in driving a multilateral conversation around digital service tax and digital levy type measures to complement Pillar One and Pillar Two.

Marianne Schneider-Petsinger

Thanks so much. I’m going to have to wrap up the discussion, I’m afraid, but I would like for each of you to just very briefly, 30 seconds or so, say what else you think is really needed to make the global corporate taxation system fair, more balanced, and also more accurate. Eva, let’s do – start with you, then DeAnne, and Ross.

Dame DeAnne Julius

Ooh, there are so many faults that need to be remedied, and I think we’re approaching them with lots of different arrows and different directions. Hard to predict what’s going to come through, but I guess what I’m most optimistic about is that there is so much action and interest in this subject right now. And it is driven by real things, as Ross pointed out at the beginning, by the pandemic, and by the change in administration in the US.

There is an appetite to see some co-operation at the international level, and something that is in tune with voters’ interests right now, and big business is not very popular amongst voters. Something that appears to hit big business, and at the same time actually causes them to pay more of a fair share towards what’s going on right now, particularly in this environment where profits are very high of most of the big companies right now, particularly the internet companies and the intellectual property independent companies.

So, it’s a good time to do things, and I really hope that we can take advantage, they can take advantage, the leaders can take advantage, of the – the alignment of the stars, even if what they achieve is a long way from what any of us would really think was perfection.

Marianne Schneider-Petsinger

Eva.

Eva Joly

Me, yes. Now, yes, I am confident that the G20, the OECD, Europe, they will achieve this minimum tax, for the reason that we have developed. But I think that is not sufficient, and I think that we should also start working on a capital tax, not only for individuals and rich individuals, but also for companies, because what we see is that, for instance, Facebook or the others, the leaders are not taking out income, they are not taxed on their income, and it’s not their wealth. So, the only way to tax them, while the wealth has increased tremendously during the crisis, is to tax the capital also of companies.

Marianne Schneider-Petsinger

Okay. Ross.

Ross Robertson

So, I’ll be very brief. I think we need a tax system that’s more transparent, simpler, and provides greater certainty for business. I think if you achieve those three things, then everything else follows.

Marianne Schneider-Petsinger

Very succinct, but at the same time, very ambitious, and I have to say, I don’t think I’ve recently been on a panel that’s been so optimistic and that a word ‘a gamechanger’ have come up so many times, it has been tremendous. Thank you all three, DeAnne, Ross and Eva for joining us and thank you also for our audience for your active participation in this discussion. Thank you so much, and we hope to welcome you back soon.