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~ Spotlight On ~

apportionment, which is used by the 50 U.S. state governments, transatlantic economic tensions with Europe that have been
and transfer pricing help decide the tax revenue slice of the papered over as the two continents try to fend off Russian
corporate profit pie that helps finance government budgets. In military aggression in Ukraine and Chinese economic and
the case of the OECD Pillar One, the most crucial part of the territorial expansion. Many in U.S. political and business circles
digital tax formulary apportionment — known as “Amount A” believe the new EU digital regulatory economic framework,
in the OECD‘s tax jargon — is all about how much companies especially the Digital Market Act, to be discriminatory and the
such as Apple, Amazon, Facebook, Google and other “digital OECD Two Pillar tax plan is an extension of its efforts to claw
giants” with $20 billion or more in turnover and a pre-tax profit back digital market share from U.S. companies.
margin above 10% can be taxed for distant sales. For the past
three years, tax experts have relentlessly brainstormed over Meanwhile many EU political and industry officials are
multiple methodologies. In October, the OECD megaphoned a convinced the U.S. Inflation Reduction Act renewable energy
tentative agreement — all 800 pages of it. subsidies, especially for electric cars, will gut Europe’s industrial
model. The tensions bubbled to the surface during an October
Putting the dense, devilish details aside, Pillar One negotiations EU-U.S. summit in Washington when negotiations on a
— similar to the CCCTB failed negotiations — still lack the host of key issues broke down. The economic EU-U.S. divide
necessary consensus because of disputes about winners and extends to Pillar Two of the OECD tax reform plan. It requires
losers. Despite a wide range of economic impact assessments, governments to set a 15% minimum corporate tax rate but
including several by the OECD as well as from other highly is underpinned by a host of complex and, according to some
regarded academic institutions, uncertainty lingers. Some poor experts, confusing factors. The U.S. adopted in 2017 a minimum
developing countries believe they will not be getting enough 10% corporate tax rate under the Donald Trump presidency. It is
of the digital tax profit pie, while other rich countries led by due to rise to 13.1% by 2025.
the United States as well as China and India are worried they
will lose vital current or future tax revenue. Hovering over the But that is not enough for some in the EU who insist no U.S.
OECD negotiations like a black cloud that could burst at any leeway should be allowed until the complete Two Pillar OECD
time is the threat of national digital service taxes on Big Tech plan is implemented. Like angry farmers protecting the chicken
multinationals — nearly all American — that would likely coop, governments led by France and Italy — with strong
trigger a trade war. Fortunately, all but a few of the OECD IF European and national legislature backing — are ready to pull
participating countries have agreed to extend a digital service tax the trigger via a new EU digital service tax similar to ones that
moratorium until the end of 2024. But there are exceptions. No. were either voted down earlier in the EU Council of Ministers
1 on that list is Canada. or were suspended during the OECD talks. “We will call for
a digital tax to be extended to the European level as soon as
The OECD digital tax reform plan will only take effect when possible,” French Finance Minister Bruno La Maire stated
a quota of countries has signed up to a new Multilateral Tax earlier in 2023 when asked about a possible U.S. failure to adopt
Convention. Despite the extended DST pause, the elephant in the OECD reforms by the end of 2024. As for many of those
the room that will make or break the deal is the United States, same European Commission tax experts that toiled so diligently
which is home to a majority of the approximately 100 companies over the CCCTB and its slimmed-down successor, the CCTB?
that fall within the Pillar One criteria. Although U.S. President They have drawn up a new cross-border corporate tax plan called
Joe Biden and Treasury Secretary Janet Yellen have played key BEFIT, which was proposed in September and is designed to
roles in getting the deal close to the finish line, the U.S. Senate is eventually accommodate Pillar One.
a big political hurdle. A two-thirds majority of the 100-member
upper chamber of the U.S. Congress is needed to ratify the The BEFIT scheme has not gone over so well with the EU
new OECD treaty. Considering the Grand Canyon-like chasm corporate sector, which says it is already overwhelmed trying to
dividing American politics, a two-thirds majority is a long way implement a blizzard of recent EU tax law changes, including
off. those designed to fight corporate tax base erosion and profit
shifting as well as VAT fraud. “This has led to misaligned tax
“Unless the U.S. business community gets its act together and bases in the EU, increased administrative burden and significant
lobbies the GOP (the Republican Party) hard, I personally compliance costs for businesses of all sizes to deal with,” stated
believe the chances are way less than 50-50,” Howard Liebman, BusinessEurope, the leading corporate lobby group in the EU.
a senior adviser with U.S. law firm Jones Day and a tax law In less diplomatic terms, the EU business sector has this to
professor in Belgium, said of the chances the U.S. Senate will say about the successor to the CCCTB about BEFIT: enough
ratify a new OECD digital tax treaty. Further complicating already...give us a break! ••
the prospect of a near-term U.S. ratification are simmering

Alan Rhode is a co-founder at Taxmen, the one-stop-shop for legal and tax services to the e-commerce industry.
Joe Kirwin is a US-born journalist based in Brussels.

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