Friday, July 5, 2019
Itai Grinberg (Georgetown) presents Stabilizing 'Pillar One': Corporate Profit Reallocation in an Uncertain Environment at the annual summer conference on Taxing the Digitalised Economy: Closing in on Reform (program) today at the Centre for Business Taxation at the Saïd Business School, University of Oxford:
This paper is about how the world reestablishes international tax order.
The paper focuses on the OECD’s work on profit reallocation and asks whether this multilateral effort can be successful in stabilizing the international tax system. The analysis centers on the current leading concepts for reallocating profit among jurisdictions under what is known as “Pillar One” of the OECD work programme. To analyze whether any Pillar One concept can be turned into a stable multilateral regime, it is necessary to specify certain elements of what a proposal to reallocate profits might entail. Accordingly, this paper sets out two strawman proposals. One strawman uses a “market intangibles” concept that explicitly separates routine and residual returns. The other strawman might be described, in current OECD parlance, as a “distribution-based” approach.
This paper analyzes whether either of the two strawmen could be agreed and stabilized multilaterally given the tools of the modern structure for international tax diplomacy. I conclude that the current procedural and institutional architecture for cementing international tax relations among states is inadequate to stabilize either of the strawmen. Nevertheless, with certain changes, reestablishing order may be possible. Moreover, I conclude that there are six key structural decisions that impact the ability to stabilize the international tax architecture in any Pillar One approach, and that these decisions are likely to be implicitly made in the course of choosing a political direction for Pillar One work. Therefore choices made in 2019 with regard to these six decisions are likely to determine whether or not it will be possible to stabilize Pillar One. Even if good resolutions are reached along these six dimensions, there are only a couple paths to reach a stable Pillar One outcome. One path to potential stability would involve using every tool in the current OECD arsenal in new and more expansive ways, and then substantially depoliticize international tax matters and remove G20 involvement, such that logics of appropriateness developed among tax administrators isolated from political pressures and acting through transnational networks could lend stability to a new set of rules and principles. Even then, only certain Pillar One compromises can be stabilized this way. The alternative path, which could stabilize a broader range of proposals, requires formalizing the new regime in international law through a true multilateral treaty.