Thursday, August 5, 2021
Ruth Mason (Virginia; Google Scholar), The 2021 Compromise, 172 Tax Notes Fed. 569 (July 26, 2021):
A year ago, I published an article arguing that the OECD/G-20 base erosion and profit-shifting project left international tax at a crossroads with a few obvious alternative courses — more multilateral cooperation, increased unilateralism that would threaten the gains of BEPS, or a reversion to a predominantly bilateral regime [The Transformation of International Tax, 114 Am. J. Int’l L. 353 (2020); see also Symposium On Ruth Mason's The Transformation Of International Tax]. The agreement in principle on pillars 1 and 2, announced July 1 in a statement by 130 of the inclusive framework countries, suggests that countries overwhelmingly prefer multilateralism over the other options.
This article offers initial reactions to the agreement and seeks to contextualize it into larger debates. ...
The countries released the statement on July 1 to meet a self-imposed deadline. The United States and France have been threatening each other with digital taxes and retaliatory tariffs. Despite leaving some issues open, the July 1 statement signals that the countries have not failed and won’t — at least for now — descend to trade war. But they have set for themselves another impossibly short deadline (the October G-20 meeting in Venice) to work out the details of the proposal. And implementation of the proposals described on July 1 will depend (at least from the U.S. perspective) on treaty partners dropping their digital taxes.
The U.S. Senate recently proved that it is still capable of ratifying uncontroversial treaty protocols, but who knows what the evenly divided Senate will make of nexus on demand. Finally, whatever details the countries eventually hammer out on pillar 2 will require a significant derogation to accommodate GILTI (and, if the Biden administration has its way, a SHIELD (stopping harmful inversions and ending low-tax developments) that differs from the OECD-contemplated undertaxed payments rule. Thus, the July 1 statement is an important marker, but significant issues remain outstanding.