Simon Webber, Managing Director, and Andrew Cousins, Director, in Duff & Phelps’ Transfer Pricing practice, were featured in a Law360 article titled, “Some Details Arrive In Global Tax Overhaul, Yet Scope Still Vague,” discussing the OECD's latest report on the blueprint for its global tax overhaul. This report includes proposed rules that would look beyond physical presence to determine a country's right to tax corporate income in some cases. It contains blueprints for the two-part revamp of the international corporate tax landscape.
Most of the sticking points center on the proposal's first pillar and second pillar. Pillar one involves a new taxing right called Amount A that would reallocate a portion of companies' residual profits to market jurisdictions and Pillar two calls for global minimum corporate taxation.
In view of the new proposed rules, Andrew commented, “I think initially, while you've got a brand-new system being overlaid on the existing system, you're inevitably going to have a huge amount of complexity until the application and interaction of the competing systems are all resolved."
Further, Simon gave the example of a U.S.-based multinational with foreign affiliates performing supporting activities for a service fee. “Those entities aren't booking revenue earned from customers in that country, and all of the residual profits are being taxed in the U.S.,” he said.
"Some of those residual profits are now going to be attributable through this new taxing mechanism to the local countries," Simon added. "One of the questions that the OECD is aware of, and wrestling with, is what countries should do about that intersection and relieving the related double taxation of those profits."
Speaking about the risk of double tax that exists in any system, he said, “but the issue here is that we're going into a period, where we're going to have more complexity and uncertainty rather than more simplicity and certainty."
Simon also compared the OECD's overhaul to the 2017 Tax Cuts and Jobs Act in the U.S., legislation that "was meant to simplify everything and actually just added another couple of thousand pages to the tax code."
Law360 subscribers can access the full article here.
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