Taxing the Digitalization of the Economy: The Two Pillar Approach
The OECD is pushing one of the biggest reforms of international taxation in history. Policymakers must take the concerns of the business community seriously. Regarding the reallocation of taxing rights on corporate profits, maintaining the competitiveness of businesses must be the guiding objective of the reform. Hence, a level playing field must be created. It must be ensured that the new taxing right and profit allocation rules are only introduced if they are implemented uniformly by all participating jurisdictions. Additionally, it is not enough to just reallocate profits to market jurisdictions, but it must be clearly and legally certain which jurisdiction forfeits the right to tax the reallocated profits. The latter is not sufficiently addressed in the current design of Pillar One. Without clear rules on the avoidance of double taxation, there is a risk of dispute among various jurisdictions over tax revenue. This would ultimately lead to double taxation and entangle businesses in chaotic dispute resolution procedures, since the current framework is not fit to deal with such an increase in multilateral disputes. Due to the complexity and increased risk of disputes, an agreement on a new tax architecture among all jurisdictions on a binding dispute avoidance and resolution procedure is a conditio sine qua non. The agreement must include a mechanism which ensures that no additional administrative burden is placed on businesses.
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