GCC Tax Theatre | International Taxation | A Summary of OECD's International Taxation Working Papers Issued During 2023

1.????? 23 Nov 2023 – Effective tax rates of MNEs: New evidence on global low-taxed profit

OECD estimates that -

·??????? high tax jurisdictions (jurisdictions with average ETRs of above 15%) account for more than half (53.2%) of global profits taxed below 15%,

·??????? This is much more than very low tax jurisdictions (those with average ETRs below 5%) which only account for 18.7% of low-taxed profits.

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2.????? 11 Oct 2023 – Working Paper on Update to the economic impact assessment of pillar one: OECD/G20 Base Erosion and Profit Shifting Project

·??????? The 2020 Economic Impact Assessment (EIA) assumed a focus of Amount A on highly digitalised businesses with a revenue threshold of EUR 750 million,

·??????? the 2023 EIA Update models the scope laid out in the Multilateral Convention to Implement Amount A of Pillar One (MLC).

·??????? The MLC states that all MNEs with revenues exceeding EUR 20 billion and a pre-tax profitability rate exceeding 10% are in-scope of Pillar One, excluding only the extractive and financial sectors.

·??????? This limits application of Amount A to a relatively small number of exceptionally large, profitable, and internationalised MNEs, largely due to the raising of the revenue threshold from EUR 750 million to? EUR 20 billion.

·??????? At the same time, a much wider range of businesses are expected to be subject to Amount A, resulting in around 100 MNEs to be in scope each year.?

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3.????? 28 August 2023 – The taxation of labour vs. capital income: A focus on high earners

The working paper shows the following:

·??????? Dividend income and capital gains are generally subject to lower ETRs than wage income at the personal level.

·??????? In many countries, capital income is also tax-favoured even when considering taxes paid by both firms and individuals,

·??????? However, the gap between labour and capital income taxation tends to be smaller than when considering only personal-level taxes.

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4.????? 27 July 2023 – Effective tax rates for R&D intangibles

Income Based Tax Incentives (IBTIs) for R&D Intangibles differ in the following:

·??????? Mode of acquisition of R&D intangibles

·??????? Differing computation of tax base

·??????? Linking qualifying income and expenditure to the underlying R&D with an allowed uplift of upto 30% [e.g. Nexus ratio = Qualifying expenditure to develop the IP / Overall expenditure to develop the IP]

·??????? For example, if the firm acquires an IP asset for EUR 75 and further developed it incurring EUR 25 of in-house R&D.? The nexus ratio for this asset would be equal to 25*1.3/(75+25)=32.5%. Only 32.5% of IP income can benefit from relief, and the rest is taxed at the full rate.

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5.????? 27 July 2023 – Working paper on Tax and Investment by Multinational Enterprises

There is inverse relationship between corporate taxes and investment through two different channels.

i.???????????????? First, corporate taxes increase the cost of capital, thereby reducing the number of economically viable investment projects; and,

ii.??????????????? second, they affect firms’ cash flow negatively, thereby reducing investments by liquidity-constrained firms.

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6.????? 25 May 2023 – Net effective carbon rates

·??????? Energy taxes are traditionally implemented to raise revenue, and rates are typically expressed per unit of energy content (e.g. GJ) or in physical units (e.g. litres or kg).

·??????? Explicit carbon prices, energy taxes, and support measures for fossil fuels (henceforth fossil fuels support (FFS)) are all policy instruments that affect carbon emissions.

·??????? The OECD’s Effective Carbon Rates (ECR) indicator (OECD, 2021[2]) measures the price on carbon emissions arising from the sum of taxes and tradeable permits, expressed per tonne of CO2.

·??????? This paper develops a methodology to estimate effective marginal carbon rates net of pre-tax FFS measures: the Net ECR.

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7.????? March 22 – April 22: OECD’s PCD on crypto assets reporting framework and amendments to the CRS

·??????? Crypto assets service providers subjected to Due diligence

·??????? Reporting financial institutions subjected to enhanced reporting requirements

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8.????? Dec 2022 – Feb 2023: OECD PCD on Pillar Two – GloBE Information Return (GIR)

The PCD sought consultation on standardized GIR w.r.t

i.???????????????? general information,

ii.??????????????? corporate structure

iii.?????????????? ETR computation and Top-up tax computation

iv.?????????????? Top up tax allocation and attribution