The proposal stretches far beyond just impacting tech companies and has the potential to impact all multinational businesses (albeit there is discussion that a few industries may be carved out, such as the extractives industry). Whilst Pillar 1 is expected to see a shift in where businesses are taxed, Pillar 2 focuses on the development of a set of rules to address instances where multinationals may be able to shift profit to jurisdictions where they are subject to no or very low taxation by introducing a worldwide minimum tax.
The CBI’s submission set out the following key points:
- It is essential to set out a framework for how the various elements of the GloBE proposal interact with each other (including which component will take precedence) and the interaction with Pillar One otherwise significant practical issues with the administration of the GloBE are likely to arise.
- A clear commitment is needed over the criteria for existing unilateral measures to be rolled back, given the alternative is prolonged uncertainty for business and the potential for unintended negative consequences arising from unilateral measures which have been, and continue to be, implemented. Such unilateral measures result in a complex patchwork of tax policies that increase compliance burdens, uncertainty over tax positions (including the potential for double or multiple layer taxation) and ultimately damage global trade, cross border investment and growth.
- It is of fundamental importance that an international consensus is reached which ensures that firms are subject to taxes which equate to only taxing their profits, not revenues, once. Given the multilateral nature of these proposals, having the parent jurisdiction take the lead in the assessment of the Pillar 2 measures could ensure co-ordination of application, reducing the risk of double taxation at source. In the absence of the parent jurisdiction agreeing the application of the GloBE, as with Pillar 1, enhanced dispute prevention and resolution mechanisms will be essential, including multilateral mandatory binding arbitration with peer review being implemented as part of these proposals.
- The proposal needs to be practicable and proportionate to implement and to narrowly target those situations of concern. There is a risk of a significant and complex administrative and compliance burden being created across the board in a disproportionate manner. Until the Base Erosion and Profit Shifting programme (BEPS) has been fully implemented it is not possible to know the scale of these additional concerns (whether BEPS related or the extent of the need to limit tax competition) and whether the additional complexity that will arise from the implementation of the GloBE proposal is fully justified when comparing the cost versus the benefit.
The proposals must be practical and proportionate to implement. The consultation document assumes in this respect that many MNE groups either directly, or as part of their consolidation process, compute the income and tax charges of each of their subsidiaries using the financial standard applicable to the ultimate parent entity. While this may be true for some, for many MNEs this is not the case. This in itself means for many businesses that it would be neither practical nor administrable to implement blending at a level other than on a worldwide basis at the level of the parent jurisdiction.