Report on recent US international tax developments — 13 October 2023

The OECD/G20 Inclusive Framework (IF) on BEPS on 11 October released the text of a new multilateral convention (MLC) that "updates the international tax framework to co-ordinate a reallocation of taxing rights to market jurisdictions, improve tax certainty, and remove digital service taxes [DSTs]." According to an OECD press release, the Multilateral Convention to Implement Amount A of Pillar One (pdf) reflects the current consensus among IF members. The MLC also includes several provisions that are meant to address certain unique circumstances of developing Inclusive Framework countries.

The MLC was delivered to G20 Finance Ministers and Central Bank Governors in a new OECD Secretary-General Tax Report (pdf) ahead of their meeting this week in Morocco. The released MLC was accompanied by an Explanatory Statement (pdf) and the Understanding on the Application of Certainty of Amount A (pdf) (which describes administration and dispute resolution parameters).

Amount A of Pillar One addresses the "reallocation of taxing rights to market jurisdictions with respect to a share of the profits of the largest and most profitable multinational enterprises (MNEs) operating in their markets, regardless of their physical presence." It is also meant to ensure the repeal and proliferation of DST and relevant similar measures. According to the OECD, Pillar One is expected to reallocate approximately $200 billion in profits to market jurisdictions each year, resulting in global tax revenues of between $17 billion and $32 billion, based on 2021 data.

Manal Corwin, director of the OECD's Center for Tax Policy and Administration, this week was quoted as saying the draft MLC is considered an "intermediate step" in the process to get countries to sign the document. The goal reportedly is to have 130 countries sign the MLC by the end of the year.

On the same day as the OECD release, the US Treasury issued a statement requesting public comments on the BEPS Pillar One MLC text and accompanying documents. According to the Treasury release, the Administration considers "release of the draft Pillar One documents a key step forward in the Pillar One negotiations. … Treasury stands behind the negotiations, which have resulted in many difficult compromises by all sides with respect to both the design of the partial reallocation of taxing rights and the elimination of discriminatory digital services taxes and similar measures." Written comments to Treasury are due by 11 December and must be submitted electronically to: OTP_Pillar1MLC@treasury.gov.

Senate Finance Committee Chairman Ron Wyden (D-OR) and Ranking Member Mike Crapo (R-ID) in a 10 October letter (pdf) called on the U.S. Trade Representative (USTR) to make clear that the United States will forcefully defend American employers against Canada's proposed 3% DST. The senators urged the USTR to tell the Canadian government it will "immediately respond using available trade tools upon Canada's enactment of any DST." The proposed Canadian levy would go into effect in 2024, but be retroactive to 2022.

For additional information with respect to this Alert, please contact the following:

Ernst & Young LLP (United States), International Tax and Transaction Services, Washington, DC

•  Arlene Fitzpatrick

•  Joshua Ruland

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor

For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.