by Ulrika Lomas, Tax-News.com, Brussels
25 July 2019
G7 finance ministers have said that there is an urgent need to address the tax challenges posed by the digitalization of the economy.
In a joint statement issued after their July 17-18 meeting, the ministers emphasized the “need to improve the current international tax framework” and pointed to the issues raised by digitalization and “the shortcomings of the current transfer pricing system.”
The ministers explained that they fully support the proposed two-pillar approach that has been developed by the G20 and OECD.
The ministers said that, under the first pillar, “new nexus rules should be developed to address new business models,” including those that allow companies to do business in a territory without any physical presence. They argued that “the new taxing rights under pillar one should be determined by reference to criteria reflecting the level of businesses’ active participation in a customer’s or user’s jurisdiction, such as valuable intangibles or employment of a highly digitalized model.”
In calling for a global solution, the ministers said that “robust and effective tax dispute resolution through mandatory arbitration” is essential for the avoidance of double taxation and for ensuring the stability of the international tax system.
Turning to the second pillar, the ministers said that a minimum level of effective taxation “would contribute to ensuring that companies pay their fair share of tax.” The level at which this would be set would depend upon the overall design of the new rules.
The ministers said that the G7 looks forward to a global agreement on the reforms being reached by January 2020, as part of the OECD’s Inclusive Framework on BEPS.
The G7 states are Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States.