Among the ultra-classics this one probably stands out, because this is possibly one where no one wins in the end. And because it’s the only movie without a single victory—because the Rebels lose the Battle of Hoth, and Han gets his carbonite coma, and Luke can’t even fully kill one measly Wampa—its place in history has always been assured – Darren Fanich. In the end the viewer leaves with a heavy heart.

The OECD finally released the drafts of the two Pillars in October , 500+ pages of reading and interpretation on top of everyone trying to grapple with the EU’s private civil law jurisdictions trying out their own interpretation of digital taxes (Les GAFA), the United States on GILTI, Argentina imposed a 35% withholding taxes on dollar payments , Netherlands proposes an additional withholding tax on repatriation of royalty and interest to low tax jurisdictions and imposing an exit tax, Britain going back on its Facebook Tax, New Zealand introduced a new regime of new measures for checking transfer pricing in line with Covid 19 measures, India moving with its equalisation levy, Indonesia has implemented both direct (income tax) and indirect taxes (VAT) on foreign sellers, service providers, and foreign e-commerce companies that earn revenue from digital transactions made by Indonesian consumers and the OECD still trying to push forward its agenda of global fractional split and revised split apportionment. The Billion-dollar question: Who will reign in the FAANG (Facebook, Amazon, Apple, Netflix, Google)?

What’s more interesting about these scenario’s is that it appears that all these are more of unsure attempts rather than a finality on any of the decisions. Let’s face it, it is an established pattern all through the world. The United States takes the pole and the world follows it. It’s the almighty dollar. No global consensus ever had any success without the backing of the all-powerful United States Congress. However good but no one ever challenged the GUILTY (sic. GILTI).

With the kickstart of OECD/G20 Base Erosion and Profit Shifting (BEPS) Project 2.0 in late 2018, there seemed to be a broad-based consensus that international tax rules in particular the ALP (Arm’s Length Principle) and Permanent Establishment concept, needed a complete overhaul in favour global formulatory apportionment or other global apportionment methods to counter the aggressive tax planning strategies of FAANG and clones. No wonder then that many saw the OECD-led efforts to address taxation of the digital economy as ground-breaking. What will happen now — What can we expect from the initially bold announcement, a real overhaul of existing rules or rather more of the same?

But with a historic election round the corner and the two big cats, President Donald Trump and Presidential candidate Joe Biden engaged in a battle of historic proportions, the mice will play. The lengthy and elaborate text of the pillars apart, its amply clear that without the assent of the United States, no pillar will stand. So although, the OECD has come out with a statement on the framework of the two pillars, since the United States has not been involved till now and the coming regime seems uncertain till February next year, on expected lines the decision on the framework has been deferred to mid 2021( At para 9 of the cover statement reads “We agree to swiftly address the remaining issues with a view to bringing the process to a successful conclusion by mid-2021 and to resolve technical issues, develop model draft legislation, guidelines, and international rules and processes as necessary to enable jurisdictions to implement a consensus based solution”.

Sometimes, it does beg the question: If international tax policy is totally dependent on the United States agreeing to it, then why at all take decisions in which the United States is not involved. The FAANG is anyway miles ahead of Tax policy makers who are just trying somehow, albeit somewhat unsuccessfully, trying to play catchup. The Apple case is the granddaddy of all ( BEPS or Andean or OECD or UN Model or Nordic conventions notwithstanding.

The United States brings the FATCA, the world complies, the United States brings the TCJA, the world falls in line, the United States brings the GILTI and again the world falls in line. Why not make life simple and let the United States bring about the change?

At this juncture its also worthwhile to note that while the Indian side has been all drums about its Equalisation levy, the United States has threatened to start 301 proceedings (sanctions) against India for its Equalisation levy, and although this matter has taken the backstage due to elections, the outcome of the elections might just have repercussions for the EL. (

However, realistically speaking there is always a tussle between the changers and status quo. An interesting article by Fritz Brugger defending the status quo ( ) is worth a read.

For the uninitiated, the OECD officially released an International Taxation framework on the 12th of October 2020 aimed at countering the aggressive tax planning strategies of Multinational Enterprises( Referred to as the Pillar 1 and Pillar 2 of digital taxation, this is an attempt by the OECD to resolve issues regarding digital taxation. And while the effort on paper looks laudable, the one-size-fits-all approach of the OECD is at a fundamental loggerhead with the attributes of the digital business. The success of which would invariably depend on the United States administration being able to come about a consensus around it.

On a bird’s eyes view, Pillar one proposal is designed to re-allocate to market jurisdictions the taxing rights on a particular share of an MNE’s residual profits, where there are no permanent establishments of such MNE’s, referred to as amount “A”, and proposes changes to transfer pricing rules to distribute profits amongst marketing and distribution functions referred to amount “B” and entitlement of tax beyond “B” referred to as amount “C”(which for the time being has been put on hold). Under the one size fits all approach the threshold for revenues has been set initially at $750 million under IFRS, while the significant proportion of global revenues is yet to be finalised. Although theoretically it seems a good approach on first glance, the question of application is unresolved to a large extent.

• Why would a country surrender its taxing rights to a foreign jurisdiction just on the basis of CFB (Consumer facing business) or ADS (Automated Digital Services) is largely a question that needs to be resolved, and it seems highly unlikely that any consensus might be arrived.

• A one size fits all approach to the determination of residual profits” A” might not be agreeable upon by all, and is also fundamentally at odds with the characteristics of the digital industry.

• Although the report proposes to implement improvement on dispute resolution mechanisms as well as the MAP (Mutual Agreement Procedure), the development of Mandatory Dispute Resolution mechanisms is still at a proposal stage.

• Does the report in practicality propose to dilute the Article 5 (Permanent Establishments) of the OECD and UN model convention?

• Question as to Article 4 and 7 of the OECD and UN Model Conventions remain as regards to compatibility with the Inclusive Framework.

• Under the proposed pillars, its expected to bring about $100 billion globally under the ambit of the two pillars. However , with the EU proposed VAT changes alone targeting an application of $150 billion of revenue, how effective are the pillars going to be is a broad based question(

• Multilateralism vs Bilateralism: Is a multilateral solution feasible in this context when source countries would want to protect their interests by way of particular emphasis on their strategy.

India has had its concerns with the digital taxation framework as proposed with the OECD and while India has in its past put forward its expectation as with the two pillars the concern of protecting its sovereign interest has been paramount. ( ). The Indian approach has been more tied to the United Nations Model Convention, which as we know places greater emphasis on source-based taxation as opposed to the OECD Model Convention. In fact, India has gone far to the extent of proposing a treaty-based solution to this quagmire at the United Nations, pressing for adoption of a draft article within treaties. The proposals have been drafted by a 13-member team which includes India are up for discussion as at the time of writing this article. How successful it’s going to be is anybody’s guess, given the stated intention of the United States to proceed against India under the Trade Act 1974. However, said that, the United Nations Committee is set to discuss the New Article 12B “Income from Automated Digital Services,” in the near future. (

Besides the challenges on income determination, another factor where the consensus might be elusive is that OECD is dwelling upon is where Amount A and Amount B form the ‘building blocks’ of Pillar One. This does not factor Amount C (entitlement to tax beyond Amount B) which has now been unconsidered. These amounts represent a complex formula, which, in turn, requires gathering large data, besides being riddled by subjective determinations. No wonder, thus, that tax-administrations are non-committal, a part of their decision being influenced by the perpetual fears over lack of global data of the Foreign Service Providers, which undermines their efforts to achieve a fair and equitable taxation outcome.

Most of the digital giants have already made clear their intention that they will not bear the burden of the additional digital taxes but rather pass them on. Although the levies are aimed the foreign technology firms and may even result in increased tax collections from digital economy, they may end up hurting domestic businesses in the source countries.

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