DF Tax |  Challenges of the digitization of the world economy: white smoke?

Gert Greve, Senior Associate at Fischer y Cía.

Gert Strike

On October 8, more than 130 member countries of the Inclusive Framework of the OECD / G-20 (including Chile), representing more than 90% of world GDP, pledged to carry out the most important modification to the international tax system since its creation in 1923, in order to face the challenges posed by globalization and digitization.

The agreement includes adopting the so-called Two Pillar solution.

The objective of Pillar One is to ensure a fairer distribution of the tax authority over the profits of the largest multinationals, allowing the jurisdictions where the consumers or users of the multinational groups are located (called market jurisdictions) to tax part of said profits. regardless of where they maintain their physical presence (expressly excluding the extractive industry and financial services). The foregoing represents a paradigm shift to the international tax system, where historically the principle of residence has prevailed.

The purpose of Pillar Two is to establish a minimum floor for tax competition by incorporating a minimum global corporate rate of 15%. To ensure the application of this measure, the countries undertook to incorporate into domestic legislation and double taxation treaties rules that will allow the countries of residence or source to tax in the event that a country does not comply with the global minimum rate.

Each pillar will be implemented through its own multilateral instrument and through the incorporation of domestic regulations on which the digital economy team of the Inclusive Framework is working. In this way, both pillars are expected to come into force in 2023, the date that coincides with the 100th anniversary of the international tax system.

While this agreement represents a breakthrough for a new global regime, there are still unresolved questions about the details of the project, including the method to eliminate double taxation, how inconsistencies with existing treaties will be handled, and how to resolve disputes. , among others. It is expected that these doubts will be cleared in the coming months with the delivery of the compromised documents, and that we are not only left with white smoke.

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