Source: University of Auckland
A groundbreaking global framework designed to clamp down on digital companies, many that have avoided paying sufficient taxes for decades, could be on fragile ground, says Professor Craig Elliffe.
The Inclusive Framework is a revolutionary global two-pillar plan to reform international tax rules and ensure that multinational enterprises pay a fair share of tax wherever they operate, but the taxation expert says it could be upended by the United States’ political landscape.
Working together on the Inclusive Framework, member countries are hoping to finally cohesively tackle tax avoidance, improve the coherence of international tax rules, ensure a more transparent tax environment and address the tax challenges arising from the digitalisation of the economy.
Developing these landmark international tax rules is an enormous task involving politics of the highest level among the most influential countries, acknowledges Elliffe.
Although the tax law specialist says the Inclusive Framework is an evolutionary step forward, he doesn’t think it’s the final step, or that it’s entirely stable.
“I see it as a brave, but sensible course of action. However, the uncertainty of the political landscape in the US could result in delays, or worse.
“The political system in the US right now is fragile, and as we head towards the midterms, the big question is: will the Democrats lose some control? And if the Americans don’t move ahead with the framework, we are back to a world where countries will have to go it alone for some time.”
This could mean a waiting game to see whether the European Union might take the lead on an inclusive international agreement. Or it could mean Aotearoa New Zealand would need to take a second look at implementing a Digital Services Tax (DST), something Elliffe refers to as a very ugly tax due to a number of potential issues including World Trade Organisation objections and US trade-related retaliation.
“In the meantime, there’s not a great deal holding some of these e-commerce multinationals in check, and they’re doing pretty nicely.”
