Source: Hohenwarter-Mayr, BEPS and the Way Forward, Presentation for JVI, September 20, 2021 

Veronika Daurer presented her personal reflections on the historic opportunity to jointly redesign and reconstruct the international tax framework for a sustainable solution. In view of the massive changes in the perception of politicians, lawmakers, and citizens on the fitness for purpose of the international tax rules, aggressive tax planning was no longer tolerated and there was political commitment and support for change. This was also a key consideration for Austria’s support of the agreement.  

Veronika Daurer further underscored the need for restoring the stability of the system. Moreover, rules should not create barriers for businesses doing business globally, but compliance costs needed to remain manageable. Also tax administrations’ efforts should be worth the expected revenue gains. As the previous speaker, she pointed to the many details yet to be resolved, starting with the upcoming Inclusive Framework meeting in October, where a revised version of the July statement with new agreements filling in the blanks is expected to be presented. Particularly for Pillar I, from a technical perspective core questions remained challenging, for instance how to ensure the elimination of double taxation, given that a key feature of Amount A was its conception as a reallocation of taxing rights, not an additional tax burden.  

Helen Pahapill, speaking in her official capacity representing the Estonian Ministry of Finance, presented Estonia’s position as one of the countries not yet joining the agreement. As she explained, the combination of Pillar 1, on nexus and profit allocation, with Pillar 2, on global minimum taxation and remaining BEPS issues, proved problematic. Estonia was concerned with Pillar 2 rather than Pillar 1, given the shift in emphasis on putting a floor to tax competition and its general rather than targeted approach to specific companies and tax planning strategies. With a corporate tax rate of 20%, the issue was not tax competition but rather the way in which the Estonian tax system operated, collecting the tax only when the company distributed its profits. Neither running a parallel tax system nor designing special rules and IT solutions, or building advanced accounting knowledge for tax administrators for possibly only 4 companies in 2022, seemed economical or efficient, given the small size of the Estonian tax administration. Helen Pahapill closed by remarking that the political goal of starting implementation in 2023 from a practical perspective seemed impossible, given the need to draft the respective domestic legislation. Absent a full agreement at EU/OECD on all details, the new system would fail to deliver a uniform solution for global businesses, as different countries most likely would end up choosing different implementation options.   

In response, both Veronika Daurer and Daniela Hohenwarter-Mayr agreed that the timeline was quite ambitious and the road to implementation still challenging. However, they argued that even if the international agreement was not perfect, it reflected the different interests at the table. From a pragmatic perspective, one could see the current compromise as a complete paradigm shift in the right direction, without precluding further adaptations in the future.