Reports on the Pillar One and Pillar Two Blueprints

Position OECD-Consultation 12 October 2020 – 14 December 2020

Reports on the Pillar One and Pillar Two Blueprints

Federation of German Industries e.V.

December 2020

OECD Consultation – Reports on the Pillar One and Pillar Two Blueprints

Content* 1.

General comments ............................................................... 3

1.1.

Global consensus required ................................................. 5

1.2.

Elimination of double taxation............................................. 6

2.

Specific comments on the Pillar One Blueprint ................. 7

2.1.

Amount A: Scope and nexus (I & III) ................................... 8

2.2.

Amount A: Revenue thresholds (II) ................................... 13

2.3.

Amount A: Revenue sourcing rules (IV) ........................... 13

2.4.

Amount A: Tax base and Segmentation (V) ..................... 14

2.5.

Amount A: Loss Carry Forward regime (VI) .................... 16

2.6.

Double counting issues (VII).............................................. 17

2.7.

Amount B: Scope and general remarks (IX & X) .............. 18

2.8.

Tax certainty under Pillar One (VIII, XI & XII) .................... 19

3.

Specific comments on the Pillar Two Blueprint ............... 22

3.1.

General remarks and scope (I, II, III, IV & V) ..................... 23

3.1.1. Income inclusion and Switch-over rules (VI).................... 27 3.1.2. Undertaxed payments rule (VII) ......................................... 28 3.1.3. Subject to tax rule (IX) ........................................................ 29 3.2.

Implementation, rule co-ordination, dispute prevention and resolution (X) ............................................................... 29

4.

Final remarks ...................................................................... 30

About BDI....................................................................................... 31 Imprint ......................................................................................... 31

The roman numerals refer to the different aspects of the Public Consultation Document on the Reports on the Pillar One and Pillar Two Blueprints *

OECD Consultation – Reports on the Pillar One and Pillar Two Blueprints

1. General comments The BDI, as the voice of German industries, appreciates the opportunity to provide input and give ideas on the Reports on the Pillar One and Pillar Two Blueprints. Our comments are intended to be constructive and to contribute positively to the work of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) on finding a consensus-based, long-term solution to the tax challenges arising from the digitalisation of the economy.

The project’s objective was to ensure an intergovernmental redistribution of taxation rights resulting from the observation that new digital business models could no longer be covered by traditional taxation rules and that certain taxing rights should be re-allocated to market jurisdictions. However, German industry is very critical of the proposed measures in view of their complexity and risks. Above all we see some considerable hurdles when it comes to translating the project’s objectives into practice.

In this context, we do feel the need to address several architecture aspects of both Pillar One and Pillar Two Blueprints which focus on new nexus and profit allocation rules for selected business models and a global effective minimum taxation of corporate profits respectively. While we welcome the significant progress that has been made on the technical development of both pillars, several key challenges remain unsolved while some technical solutions found are lacking a fair deal of pragmatism and manageability. There are several technical and practical elements which are still to be agreed on by the members of the Inclusive Framework. At this stage both proposals have to be developed in more detail in order to find a solid, long-term framework for an international, administrable and consensus-based tax architecture which is challenged by constant technological change and evolving business models. Agreement is inter alia still pending on key elements such as scope, nexus, rate, rule coordination, how much to distribute to market jurisdictions as well as the extent of the tax certainty mechanisms which have to inevitably include effective and binding dispute resolution mechanisms. These elements are crucial and at the same time can be simplified significantly.

BDI reiterates its commitment and willingness to engage constructively in the debate addressing the tax challenges arising from the digitalisation of the economy. However, we would like to point out that German industry has some reservations concerning the measures due to their complexity and significant risks. Moreover, German industry is concerned that the amount of work needed to implement the proposals may be disproportionately high compared to the expected gains. German www.bdi.eu

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businesses feel the need for simplification of both, Pillar One and Pillar Two Blueprints and focusing on developing technical and policy solutions that address functionality and tax certainty requirements.

With respect to administrability, any global solution must strive for rules which do not go along with resource-consuming bureaucratic efforts thereby respecting the differing administrative capacity of tax administrations and taxpayers alike.

For German industry it is key that the new rules are not only easy to implement, but also contain elements for increased tax certainty and means to counter and to avoid double taxation. Although some improvements can be seen in the presented Blueprints, they still do not satisfy taxpayer’s need for legal certainty. We understand that the OECD is keen to hear concrete proposals on how to improve these concepts further and therefore we are willing to make a positive contribution towards a practicable system based on specific suggestions.

Considering the significant complexity of the Blueprints, we would like to reiterate that without considerable simplification the compliance and administrative costs may be comparatively high relative to or even exceed the estimated revenue gains. Therefore, the economic efficiency of the proposed measures should be assessed from the perspective of a cost-benefit analysis.

According to its own Economic Impact Assessment, the OECD itself considers the amount of tax revenues from Pillar One measures to be rather low. The measures are expected to bring USD 5 to 12 billion but will have administrative consequences. At best, the increase in tax revenue would amount to 0.6 percent of global CIT (corporate income tax) revenue.

The global minimum taxation within the framework of Pillar Two leads conceptually to the highest tax revenue among the measures. The revenue is strongly dependent on the choice of the minimum tax rate. In this assessment the OECD calculations are based on a tax rate of 12.5 percent, on the level of which a consensus has yet to be reached. However, this assumed tax rate would result in an additional tax revenue of 1.6 percent of global CIT revenue in the best-case scenario. If the tax rate is set lower, the additional tax revenues will decrease sharply and influence the effectiveness of the measures in terms of the additional administrative effort expected to be required for compliance.

In addition to the compliance burdens, the proposals on the Global Anti-Base Erosion (GloBE) have an influence on investment costs, which will increase in medium and long term. Thus, the average tax rate on investments increases www.bdi.eu

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by 0.3 percent and the marginal tax rate for each additional dollar of investment increases by 1.3 percent. Although the tax revenues are expected in the best-case to be equivalent up to USD 100 billion each year, this is contrasted by the unspecified costs to stakeholders which may be quite substantial compared to the revenue raised. Therefore, it would be helpful if the OECD could provide data on the estimated compliance costs for businesses and tax administrations alike in order to have a more complete picture.

1.1.

Global consensus required

First and foremost, BDI continues to advocate that an international, consensus-based solution is essential for German industry when discussing a project of this size. German industry acknowledges that the tax challenges resulting from the digitalisation of the economy need to be addressed by a comprehensive and globally coordinated approach between jurisdictions as this is the only way to obviate discriminatory unilateral action. Thus, it is important that the OECD works on achieving a global consensus whilst ensuring that jurisdictions do not increasingly take unilateral measures. In this context, it should be strongly emphasized that the aim of any reform must be to design an international taxation order which provides lasting legal certainty for all involved parties and which avoids further fragmentation of the international tax system through uncoordinated unilateral action. Hence, globally agreed proposals should not only be based on well-established, fundamental principles of international taxation, but should also include the binding abolition of any unilateral measures in place at the time of agreement and a commitment for a stable and sustainable international tax system. BDI notes that only a steady and consistent international tax system can provide clarity for business and foster cross-border investment. Therefore, any consensus reached has to be perfectly clear in meaning and unconditionally binding in implementation.

We are convinced that it is in the interest of taxpayers and tax authorities alike to maintain a globally coherent and homogenous enforcement of the international tax order. This must include efficient mechanisms for ex-ante dispute avoidance and binding mandatory ex-post dispute resolution mechanisms by all participating states. These measures are to be considered as an integral part of any global tax reform, especially when introducing fundamental changes to taxation of corporate profits which could be subject to differing interpretations leading to inevitable disagreements and increased risks of double taxation. Since the proposals could create situations in which disputes between more than two stakeholders occur, only a robust,

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multilateral approach with an international arbitration body able to issue binding decisions would solve the problem of double taxation.

1.2.

Elimination of double taxation

For businesses, it is crucial to be protected against double taxation that might result from the implementation of certain aspects of Pillar One and their interaction with Pillar Two. When preparing the biggest reform of global taxation of multinational companies in decades, it must be ensured that a system of temporary or long-term double taxation is avoided under all circumstances. Both envisaged methods (tax credit system and exemption method) do not guarantee a relief from double taxation in cases where the paying entity due to e.g. current losses, loss carry-forwards or membership in a fiscal unity is not subject to corporate income taxes. Elimination of double taxation has to take place simultaneously and not upon a mutual agreement procedure (MAP)-like process.

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2. Specific comments on the Pillar One Blueprint Resulting from the observation that the basic principles for the allocation of taxing rights should be redefined in order to capture new digital business models, which could no longer be covered by traditional taxation rules, Pillar One aims to ensure that through the introduction of new rules without reference to physical presence more taxing rights and a greater share of profits are to a certain extent allocated to market jurisdictions.

We welcome the OECD’s efforts in further defining some technical proposals on issues that have been previously addressed by industry (especially on Amount A and Tax Certainty). However, the current Pillar One Blueprint is, regarding its design and implementation, far from being easily administrable and we would like to point out that some aspects of the proposals could cause lasting damage to German industry. Major complexity of Pillar One derives from the ambition to artificially connect the simplified Amount A with the arms’ length principle (ALP).

As a general note on the Pillar One Blueprint, we would like to point out that in order to gain a better understanding, the Pillar One Blueprint requires significantly more examples, not only for selected, individual aspects, but over the entire chain of identifying businesses which constitute Automated Digital Services (ADS) or Consumer Facing Business (CFB). This includes the separated rules for revenue sourcing, the determination and allocation of Amount A, the allocation of Amount A’s tax liability to the paying entities and the processing via the coordination entity as well as the avoidance of double taxation and the observance of tax compliance in all countries concerned. These examples should then be presented separately for centralized and decentralized business models for both ADS and CFB. Furthermore, these examples should also target MNEs with activities in different sectors and clearly show when one is ‘in scope’ (in particular regarding CFB, e.g. even if one sells B2B) and when not.

Additionally, the design of Pillar One in its current form will place a significant and unprecedented bureaucratic burden on businesses with a turnover above EUR 750 million, regardless of whether they fall under the scope of Pillar One or not.

In order to limit the compliance burden for businesses and to provide all stakeholders enough time to adapt to the new rules while leaving the possibility open for necessary adjustments, a phased approach for Pillar One should be seriously considered by the Inclusive Framework.

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For example, a practical way to apply a phased approach which allows rampup phase for the new processes could be to implement the new systems first only for ADS activities with initial higher thresholds that will be gradually reduced over a number of years. Secondly, and after the first initial postimplementation reviews have been undertaken by the OECD and governments, the rules would then be implemented for CFB activities, with or without gradually thresholds, as well.

In general, the threshold for ‘in-scope revenues per market’ should be as high as possible. This is especially true for ADS, because many “traditional” MNEs are only just starting with activities considered ADS and therefore have low profit expectations and difficulties to identify the ‘in-scope revenues’ and to separate them from standard activities.

2.1.

Amount A: Scope and nexus (I & III)

Amount A constitutes a new taxing right for market jurisdictions by reallocating a part of the residual profit of a multinational enterprise (MNE).

We recognize that the question how the scope of Amount A will ultimately be designed is still subject to political agreement. According to the system laid out in the Pillar One Blueprint, it is however still difficult for many businesses to understand whether their activities fall under the scope of Pillar One or not. In addition, the concepts of ADS and CFB are defined rather broadly, leading away from the initial target of addressing the tax challenges resulting from the digitalisation of the economy and leaving room for uncertainty, different interpretations and additional complexity. As a result, several MNEs potentially have at least one activity that could fall under the scope of ADS and/or CFB, leading to enormous administrative efforts for businesses in order to determine whether their activities are captured or not.

This is why the members of the Inclusive Framework should urgently define the categories ADS and CFB more precisely. The latter category requires particular attention.

Furthermore, Pillar One contains various inconsistencies between the very simplified calculation of Amount A on one side and the existing ALP and international methods of avoidance of double taxation on the other side.

To name the three most striking cases: ▪

The concept of double counting compares the amount A with the profit the multinational enterprise already allocates to the country through the ALP (i.e. the existing marketing and distribution profit).

A simplified approach could drop any allocation of amount A into a country where the multinational operates through a subsidiary or permanent establishment (PE) with an appropriate ALP

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profit. We see CFB regularly operating through sales subsidiaries or PEs. Within the existing transfer pricing (TP) system, the concept of nexus and the allocation of residual profit to market jurisdictions has already been taken into account at the maximum possible extent. Such an approach can lead to a systemic local profit that exceeds a routine profit, but – depending on the risk assumption – also to a locally systemic lower profit or even losses. This is precisely the characteristic of a residual result. The current proposals on “netting” and safe harbor do not take this issue sufficiently into account, as the currently proposed safe harbor regulation does not work in the case of losses or low profit levels of the local entrepreneur based in the market jurisdiction.

▪

The definition of the paying entity requires a four-step approach, relying on data and information from the existing TP logic of the multinational (e.g. function & risk analyses, masterfile). What happens if a (under the International Financial Reporting Standards, IFRS) profitable entity is not an entrepreneur according to the ALP? A radical simplification of the definition of the paying entity seems necessary.

▪

It has always been the target of OECD to avoid any double taxation.

The proposed credit system or exemption method do not guarantee this relief from double taxation. Any amount A taxed in another country should lead to immediate and unconditional relief at the paying entities’ country of residence.

German industry strongly recommends excluding multinationals from any further documentation requirements under Pillar One in case their business is predominantly out of scope. To this end, multinationals need clarity and certainty of in-scope and out of scope businesses. So far, the determination of the applicability of Amount A in combination with unclear definitions and subsequent delimitation difficulties lead to enormous documentation requirements, especially for diversified and decentralized MNEs who call for much clearer definitions in order to consistently define what business is in scope or not.

As decisions are still to be made by the Inclusive Framework about the scope of Amount A, several definitions of potential in-scope activities remain unclear and vague and need to be further elaborated in more detail. A key concern uniformly shared by the business community is that if consensus were not to be reached on the OECD/IF proposals, countries could take portions of these Pillar One or Pillar Two concepts and repurpose them for unilateral legislation. As we see with the UN Article 12B proposal that picks www.bdi.eu

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up ADS but not CFB. It is important to get each element of these proposals defined in a way that will not result in greater uncertainty if they were to be pulled off the shelf later and implemented. This includes getting the ADS definition narrowed and aligned to the original rationale diverging from the arm’s-length principle.

Accordingly, we recommend that the scope of Pillar One must be significantly sharpened, comparable to the definitions in DST regulations.

This serves as a simplification measure for business and governments and to better target underlying policy concerns such as remote sales with no market country taxation.

Exemplary on ADS design: By its operation, a business activity that is included on the ADS positive list (Cloud, Digital Content) would appear to automatically be in-scope despite not satisfying the underlying policy objectives described in the adjacent commentary.

Accordingly, a clear distinction should be made between remote public cloud businesses and business models which primarily use cloud to deliver software or digital services to its bespoke business customers, book revenue locally and have presence in the market. The ADS definition should be tailored to these concerns and not blanket all cloud companies.

Furthermore, on Digital Content it is stated that “this category is drafted to capture the different forms which digital content can take when acquired by a user.” This category includes, for example, music, books, videos, texts, games, applications, computer programmes, software, online newspapers, online libraries and online databases. This definition should be expressly limited to remote business models in recognition of the fact that cloud assessed software is not acquired.

Also, B2B rendered ADS were never part of the concerns for digitization of the economy to no longer be fit for purpose. For example, cloud delivered application software is a business input as well as the sale of “industrial software”, that is used for stimulating production processes, production machines and industrial infrastructure (the “Industrial Internet of Things”).

They are similar to intermediate inputs for consumer facing goods and therefore all or at least these B2B-ADS should not be in-scope for Amount A. There is no principled basis to single out such products and services for different treatment than B2B sales of non-digital components, equipment and goods. For practical reasons, it would even be extremely difficult to do so, because the same B2B software can be standardized for some clients and customized for others, while the difference between implementation and www.bdi.eu

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customization is only gradual, therefore it would be extremely difficult to draw a line. Also, it is very often impossible for a company rendering the software to a client to get information about the use of the licenses for the software around the globe. Without this information it will be quite impossible to distribute the Amount A to market countries. Accordingly, B2B-ADS should either be removed from ADS scope or as with other areas, be narrowly tailored to specific challenges created by the digital economy and digital business models.

We are concerned that if the proposals are not tailored in a principled and objective way and the OECD is not able to reach consensus on those clear distinctions in definitions, the approach and definitions could be adopted in future unilateral tax measures with unpredictable outcome.

Without further specifying the proposals, the determination of the applicability of Amount A will pose determination and documentation problems to all businesses exceeding the EUR 750 million turnover threshold.

Although the Pillar One Blueprint aims to reduce the complexity of Amount A by setting so high thresholds at the time the new regulations are introduced that only a manageable number of businesses will fall under the scope of the new regulations, a closer look at the proposed technical solutions reveals that out-of-scope businesses may also be affected. With the current principles and examples of businesses that constitute ADS or CFB, potentially many multinational businesses might have at least one business that could be considered ADS. This is due to imprecise definitions which could lead to legal uncertainty. If a multinational business exceeds the EUR 750 million turnover threshold and has at least one product that potentially could be considered ADS or CFB, it has to demonstrate transparently not only to domestic but also to foreign tax authorities that Amount A is not applicable.

For this, it is not necessary to meet or exceed the profitability threshold, the business could even have a negative profitability. However, the formula to determine the quantum of Amount A provides that a residual profit can only be distributed to market jurisdictions if the profitability threshold has been exceeded. We therefore strongly recommend emphasizing this step within the process map and to consider simplifying the application test and the sequence of the steps, e.g. for consumer-facing MNE’s operating primarily still under more traditional CFP (brick-and-mortar) business models with a more decentralized character and comparatively low profit margins due to industry specifics. In this case, the process steps should be limited to the extent necessary, and it should be considered whether the profitability threshold test should follow directly step 5 of the process map of Amount A. www.bdi.eu

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Also, the OECD admits that such businesses will in many instances not need to pay Amount A or apply the mechanism to eliminate double taxations.

Therefore, a simplified application test, reducing any compliance burden for these businesses, should be considered.

In addition, numerous spurious precisions still bear a serious potential for double taxation. In order to ascertain whether business activities fall within the scope or not and thereby providing tax certainty, definitions and concepts have to be further defined to provide companies with certainty whether their activities are in scope or not. As an example, the general definition of ADS, which should ensure to address rapidly changing business models leads to ambiguity when considering a business activity to be inside or outside of the scope. Therefore, the Inclusive Framework should strive for both clear and targeted definitions in order to reduce ambiguities and potential future disputes, not solely but at least with regard to definitions such as “bespoke customer interactions”, “highly customized”, “automated” or “automatically”.

For example, the definition of a good or service “of a type commonly sold to” consumers is not clear in respect of services provided by a MNE as execution of sovereign functions (e.g. waste disposal) but which are in the end for the benefit of the consumer. The explanation of this definition should state more precisely whether, and under which conditions, goods or services provided by a MNE that has won a public tender have to be included.

Concerning the positive and negative lists discussed in the Blueprints it must be ensured that individual jurisdictions cannot make unilateral changes or own interpretations to these lists. In case an update of these lists may be necessary in the future, a unilateral modification of these lists by jurisdictions has to be ruled out.

As long as the definition of CFB remains rather broad, the list of activities that are supposed to be excluded from Amount A needs to be completed in order to take account of the objective of Pillar One. Where profits arising from services which physically performed in a specific market jurisdiction are already taxed in that market jurisdictions, there is no further need for any calculation and re-allocation of Amount A. Any other solution would mean an inappropriate administrative burden for the MNE. Additional “plus factors” would only lead to more complexity and legal uncertainties, thereby increasing the compliance costs for businesses.

Therefore, a simplified approach could drop any allocation of amount A into a country where the multinational operates through a subsidiary or PE with

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an appropriate ALP profit as CFB regularly operate through sales subsidiaries or PEs. In addition, businesses believe that regarding the market revenue thresholds, further concretization is needed. It is unclear when the respective nexus thresholds for the revenue in a jurisdiction will be published and how they will be defined. An average revenue threshold, weighted over several years, could potentially provide for a tax cap and increase comparability. In this case, however, a detailed distinction between different industries / product categories / business models would be necessary.

2.2.

Amount A: Revenue thresholds (II)

Regarding revenue sourcing, the Inclusive Framework should strive for harmonized rules and put emphasis on indicators which should be in line with data already collected by MNEs. This could be one measure to achieve the goal of minimizing compliance costs and providing manageable administration. As a possible simplification measure, the scope of Amount A, which is significantly broader than the initial proposal of the European Commission for a Digital Services Tax (DST), could be defined compared to the scope of existing (and to be eliminated) DSTs, especially for cloud services and digital content services, a global threshold higher than EUR 750 million consequently.

In addition, provisions are needed to ensure that CFB revenues generated in local entrepreneurial market states can be deducted, ideally already at the direct revenue threshold or at the “de minimis test� for the in-scope revenue test. Provisions are needed to ensure that great efforts are required for a redistributable amount which in the end, is rather small. According to the Blueprints only revenues of the domestic/home state are excluded. However, this does not reflect a decentralized system and therefore, the revenues of the local market states with a claim to residual profit should be excluded as in this case the market state would be identical with the paying entity.

2.3.

Amount A: Revenue sourcing rules (IV)

Regarding the revenue sourcing rules for Amount A the members of the Inclusive Framework should primarily build on information which is already collected by businesses. It is important that documentation requirements are minimized so that business with third parties is not affected. This implies that the members of the Inclusive Framework should ideally base their work on rules focusing on the location of sales or customers respectively. In order to establish robust and uncontested rules to identify customer location, www.bdi.eu

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businesses should be able to use data already available as this would considerably minimize administrative efforts. Since businesses have a vested interest in this information, a confirmation of the business that the information cannot be obtained should be sufficient.

The indicators for locating customers as laid down in European legislation on VAT on electronically supplied services could be seen as a potential basis.

Any additional requirement to collect data must consider and reflect existing privacy requirements such as the European General Data Protection Regulation (GDPR).

Members of the Inclusive Framework should also be aware that determining the consumer location can be quite complex and a substantial compliance burden, in some cases the determination of the location of the consumer might not be trackable at all. This information might only be available at the multinational’s customer. Therefore, the Inclusive Framework should focus on information which at the one hand is already available or easy to collect and on the other hand provided voluntarily by customers.

2.4.

Amount A: Tax base and Segmentation (V)

Under the new concept and in determining the tax base, segmentation would be required to appropriately target the new taxing right in certain cases.

However, this could lead to significant administrative efforts for businesses, especially in case a segmentation beyond the segments in the annual financial statements is required. This also applies to the calculation of profits for segments which is difficult to endure and to verify or audit, why we want to encourage the OECD/G20-Framework to further simplify these concepts.

Otherwise, this would lead to immense efforts in calculating ADS/CFB segmented profit and loss, which would rely on cost allocations that would be hard to define and to audit.

As a potential solution, BDI proposes that segments reported in the groups’ annual accounts with a substantial amount of out-of-scope business (e.g. inscope sales within the operating segment exceed a total share of 50 percent of segment sales) should be excluded. Segmentation should only be mandatory to meet the objectives of Amount A. In addition, a transitional period of a few years should be envisaged in order to be able to provide the segmentation requested.

Another possible way to minimize the burdensome calculation of profits for segments would be to stick to MNE segments according to their financial statements while precluding any further segmentation requirements. In case this would be too unrealistic to be achieved, alternative materiality thresholds www.bdi.eu

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should be established and applied. These alternative materiality thresholds should apply at the level of operative segments which should apply at the level of operative segments according to the annual report.

In addition, we would like to point out further issues that are likely to arise due to incongruities at the level of profit determination by providing the following example: Example The application of non-harmonised profit determination rules can lead to conflicting results. An illustrative example of conflicting rules is the treatment of goodwill under German national commercial law (HGB) and IFRS: Company A, which resides and produces in Germany and sells its products exclusively to customers located in France. Company A acquires a part of the business of Company B located in France, by means of an asset deal. A derivative goodwill of EUR 300 million is determined. B has a profit margin of 15 percent (profit before tax, PBT) on sales of EUR 100 million, excluding the depreciation of goodwill.

Company A has no PE in France and is only subject to unlimited tax liability in Germany.

Taking into account the planned regulations of Pillar One and the calculation according to IFRS, the following calculation is given: in EUR m per year

Period 1-15

Depreciation goodwill

0

Turnover French client

100

Production expenses

-85

Profit (in %)

15

Industry average (in %)

10

Amount A (in %)

5

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20 percent of the residual profit of EUR 5 million calculated according to IFRS is allocated to France. Germany would ultimately have to cut EUR 1 million of profit.

However, it is disadvantageous that IFRS does not provide for depreciation of goodwill, whereas the German national commercial law (HGB) provides for depreciation, as follows: in EUR m per year

Period 1 - 15

Depreciation goodwill

-20

Turnover French client

100

Production expenses

-85

Profit (in %)

-5

This results in different bases of assessment which do not take into account a tax loss determined according to German regulations. Depending on the methodology (exemption vs. crediting), economic double taxation arises.

As shown above it is crucial to take these incongruities into account in order to avoid double taxation issues due to different regulations.

With respect to the proposed adjustments to the profit and loss-statement for the determination of a standardized PBT measure further guidance should be provided. For example, the recognition of non-deductible expenses, which differ depending on the tax legislation from country to country, is undefined.

These kinds of deductions should therefore be limited to a reasonable amount to reduce the compliance burden.

2.5.

Amount A: Loss Carry Forward regime (VI)

German business aims to highlight that a loss carry-forward regime ensuring that Amount A is based on an appropriate measure of net profit is of high importance. However, key issues remain undetermined and need to be addressed: From a business point of view, only economic profits should be taxed which implies – especially in times of crisis – that pre-regime losses as well as in-regime losses should be part of any final agreement. By ensuring that pre-regime losses are considered, this could first of all help businesses currently struggling with the consequences of the COVID-19 pandemic, but secondly also those businesses just outgrowing the innovation phase of the business cycle could be exempted from the new provisions. www.bdi.eu

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Therefore, German businesses are convinced that pre-regime and in-regime losses should be carried over.

Basically, the calculation of profits and losses per segment should be determined in a consistent way. However, it must be avoided that by segmenting Amount A is distributed and taxed without an actual relief in the country of the paying entity. For reasons of practicability, a limitation of the time period of – for example – five years should be introduced.

A centralized management of losses, in combination with an earn-out mechanism at the level of the group or segment, makes sense in order to prevent that assigned losses in the market jurisdiction cannot be offset due to lack of other income. Market jurisdictions nevertheless should be informed about the losses so that it becomes clear that the residual profit does not only comprise profits.

Although the consideration of profit shortfalls is conceptionally not mandatory and could lead to further complexity, there is something to the argument that a carry-forward regime which includes profit-shortfalls would improve neutrality by ensuring that Amount A does not apply differently to taxpayers with volatile profits from one period to the next. Otherwise, one exceptional profitable year would trigger the application of Amount A. Therefore, BDI appreciates that further work will be conducted to estimate the impact of accounting for profit shortfalls on the amount of losses administered by the Amount A carry-forward regime (and on the Amount A profit of in-scope MNE groups), and in turn on reducing the quantum of Amount A while pointing out that at the same time special attention must be paid to the impact on complexity.

2.6.

Double counting issues (VII)

Given that the idea behind Amount A is to allocate taxing rights to market jurisdictions, which under the current and well-established profit allocation rules do not have taxing rights over residual profits generated in that jurisdiction, no double counting issues should arise when calculating and allocating Amount A to eligible market jurisdictions. However, according to the way Amount A is to be calculated, double counting issues may arise. This is due to one of the inconsistencies which result from the attempt to layer a new taxing right for market jurisdictions in the form of Amount A and its very simplified calculation “on top” of existing regulations. Indeed this of course raises the question whether the same residual profits may not only be allocated twice to certain market jurisdictions, once according to the ALP (i.e. the existing marketing and distribution profit) and a second time according to Amount A, but also be taxed several times. www.bdi.eu

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While we recognize that the OECD may address the issue of double counting through the envisaged mechanism to eliminate double taxation, we want to emphasize again that a simplified approach could drop any allocation of Amount A into a country where a MNE operates through a subsidiary or a PE with an appropriate ALP profit as businesses see CFB regularly operating through sales or PEs. Otherwise, the concept of the “marketing and distribution profits safe harbour” which would “cap” the allocation of Amount A to market jurisdictions that already have taxing rights over a group’s profits under existing tax rules could be an approach which should be explored further. In its current form, however, the safe harbour-approach seems to be insufficient, as it is only applicable if a local profit is made that exceeds routine profits. It should instead be granted independently of the local profit situation by a “inmarket full risk distributor entitled to residual profit.

A “digital differentiation” for the Amount A formula by applying a lower profitability threshold only to ADS, on the other hand, should not be considered or explored further as this may result in substantial distortions between industries leading to a non-consent between tax payer, member states and tax administrations and could tackle the main objective of invention of the new taxation systems.

Concerning withholding taxes in market jurisdictions and the taxes under Amount A, possible secondary adjustments in the market states (e.g. in reference to withholding taxes or interest) should be eliminated by the concept of Amount A. As a whole, an overall allocation of amounts of dispensing and receiving states should occur which clearly shows the netting process, especially if the paying entity is a market state as in the case of an “in-market full risk distributor entitled to residual profit.” This overall allocation should then either be approved bindingly or not at all.

2.7.

Amount B: Scope and general remarks (IX & X)

If Amount B by its fixed return for certain baseline distribution and marketing activities taking place physically in a market jurisdiction strives for certainty and simplification and could provide certitude by preventing some market jurisdictions from bringing froth unilateral solutions, German businesses see in Amount B a potentially positive first step of the implementation of Pillar One. In order to serve the purpose of certainty and simplification, the scope of Amount B should be sufficiently broad as this would minimize the likelihood of market jurisdictions asserting more revenue based on additional functions being performed in their markets that are not included in the scope of Amount B. However, current benchmarking framework relies on www.bdi.eu

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bandwidth to determine whether routine distributions are at arm’s length and therefore remain an issue to be solved.

In addition, Amount B should be binding for all jurisdictions not only under Pillar One but also for national/international income differentiation in accordance with the ALP. An appropriate profit level indicator for calculating Amount B could be a fixed operating profit margin, e.g. measured as a return on sales.

Furthermore, BDI wants to encourage the Inclusive Framework to build on experience with existing Advance Pricing Agreements (APA) in order to define Amount B. 2.8.

Tax certainty under Pillar One (VIII, XI & XII)

Tax certainty should not only be the guiding principle for Pillar One, but for Pillar Two as well. In this context, German businesses call for mechanisms to guarantee early tax certainty, i.e. in concrete terms timely and for both states and businesses binding dispute prevention mechanisms.

With particular regard to Pillar One, it is well noted that the Blueprint outlines a possible approach to mandatory binding dispute prevention and resolution mechanisms. However, BDI wants to highlight that by artificially integrating a completely new system into existing TP rules and existing tax principles, system-immanent double taxation and disputes will be inevitable. The present concepts which i. a. include a review panel mechanism and other tools to prevent disputes do not guarantee avoidance of double taxation, this also applies to the proposed tax certainty process.

Specifically, the implementation of Pillar One and its interaction with Pillar Two is predestined to create new double taxation risks. As double taxation harms business innovation and growth, BDI wants to reiterate the importance of simultaneously eliminating double taxation instead of solely relying on mechanisms within the context of MAP. This is of utmost importance because especially with regard to decentralized systems, which are not affected by potential additional legal certainty from Amount B, profit allocation conflicts could arise.

Instead of first “enlarging the cake” and then allocating it via a formulaic method with subsequent adjustments in a highly complex and controversial system – accompanied by various uncertainties that arise from a so-called DEMPE analysis (DEMPE stands for Development, Enhancement, Maintenance, Protection and Exploitation) as well from the existence of a “market connection” and allocation to several paying entities – the latter (surrendering states) should be determined as clearly and formulaically as www.bdi.eu

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possible. In addition, the entire allocation scheme, including a list of market states and paying entities, should be defined and bindingly adopted.

In concrete terms, provisions should be established to guarantee a relief for Amount A in paying entities. In view of obtaining such a relief at the paying entity, income tax-credit (allocated Amount A * national tax) could be immediately paid out irrespective of the overall tax situation or the paying entity. Such a system is preferable to other options (such as a credit system or an exemption method) because these options involve risks of temporary or long-term double taxation. This applies, for instance, if the paying entity is in overall running losses while having profitable ADS/CFB business. The same holds true in case the paying entity has loss carry-forwards or is part of a loss-making fiscal unity. These examples clearly demonstrate that the avoidance of double taxation as one of the aims of Pillar One laid down in the published Cover Statement cannot be realized.

The paying entity should be the entity that operates within the market according to the TP model and generates the residual profit (or loss). In a decentralized system with an “in-market full risk distributor entitled to residual profit”, the local market state should always be the (sole) paying entity (exemption: profit split system), which has priority according to step 3 (“market connection priority test”). However, the example of Annex C Box C.2., in which despite the presence of a local entrepreneur, the IP owner is referred to as a paying entity (“likely to be identified”) shows how unclear the current interpretation is. Alternatively, it could be considered to determine the paying entity in a formulaic way as well, e.g. by linking to profitability. The market connection priority test itself could be a useful part of the process to identify a paying entity, because in this case the residual profit earned for a particular market state can be allocated. This should lead to the fact that in a decentralized system amounts can be balanced and the identification of the principal should be easily possible.

The approach of an early certainty process for clarification of whether the group is within the scope of Amount A or not and whether the determination and allocation of Amount A is agreed is very appreciated from business point of view. It should be as standardized as possible and should lead to certainty in due course and in binding way for all affected tax authorities involved. The examination and allocation of Amount A should be the exclusive responsibility of the leading tax administration, as it is very doubtful that tax authorities will reach timely results in a multilateral panel-review process with developing countries also participating in the process.

In addition, an explicit approach how risks of material TP adjustments due to audit, MAP, or arbitration will be addressed, especially for cases that changed www.bdi.eu

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profits allocated to a market jurisdiction under the existing ALP-based profit allocation rules and corresponding adjustments to taxable profit of the counterparty occur years later or not at all, must be developed.

With regard to features that could be incorporated into the Amount A tax certainty process to encourage participation by MNE groups, an upstream system for identifying low risk MNE groups, which e.g. grant a high share of residual profit to market states or where as a result only a slight shift of income occurs could be a feature to increase acceptance.

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3. Specific comments on the Pillar Two Blueprint According to our understanding, the tax policy rationale of Pillar Two is to disincentive profit shifting and tax competition by imposing a minimum tax on all income by comprehensively addressing remaining BEPS challenges.

However, we wish to recall that enormous efforts have already been undertaken to successfully address these issues which are reflected in the mechanisms under Pillar Two to establish a global framework of minimum taxation. Not only due to the increased complexity which would derive from the new provisions under Pillar Two with existing international and domestic provisions, BDI is critical of the proposed measures under the Pillar Two Blueprint in view of their complexity and the associated risks. As it will be very challenging to globally coordinate the application of Pillar Two and its corresponding documentation requirements (this applies particularly to the application of the Undertaxed Payment Rule), we strongly advocate for a simplification of rules.

The proposals in its current form are not only highly complex but are also accompanied by tremendous documentation efforts, even if no top-up taxes were to be paid. It is therefore essential that the ‘escape clauses’ (for GloBE) are designed in such a way that the application of the rules, including their documentation, does not apply if according to of easily comprehensible, verifiable figures (e.g. deriving from the Country-by-Country-Report, the consolidated financial statements of the previous year or the level of a country’s nominal tax rate) profits have been taxed above the minimum tax rate.

In addition, a simplification of rules would also enhance countries’ willingness to implement the proposal. Businesses are concerned that the interaction of the Undertaxed Payments Rule with the Inclusion Rules as well as possible Controlled Foreign Company (CFC) rules and the provisions under Pillar One can scarcely be handled. This is due to the fact that documentation efforts are too high while at the same time the proof of tax payments in other jurisdictions is difficult. In case of uncertainties, double taxation risks may arise. The Pillar Two Blueprint suggests that taxes paid in accordance with CFC rules are considered covered taxes for the purposes of the GloBE provided that they are imposed on the income of the CFC that is attributed to shareholders in the parent jurisdiction.

From a business perspective, a simple and administrative solution for delivering on the policy intent to ensure global minimum effective taxation and to address remaining BEPS issues is key. Solutions are needed that ensure moderate global minimum taxation and do not force

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comprehensive additional taxation according to the model of the German Foreign Tax Act regulations. Unnecessary compliance efforts for businesses and the risk of double taxation have to be avoided. In that regard, the consistent and uniform interpretation and application of the GloBE rules by all jurisdictions is of utmost importance for providing certainty and eliminating double taxation.

The easiest way to implement the idea of taxing businesses at a global minimum rate would be through global blending based on consolidated financial statements applicable at the level of the ultimate parent company adjusted for temporary tax differences and multi-year-effects. This would come along with considerably less administrative effort for businesses and tax administrations alike and would be one simplification measure which would be easily achievable and make the whole system less burdensome.

3.1.

General remarks and scope (I, II, III, IV & V)

So far, investment decisions were based on the individual level of taxation existing up to then in the countries taken into account. When introducing a minimum level for an effective tax rate (ETR), this decision should be made with care. It is to be determined uniformly and moderately worldwide. While we understand that the precise minimum rate is still to be politically determined, we want to emphasize that only through a moderate and reasonable minimum tax rate, negative consequences for cross-border activities of businesses can be avoided.

Especially the interaction of the Undertaxed Payment Rule with the Inclusion Rules as well as eventual CFC rules and the mechanisms of Pillar One can hardly be mastered due to the extensive documentation efforts required and the difficulties for proving eventual tax payments in other jurisdictions.

Resulting ambiguities could lead to double taxation risks.

Below, we want to discuss some ways of simplification which could significantly decrease the administrative burden for businesses by reducing complexity while at the same time aligning with the underlying policy rationale of Pillar Two. â–Ş

Blending

The income inclusion rule can be calculated in two forms – jurisdictional or global blending. In fact, jurisdictional blending requires a more complex calculation of the amounts per jurisdiction and may undermine the goal of subjecting companies to a global minimum taxation, as it may not consider losses from certain jurisdictions when adding them up globally, among other

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occurring issues. In addition, a jurisdiction-based approach would create significant complexity and cause high compliance costs for both taxpayers and tax authorities.

From a business perspective, the scope of blending should therefore be as wide as possible why we advocate for global blending at the ultimate parent level. This is far simpler to administrate and at the same time conform to the intent of Pillar Two which is to ensure companies are taxed at a global minimum rate. If global blending is not achieved and jurisdictional blending is endorsed, a compromise is necessary between the grandfathering of the US Global Intangible Low Tax Income (GILTI) global blending and the jurisdictional blending. This is because the grandfathering of the US GILTI rules would not impact US companies and would thus distort competition.

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GILTI co-existence

One simplification route could be to introduce a “safe harbour” test under which MNE Groups would not be subject to Pillar Two if their global ETR is above a certain threshold. For example, non-US based companies would be subject to the Pillar Two jurisdictional blending only if the Group ETR, calculated as per GloBE, is above a certain rate (e.g. 20 percent or above). In parallel, it could be decided that US based companies would be subject to the US global blending GILTI, except for countries where they would have a low ETR (say below 10 percent). MNEs should be entitled to comply with existing rules of minimum tax regimes in jurisdictions where they are headquartered. In case a jurisdiction does not have adopted a minimum tax regime, it should be discussed whether a parent entity’s consolidated financial accounts could be used as a basis.

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Calculating the ETR under the GloBE rules

Deferred taxes are balance sheet adjustment items for temporary differences, which consider tax charges and tax relief already justified in economic terms but not yet legally incurred. These adjustment items are used to allocate anticipated taxable events to the assessment periods in which they arose.

Deferred taxes therefore have no direct influence on the amount of the tax base, but only on the recognition of income on an accrual basis. Therefore, deferred taxes are particularly suitable for the accrual accounting of ETR. Deferred taxes are used to economically allocate anticipated taxable income to the assessment periods in which they arose, and are used for accrual purposes.

Deferred tax accounting refers to the recognition of temporary differences between the assessment periods that result in higher or lower tax expenses in www.bdi.eu

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the future. At the level of the parent company, the distinction between the tax liability on income already realized and the tax actually incurred should be taken into account. Otherwise, the question of double taxation due to multiple inclusion could arise. However, if the actual tax liability is lower than that stated in the financial statements, a deferred tax liability is created; if the tax liability is higher than that stated in the financial statements, a deferred tax asset is created.

On the one hand, this procedure has the advantage that deferred taxes are known to some GAAPs and therefore the most minor accounting adjustments would have to be made. In addition, the adjustment items ensure that income is accrued on an accrual basis, which avoids the double recording of income and expenses in different periods due to the systemimmanent reversal of temporary deferred taxes, similar to the adjustment item. In our opinion, such a consideration of deferred taxes is a very efficient method to determine the ETR. ▪

Country-by-country reporting ETR safe-harbour

The concept of the Country-by-country reporting (CbCR)- ETR safe harbour, as laid down in the Pillar Two Blueprint, could be a good path to further simplify Pillar Two by referring to existing CbC-reports. However, if some adjustments to the data are needed in order to consent with the proposed rules of Pillar Two, this would not automatically minimize tax compliance costs.

With regard to the guidance on the relevant calculation provided by the OECD, German industry wants to suggest allowing using the CbCR as it is or to allow using CbCR with deferred taxes.

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De minimis profit exclusion

BDI welcomes this proposal as a useful simplification measure as it would help exclude a number of entities in MNE groups from the provisions under Pillar Two, assuming it is based on a percentage (2.5 percent of PBT could be discussed but seems reasonable) and not a lump sum.

In addition, the rule needs to be clarified or amended, as the calculation should only consider profitable entities and exclude loss-making entities to compare the net income a profitable entity with the net income of all other profitable entities. Otherwise, the sum of the profitable entities would exceed 100 percent. Furthermore, the PBT item should be the one drawn from consolidated accounts to preserve simplicity.

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Further remarks on simplification options

At the moment, even if one observes the rule order (i.e. which rule applies first?) and has come to a (provisional) result, there is still the possibility of future changes due to subsequent tax audits, MAP procedures or legal proceedings. In these cases, it is necessary to undergo the proposed set of rules under Pillar Two that operate to co-ordinate the different elements of this Pillar once again (as far as this is possible under procedural law).

Therefore, the final determination of the tax can take years and involves legal uncertainty and the risk of double taxation.

Before discussing the provisions in detail, it is worth highlighting that the provisions of the Undertaxed Payment Rule make the rulebook redundant. Especially if more than two countries want to access the same profit, multiple taxation can occur. As a proposal for simplification, the entire set of rules could be limited to the Income Inclusion rule (jurisdictional blending and a tax rate of e.g. 15 percent). The tax revenue effectively generated could then be distributed by the state that has collected the GloBE tax to those jurisdictions with which the relevant jurisdiction has generated sales in the countries concerned. In this case, the process of redistributing tax revenues would take place directly between jurisdictions without including the taxpayer. This process would require less documentation effort, would be less complex and would mean a lower risk of double taxation.

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Carve-outs

BDI notes that the issue of carve outs could be simplified by opting for a global blending or a “safe harbour” simplification measure. In case this is not politically feasible, then carve outs are required. If so, a formulaic substance-based carve-out would be an acceptable approach if new business models are considered and further simplifications are taken into consideration. Payroll and tangible assets are only two components of a company activity and are “old economy” factors, which get only a routine, cost plus, return.

This would favour larger countries with traditional large manufacturing and extractive base in tangible assets and manufacturing workforce, to the detriment of smaller more agile / IP / digital economies. It creates also discrimination among sectors and businesses and ignores the growth and value drivers in this new globalized and digital economy that are based on knowledge, hard and soft Intellectual Properties and intangibles.

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Carry-forwards

BDI welcomes the OECD’s awareness of the necessity for transition rules for pre-regime losses. However, it is still unclear to which extent pre-GloBE losses would be admitted. Instead of capping the transition of pre-regime losses (e.g. by limiting carry forwards of pre-GloBE losses to three years, which appears to be clearly insufficient, especially in the Covid-19-crisis context but also for companies with long-term business cycles), we would suggest a time period of at least seven to ten years. This could cover most businesses as it is important that possibility for carry-forwards of pre-GloBE losses should reflect the characteristics of different business-cycles. It is important to consider that further crises, as already seen in the Covid-19crisis, may confront companies with more severe challenges that do not allow for loss compensation within three years.

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Tax Administration guidance

Tax administration guidance could be a useful way for simplifying as it would significantly ease the potential burden on businesses.

The GloBE rules aim to represent a co-ordinated set of rules to address remaining BEPS challenges by ensuring that profits of internationally operating businesses are subject to a minimum tax rate. Before touching upon each of the GloBE rules individually, we would like to reiterate our a general proposal for simplification which states that the entire set of rules could be limited to the Income Inclusion rule (jurisdictional blending and a tax rate of e.g. 15 percent).

3.1.1. Income inclusion and Switch-over rules (VI) The Income inclusion rule is to be designed as a CFC rule that provides a subsequent taxation in the country of residence if the tax rate of a foreign controlled subsidiary is below the thresholds of the minimum taxation.

Ideally, the Income Inclusion rule should prevent abusive practices without punishing activities that are not subject to profit shifting. In order to also have “access” to dependent units, a complementing switch-over rule is supposed to apply to those units. The design of these rules is decisive for the impact on MNEs. In addition, we want to highlight that the introduction of a Switchover rule, which covers foreign branches as well as immovable property and allows the state of residence to apply the credit method instead of the exemption method where the profits attributable to a PE or derived from immovable property are subject to tax at an effective rate below the minimum rate, would

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require changes in every major tax treaty. Therefore, a multi-lateral instrument (MLI) or a similar legal instrument is indispensable.

In addition, it remains unclear whether there will be a ‘white list’ of countries introducing the Income inclusion rule. If this is not the case, each business would have to check individually whether the Income Inclusion rule regulations of a country are in line with the regulations of Pillar Two. Furthermore, there is an additional lack of clarity what happens to IIR tax credits when it comes to restructuring measures or to a disposal of companies in a country. It is not clear whether it will be reduced in this case or even or lost when a business decides to pull out of a county.

3.1.2. Undertaxed payments rule (VII) The undertaxed payments rule is intended as a backstop to the Income inclusion rule. Key part of the undertaxed payments rule is a limitation of deductible business expenses at the level of the debtor who has expenses for payments to a related party where the income is subject to lower taxation than the minimum tax rate. The amount of the prohibition of deduction is determined by the difference between the low taxation for the related party and the difference to the minimum tax. The calculation of profits in the various jurisdictions may result in different tax bases, leading to multiple taxation. In this context, we want to reiterate that the interaction of the Undertaxed Payments Rule with the Inclusion Rules as well as possible Controlled Foreign Company (CFC) rules and the provisions under Pillar One can scarcely be handled.

As Pillar Two would be implemented on an optional basis by jurisdictions, this could lead – in connection with the application of the Split Ownership rule – in more cases than expected to the application of the Undertaxed Payments rule which seems hardly feasible in practice. In this context, there is an urgent need for readjustments, as large businesses often have slivered chains of shareholdings, whether within the group or as a result of joint ventures. If these Partially Owned Intermediate Parents are located in jurisdictions that do not apply the Income Inclusion Rule, some businesses are concerned that depending on further chains of shareholdings, there is automatically an increased risk for the application of the Undertaxed Payments rule which is contrary to the OECD’s assessment that it is not expected to apply in many cases.

Therefore, if the Undertaxed Payments rule is to be maintained (partly because not all countries will agree to introduce the GloBE rules), it has to be simplified as its application, especially when it comes to the ‘second stage’ is unreasonable for MNEs. www.bdi.eu

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3.1.3. Subject to tax rule (IX) The provisions of the Subject to tax rule are envisaged to deny treaty benefits for certain deductible intra-group payments made to jurisdictions where those payments are not subject to a sufficient nominal tax rate. It is important that the provisions are further specified and contain clear guidance on the operation of the rule.

3.2.

Implementation, rule co-ordination, dispute prevention and resolution (X)

When it comes to the implementation of the GloBE rules, it has to be recalled that the Income Inclusion Rule and the Undertaxed Payments Rule do not require changes to bilateral treaties and can therefore be implemented by way of changes to domestic law. This does not apply to the Subject to tax rule and the Switch-over rule which require amendments to bilateral treaties or an implementation through an MLI. In this context and for the purpose of providing tax certainty and of eliminating double taxation, BDI not only reiterates the importance of dispute prevention and resolution mechanisms.

We also want to stress the good experience made with the MLI which has been designed to modify double taxation treaties in line with the minimum standards of the BEPS Action Plan and would therefore advocate for a similar multilateral convention as this would be a way to ensure the crucial consistency and co-ordination of the different GILTI rules. A globally unanimous rule coordination within Pillar Two is essential as a lack of rule coordination can easily lead to instances of double or multiple taxation.

There will be notable interaction between Pillar One and Pillar Two for jurisdictions adopting both proposals. It is therefore essential that the elements of Pillar Two are implemented on the basis of clear rules in the interaction between the proposals under Pillar One and Pillar Two as well as between the measures under Pillar Two and existing international and domestic tax rules. German industry is concerned that without an agreed implementation, which could minimize inconsistencies in domestic law and its subsequent interpretation, severe double taxation risks would arise. We want to highlight that the proposed dispute resolution mechanisms are fundamentally unfit to solve an inevitable increase in disputes. Not only due to this, implementation measures should contain provisions for ex-ante dispute prevention mechanisms and effective dispute resolution mechanisms. It is furthermore appreciated that the Inclusive Framework on BEPS will develop model legislation and administrative guidance.

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4. Final remarks BDI wants to commend the OECD/G20 Inclusive Framework on its achievements and the continued search for a consensus-based solution to aspects of the international tax system. At the same time, we recognize that further work is needed to further develop the proposals and to meet the goal of finding solutions to the tax challenges arising from the digitalisation of the economy. We want to reiterate that BDI and German businesses remain committed to supporting the OECD/G20 framework on BEPS in this endeavour.

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About BDI The Federation of German Industries (BDI) communicates German industries’ interests to the political authorities concerned. She offers strong support for companies in global competition. The BDI has access to a widespread network both within Germany and Europe, to all the important markets and to international organizations. The BDI accompanies the capturing of international markets politically. Also, she offers information and politico-economic guidance on all issues relevant to industries. The BDI is the leading organization of German industries and related service providers. She represents 40 inter-trade organizations and more than 100.000 companies with their approximately 8 million employees. Membership is optional. 15 federal representations are advocating industries’ interests on a regional level.

Imprint Federation of German Industries e.V. (BDI) Breite Straße 29, 10178 Berlin, Germany www.bdi.eu T: +49 30 2028-0 Contact Dr Monika Wünnemann Head of Department Tax and Financial Policy T: +49 30 2028-1507 M.Wuennemann@bdi.eu Philipp Gmoser Senior Manager Tax and Financial Policy T: +32 2 79210-12 P.Gmoser@bdi.eu

BDI document number: D 1292

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