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Tax challenges from digitalisation of the economy

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The international community reaffirmed its commitment to reach a consensus-based long-term solution to the tax challenges arising from the digitalisation of the economy, and will continue working toward an agreement by the end of 2020, according to the Statement by the Inclusive Framework on BEPS released by the OECD today.

The Inclusive Framework on BEPS, which groups 137 countries and jurisdictions on an equal footing for multilateral negotiation of international tax rules, decided during its Jan. 29-30 meeting to move ahead with a two-pillar negotiation to address the tax challenges of digitalisation. 

Participants agreed to pursue the negotiation of new rules on where tax should be paid (“nexus” rules) and on what portion of profits they should be taxed (“profit allocation” rules), on the basis of a “Unified Approach” on Pillar One, to ensure that MNEs conducting sustained and significant business in places where they may not have a physical presence can be taxed in such jurisdictions. The Unified Approach agreed by the Inclusive Framework draws heavily on the Unified Approach released by the OECD Secretariat in October 2019.

Endorsement of the Unified Approach is a significant step, as until now Inclusive Framework members have been considering three competing proposals to address the tax challenges of digitalisation. A Programme of Work agreed in May 2019 has been replaced with a revised Programme of Work under Pillar One, which outlines the remaining technical work and political challenges to deliver a consensus-based solution by the end of 2020, as mandated by the G20. Inclusive Framework members will next meet in July in Berlin, at which time political agreement will be sought on the detailed architecture of this proposal.

The Statement by the Inclusive Framework on BEPS takes note of a proposal to implement Pillar One on a “safe harbour” basis, as proposed in a December 3, 2019 letter from US Treasury Secretary Steven Mnuchin to OECD Secretary-General Angel Gurría. It recognises that many Inclusive Framework members have expressed concerns about the proposed “safe harbour” approach. The Statement also highlights other critical policy issues that must be agreed under Pillar One before a decision can be taken. The “safe harbour” issue is included in the list of remaining work, but a final decision on this issue will be deferred until the architecture of Pillar One has been agreed upon.

The Inclusive Framework also welcomed the significant progress made on the technical design of Pillar Two, which aims to address remaining BEPS issues and ensure that international businesses pay a minimum level of tax. They noted the further work that needs to be done on Pillar Two.

“It is more urgent than ever that countries address the tax challenges arising from digitalisation of the economy, and the only effective way to do that is to continue advancing toward a consensus-based multilateral solution to overhaul the international tax system,” said OECD Secretary-General Angel Gurría. “We welcome the Inclusive Framework’s decision to move forward in this arduous undertaking, but we also recognise that there are technical challenges to developing a workable solution as well as critical policy differences that need to be resolved in the coming months.”

“The OECD will do everything it can to facilitate consensus, because we are convinced that failure to reach agreement would greatly increase the risk that countries will act unilaterally, with negative consequences on an already fragile global economy,” Mr Gurría said.

The Inclusive Framework’s tax work on the digitalisation of the economy is part of wider efforts to restore stability and increase certainty in the international tax system, address possible overlaps with existing rules and mitigate the risks of double taxation.

EU Politics

Commission sets out key actions for a united front to beat COVID-19

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Two days ahead of the meeting of European leaders on a coordinated response to the COVID-19 crisis, the Commission set out a number of actions needed to step up the fight against the pandemic. In a Communication adopted today, it calls on Member States to accelerate the roll-out of vaccination across the EU: by March 2021, at least 80% of people over the age of 80, and 80% of health and social care professionals in every Member State should be vaccinated. And by summer 2021, Member States should have vaccinated a minimum of 70% of the adult population.

The Commission also calls on Member States to continue to apply physical distancing, limit social contacts, fight disinformation, coordinate travel restrictions, ramp up testing, and increase contact tracing and genome sequencing to face up to the risk from new variants of the virus. As recent weeks have seen an upward trend in case numbers, more needs to be done to support healthcare systems and to address “COVID-fatigue” in the coming months, from accelerating vaccination across the board, helping our partners in the Western Balkans, the Southern and Eastern neighbourhood and in Africa.

Today’s Communication sets out key actions for Member States, the Commission, the European Centre for Disease Prevention and Control (ECDC) and the European Medicines Agency (EMA) which will help reduce risks and keep the virus under control:

Speeding up the roll-out of vaccination across the EU

By March 2021, at least 80% of people over the age of 80, and 80% of health and social care professionals in every Member State, should be vaccinated.

By summer 2021, Member States should have vaccinated 70% of the entire adult population.

The Commission, Member States and the EMA will work with companies to use the EU’s potential for increased vaccine manufacturing capacity to the fullest.

The Commission is working with Member States on vaccination certificates, in full compliance with EU data protection law, which can support the continuity of care. A common approach is to be agreed by the end of January 2021 to allow Member States’ certificates to be rapidly useable in health systems across the EU and beyond.

Testing and genome sequencing

Member States should update their testing strategies to account for new variants and expand the use of rapid antigen tests.

Member States should urgently increase genome sequencing to at least 5% and preferably 10% of positive test results. At present, many Member States are testing under 1% of samples, which is not enough to identify the progression of the variants or detect any new ones.

Preserving the Single Market and free movement while stepping up mitigation measures

Measures should be applied to further reduce the risk of transmission linked to the means of travel, such as hygiene and distancing measures in vehicles and terminuses.

All non-essential travel should be strongly discouraged until the epidemiological situation has considerably improved.

Proportionate travel restrictions, including testing of travellers, should be maintained for those travelling from areas with a higher incidence of variants of concern.

Ensuring European leadership and international solidarity

To ensure early access to vaccines, the Commission is to set up a Team Europe mechanism to structure the provision of vaccines shared by Member States with partner countries. This should allow for sharing with partner countries access to some of the 2.3 billion doses secured through the EU’s Vaccines Strategy, paying special attention to the Western Balkans, our Eastern and Southern neighbourhood and Africa.

The European Commission and Member States should continue supporting COVAX, including through early access to vaccines. Team Europe has already mobilised €853 million in support of COVAX, making the EU one of COVAX’s biggest donors.

Members of the College said:

President of the European Commission, Ursula von der Leyen, said: “Vaccination is essential to get out of this crisis. We have already secured enough vaccines for the entire population of the European Union. Now we need to accelerate the delivery and speed up vaccination. Our aim is to have 70% of our adult population vaccinated by summer. That could be a turning point in our fight against this virus. However, we will only end this pandemic when everyone in the world has access to vaccines. We will step up our efforts to help secure vaccines for our neighbours and partners worldwide.”

Vice-President Margaritis Schinas, responsible for Promoting our European Way of Life, said: “The emergence of new variants of the virus and substantial rises in cases leave us no room for complacency. Now more than ever must come a renewed determination for Europe to act together with unity, coordination and vigilance. Our proposals today aim to protect more lives and livelihoods later and relieve the burden on already stretched health care systems and workers. This is how the EU will come out of the crisis. The end of the pandemic is in sight though not yet in reach.”

Stella Kyriakides, Commissioner for Health and Food Safety, said: “Working together with unity, solidary and determination, we can soon start to see the beginning of the end of the pandemic. Now in particular, we need swift and coordinated action against the new variants of the virus. Vaccinations will still take time until they reach all Europeans and until then we must take immediate, coordinated and proactive steps together. Vaccinations must accelerate across the EU and testing and sequencing must be increased – this is show we can ensure that we leave this crisis behind us as soon as possible.”

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Africa Today

‘Complex’ emergency unfolding in Mozambique’s Cabo Delgado

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A group of people, having fled violence in several districts of Cabo Delgado, arrive in the provincial capital, Pebma. IOM/Matteo Theubet

UN agencies voiced deep concern on Wednesday over the worsening humanitarian crisis in Mozambique’s Cabo Delgado province, where attacks by armed groups have forced more than 565,000 to flee their homes. 

According to the agencies, growing insecurity and poor infrastructure are making it increasingly difficulty to reach families “completely reliant” on humanitarian assistance, amid fears that imminent rains and threat of cyclones could further compound the challenges. 

“Coupled with the fallout of the COVID-19 pandemic, the crisis has become even more complex”, regional heads of UN agencies in east and southern Africa said in a joint statement

“The crisis is a complex security, human rights, humanitarian and development emergency, underscoring the imperative of continuing to provide life-saving assistance while collectively supporting Government-led long-term resilience building”, the statement added. 

Crisis worsening 

In December, the UN officials visited Mozambique to assess the needs of the displaced populations as well as of the host communities.  

They heard extremely moving accounts from displaced men, women and children in the city of Pemba, the capital of Cabo Delgado, and in the districts of Ancuabe and Chiúre – people whose lives have been upended by conflict and insecurity. 

While acknowledging that much has been done to help victims of the crisis, the UN officials stressed that with displacement increasing daily, the lack of adequate food, water, sanitation, shelter, health, protection and education, was exacerbating an already dire situation, which could be further complicated by on-going torrential rains.  

Urgent support needed 

The UN agencies also raised concerns over the continuing impact of the coronavirus pandemic, which is keeping most schools closed. 

There is an urgent need to expand protection, healthcare, food and nutrition programmes, vaccination efforts and psychosocial counselling, and to aid displaced farming and fishing families to re-establish sustainable livelihoods, they added. 

They also urged support for adequate resettlement of uprooted families straining the already limited resources of impoverished host communities, and Government efforts to effectively register and assist the displaced. 

The senior officials are urging the Government of Mozambique and the international community “to step up efforts to end all forms of violence in the country, including gender-based violence and child marriage, and to invest more in women and girls as agents of progress and change,” the statement said.

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Human Rights

Over 1.9 billion people in Asia-Pacific unable to afford a healthy diet

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A child is tested for malnutrition at a UNICEF-supported health clinic in Bangladesh. According a UN report, malnutrition among young children and infants remains a pervasive problem in South Asia. UNICEF/Siegfried Modola

The economic impact of the coronavirus pandemic and surging food prices are keeping almost two billion people in Asia and the Pacific from healthy diets, United Nations agencies said on Wednesday.

According to the 2020 Regional Overview of Food Security and Nutrition, the region’s poor have been worst affected, forced to choose cheaper and less nutritious foods. The report is jointly produced by the Food and Agriculture Organization (FAO), the UN Children’s Fund (UNICEF), the World Food Programme (WFP) and the World Health Organization (WHO). 

“The outbreak of COVID-19 and a lack of decent work opportunities in many parts of the region, alongside significant uncertainty of food systems and markets, has led to a worsening of inequality, as poorer families with dwindling incomes further alter their diets to choose cheaper, less nutritious foods,” the agencies said

“Due to higher prices for fruits, vegetables and dairy products, it has become nearly impossible for poor people in Asia and the Pacific to achieve healthy diets, the affordability of which is critical to ensure food security and nutrition for all – and for mothers and children in particular.” 

As a result, progress is also slowing on improving nutrition, a key target for the Sustainable Development Goals (SDGs). As of 2019, over 350 million people in the region are estimated to have been undernourished, with an about 74.5 million children under five stunted (too short for their age) and 31.5 million suffering from wasting (too thin for height). 

‘Impact most severe in first 1,000 days’ 

The UN agencies went on to note that while nutrition is vitally important throughout a person’s life, the impact of a poor diet is most severe in the first 1,000 days, from pregnancy to when a child reaches the age of two. 
“Young children, especially when they start eating their ‘first foods’ at six months, have high nutritional requirements to grow well and every bite counts,” they said. 

The agencies called for an integrated systems approach – bringing together food, water and sanitation, health, social protection and education systems – to address underlying factors and achieve healthy diets for all mothers and children. 

‘Changing face of malnutrition’ 

They also highlighted the “changing face” of malnutrition, with highly processed and inexpensive foods, readily available throughout Asia and the Pacific. Often packed with sugar and unhealthy fats, such food items lack the vitamins and minerals required for growth and development and also increase the risk of obesity, diabetes and cardiovascular disease. 

The report urged governments to invest more in nutrition and food safety to promote healthy diets, as well as regulate sales and marketing of food for consumers, especially children. It also highlighted the need for action within the private sector, given the sector’s important role in the food system and its value chains for achieving healthy diets. 

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