Opening remarks by Lisa Kelaart-Courtney, Director, Prevention and Compliance Division, ADB Office of Anticorruption and Integrity, at the Regional Consultation on International Tax Matters for Asia-Pacific, 5 December 2022
Distinguished participants, colleagues, ladies, and gentlemen.
My name is Lisa Kelaart-Courtney and I am Director of the Prevention and Compliance Division of the Office of Anticorruption and Integrity of the Asian Development Bank. On behalf of the Asian Development Bank, it is my pleasure to welcome you to this in person Regional Consultation International Tax Matters for the Asia Pacific. This is truly a special moment since it is the first on-site consultation at ADB Headquarters since the COVID-19 pandemic.
I am delighted to learn that over 84 participants from more than 37 jurisdictions are represented here today. I would also like to greet all participants that are joining us on-line. Let us seize this opportunity to make this regional consultation a meaningful dialogue, with your active engagement, constructive learnings and key takeaways for implementation.
Let me also take this opportunity to thank the Organisation for Economic Co-operation and Development (OECD), the Commonwealth Association of Tax Administrators (CATA), Pacific Islands Tax Administrators Administration (PITAA), and the Study Group on Asia-Pacific Tax Administration and Research (SGATAR) for co-hosting this consultation.
Tax challenges of the digitalized economy
Since our first regional consultation in November 2019 in Manila, there has been significant progress made by the Inclusive Framework on finding a solution to taxation of the digital economy, which culminated with the landmark Inclusive Framework Statement of October 2021 that agreed on a two-pillar solution for taxing digitalized economy:
- Pillar One creates a new taxing right that requires multinationals to reallocate a percentage of residual profits to market jurisdictions that have a revenue nexus, and
- Pillar Two imposes a global minimum tax to ensure that multinationals pay a minimum level of taxation. This is calculated at a jurisdictional level, with a minimum effective tax rate of 15 percent required in order to avoid top-up-tax being imposed.
While the potential revenue benefits from the Pillar One reallocation may be modest for certain DMCs, the implementation of the Inclusive Framework multilateral solution seems to be certainly the preferred approach. The failure to implement such a solution by the Inclusive Framework could mean that many jurisdictions move forward with unilateral actions. This would likely create unintended effects such as double or multiple taxation and develop unintended obstacles to cross-border trade.
Pillar Two is in a more advanced stage with the OECD currently developing the Global Anti-Base Erosion (or GloBE) implementation framework. Meanwhile several DMCs have started, or are considering starting, the process of implementation of the GloBE model rules into their domestic laws. This demands substantial resources in terms of timing and expertise but also relevant policy decisions.
As we know, many DMCs rely on tax incentives to attract foreign direct investments. This will be impacted by the adoption of a global minimum tax under the GloBE rules which will mean that low taxed income in a jurisdiction will need to have top-up tax imposed to the minimum agreed rate of 15 percent ETR. Therefore, governments may need to revisit their tax incentives policies to prevent the tax foregone under those tax incentives being taxed in another jurisdiction pursuant to the mechanics of application of the GloBE rules. In this regard Pillar Two also increases the relevance of non-tax factors that are valuable drivers of competitiveness.
Overall, this demonstrates that DMCs should be aware of the important consequences of Pillar Two and be prepared to start revising their tax incentives and consider the adoption of certain fundamental aspects of the GloBE model rules, such as the qualified domestic minimum top-up tax.
BEPS actions in Asia and the Pacific region
The establishment of the BEPS (Base Erosion and Profit Shifting) Inclusive Framework in 2016 represented a landmark for global tax cooperation, enabling developing economies to participate on an equal footing in international tax developments and carry out the necessary reforms in their domestic laws and international tax agreements.
It is important to raise awareness of the potential impact of the BEPS Action for developing economies, which can reap significant benefits from anti-BEPS measures to prevent aggressive tax planning practices and increase domestic resource mobilization. It is also important to understand the ways the ADB and the other relevant partners can assist DMCs in implementing and benefiting from BEPS Actions as a way to protect tax bases and increase domestic resource mobilization.
ADB Asia Pacific Tax Hub
ADB officially launched the Asia Pacific Tax Hub during the ADB 54th Annual Meeting on 3 May 2021.
The Tax Hub stands ready to assist each DMC to participate in the Inclusive Framework, implement the BEPS standards and build the necessary technical capacity to discuss and implement the two-pillar solution to tax the digitalized economy in a manner that makes sense for the specificities of each developing member. As you will hear in more detail throughout this consultation, specific initiatives have been developed by the Tax Hub for this purpose.
In closing, let me again thank you all for joining this regional consultation. I’m sure that the expert presentations and your contributions during these two days will help us gain a better understanding of the progress achieved by developing economies in the region from the participation in the Inclusive Framework, the role that the Inclusive Framework can play in improving domestic resource mobilization and the current status of two-pillar solution for taxing digitalized economy.
Thank you very much for your participation, and I wish you all a very productive meeting. And on behalf of ADB, we look forward to hosting and working with you during the next two days of consultations.