OECD SECRETARY-GENERAL TAX REPORT TO G20 FINANCE MINISTERS AND CENTRAL BANK GOVERNORS Italy April 2021 For more information: [email protected] www.oecd.org/tax @OECDtax | 1 OECD Secretary-General Tax Report to G20 Finance Ministers and Central Bank Governors Italy April 2021 ©PUBE OECD 2021 2 | This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. This work is published under the responsibility of the Secretary-General of the OECD. The opinions expressed and arguments employed herein do not necessarily reflect the official views of OECD member countries. Please cite this publication as: OECD (2021), OECD Secretary-General Tax Report to G20 Finance Ministers and Central Bank Governors – April 2021, OECD, Paris, www.oecd.org/tax/oecd-secretary-general-tax-report-g20-finance-ministers-april-2021.pdf. © OECD 2021 The use of this work, whether digital or print, is governed by the Terms and Conditions to be found at www.oecd.org/termsandconditions © OECD 2021 | 3 Table of contents Overview 4 Tax challenges arising from the digitalisation of the economy 4 Responding to the COVID-19 crisis 5 Tax policy and climate change 5 Further progress on tackling international tax evasion and avoidance 6 Tax and development 7 1 Responding to the COVID-19 crisis 9 Tax policy responses to the crisis 9 Tax administrations’ responses to the crisis 12 2 Addressing the tax challenges arising from digitalisation 13 Background 13 Other work related to digitalisation 16 Indirect tax 16 Tax transparency framework for crypto-assets 17 3 Tax and environment 18 Carbon pricing 18 Effective Carbon Rates 2021 19 OECD Companion to the Inventory of Support Measures for Fossil Fuels 2021 20 IMF/OECD Report on Tax Policy and Climate Change 21 4 Further progress in tackling tax evasion and tax avoidance 23 Tax transparency 23 Tax and crime 25 BEPS implementation 26 Tax certainty 27 5 Capacity building – Supporting developing countries 28 OECD capacity building and collaboration 28 Global Forum capacity building outreach 29 Annex A. Tax and Fiscal Policy in Response to the COVID-19 Crisis 32 © OECD 2021 4 | Overview It is a little over a year since COVID-19 was officially declared a pandemic. While progress is being made in addressing this global health crisis with the intensive vaccination efforts currently underway, the recovery from the COVID-19 crisis will be uneven, potentially leading to lasting changes in the world economy. As Secretary-General of the OECD for the last 15 years, this is the second global economic crisis I have helped countries navigate. As I approach the end of my term, it is my lasting hope that we learn from the lessons of the previous crisis to restore our economies and build back better, more inclusive and sustainable growth. Governments must continue to provide fiscal support, use policy instruments actively and nurture international co-operation, which has never been more important after a year of closed borders and burgeoning protectionism. As you have uniquely demonstrated in the field of international tax, multilateralism can yield transformational results. Tax challenges arising from the digitalisation of the economy We are at a critical juncture in the ongoing negotiations among 139 jurisdictions to address the tax challenges arising from digitalisation. The next three months, from now to your next meeting in July 2021, will be decisive and the conditions to reach a consensus-based solution have never been better with the removal of the so-called “safe harbour” proposal by the US. With your strong leadership, unequivocal political support and active involvement, the G20/OECD Inclusive Framework on BEPS (hereinafter G20/OECD Inclusive Framework) is ready to respond to your call to urgently reform the current international tax system and achieve a global and consensus-based solution by mid-2021. Beyond corporate income tax, we continue to advance our work on tackling other tax issues arising from the digitalisation of the economy as regulators and tax administrations strive to catch up with emerging technologies. • Virtual Assets: Since my last report, the market capitalisation of virtual currencies has increased strikingly yet again (over USD 1.8 trillion as of 1 April 2021). In order to make sure these new assets are properly reported to the tax authorities of the countries of residence of their owners, we are developing a new tax reporting framework on crypto assets, with a view to presenting a technical solution to you soon. The new framework should address concerns that the advances made on tax transparency and eliminating bank secrecy over the past decade are not undermined by new assets. • The Gig Economy: The OECD will soon release a landmark report on how to design and implement an effective value added tax (VAT)/goods and services tax (GST) policy response to the growth of the sharing and gig economy, building on the success of the OECD’s standards for the effective collection of VAT on online sales of goods, services and digital products now introduced by 70 countries. In addition, agreement should soon be reached on a new international © OECD 2021 | 5 exchange framework to facilitate the cross-border exchange of information (EOI) based on the OECD model rules for reporting by platform operators, welcomed by you last July.1 Responding to the COVID-19 crisis Last April, as governments around the world considered which emergency tax measures to take to support their citizens and businesses through the initial phases of the pandemic, the OECD provided you with guidance and a compendium of the 700 measures that countries had already taken or were considering in the report Tax and Fiscal Policy in Response to the Coronavirus Crisis (hereinafter the April 2020 Report). I am now pleased to present an update of the April 2020 Report, Tax and Fiscal Policy in Response to the COVID-19 Crisis (hereinafter the April 2021 Report), attached as Annex A to this report. The April 2021 Report provides an overview of the tax measures introduced during the COVID-19 crisis across 66 countries and jurisdictions since the outbreak of the pandemic, examines how tax policy responses have varied and evolved since last year, offers guidance as to how tax policy could be adapted to meet short-term challenges and outlines OECD work in the pipeline to help countries reassess their tax and spending policies in the longer run. One year into the pandemic, the current priority for governments is to improve the targeting of tax relief to ensure that support is channelled to those who need it most and to carefully withdraw support where it is no longer needed. Whereas the April 2020 Report detailed the emergency tax measures introduced in the initial stages of the crisis, the April 2021 Report shows that an increasing number of countries are turning to fiscal stimulus and many have introduced or announced new tax increases. Moreover, while a number of such tax increases involved one-off or temporary measures, most are intended to last, such as increases in fuel excise duties and carbon taxes, which were the most common tax increases reported by countries. Going forward, countries will have to avoid the premature withdrawal of relief but increasingly target it to the most severely affected businesses and households. As economies reopen, additional fiscal stimulus, including through well-designed tax measures, could play a significant role if economic activity remains sluggish. Once policymakers have successfully navigated the pandemic, the post-crisis environment will provide an opportunity for countries to fundamentally re-assess public finance policies and re-orient tax systems towards more inclusive and sustainable growth. The OECD will be on-hand to help countries build back better, including through tax reform. Tax policy and climate change A progressive transition to net zero greenhouse gas emissions by around the middle of this century is essential for containing the risks of dangerous climate change. In recognition, and despite the challenges wrought by the COVID-19 crisis, many countries have recently either pledged or legislated to reduce greenhouse gas emissions to net zero by 2050. To reach such objectives, governments must spur fundamental transformations in the way our economies and societies currently function. Such reformation can only be achieved through targeted climate policy packages and while mitigation strategies should depend on countries’ specific circumstances, an indispensable element of any policy pathway to net-zero is to price greenhouse gas emissions. Pricing is the most effective and efficient way to curb emissions; yielding significant revenues while abating societal harms. However, at present, prices are well below the levels required to drive decarbonisation, meet the basic objective of the Paris Agreement (to limit global warming to 1.5°-2°C) and prevent dangerous climate change. 1 OECD (2020), Model Rules for Reporting by Platform Operators with respect to Sellers in the Sharing and Gig Economy, OECD, Paris, www.oecd.org/tax/exchange-of-tax-information/model-rules-for-reporting-by-platform- operators-with-respect-tosellers-in-the-sharing-and-gig-economy.htm. © OECD 2021 6 | The OECD’s latest work on effective carbon rates reveals that, at present, 55% of energy-related CO2 emissions from advanced and emerging economies today are entirely unpriced (i.e. no carbon tax, emissions trading system or fuel excise tax). The forthcoming edition of Effective Carbon Rates shows that current effective carbon rates, the sum of taxes and tradeable permits that effectively put a price on carbon emissions, are lowest in the industry and electricity sectors, and are further weakened by fossil fuel subsidies and where free permit allocation rules provide an advantage to carbon-intensive technologies.