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OECD warns of trade war without global consensus on digital tax, deal now possible in mid-2021

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Disagreement over global digital taxes may result in unilateral taxes and increased trade disputes, triggering a global trade war that could potentially shave off 1% of the global GDP annually, the OECD warned on Monday. For now, 137 countries including India — collectively referred to as the OECD/G20 Inclusive Framework for BEPS — on October 8-9 agreed upon the basic skeleton for any future agreement. Countries have agreed on key policy features and parameters for a future agreement, the organisation said, remarking that the “remaining political and technical issues” on which countries differ and the next steps in the negotiations have been identified. While there will be no agreement by the end of 2020 — the original timeline — due to the COVID-19 and political tensions, the organisation hopes these will be ironed out resulting in a framework “sometime in mid-2021”. The Organisation for Economic Co-operation and Development (OECD) has been spearheading negotiations between 137 countries to solve the question of a global digital tax framework since 2019. What a possible agreement for digital tax could look like Reports on the basic skeleton, work on which has been ongoing since 2014, consists of two pillars to get technology MNCs to pay taxes in countries where they provide services, and not just in countries where they are physically present (see OECD’s reports on Pillar One and Pillar Two). The first (Pillar One) would establish new rules on where taxes would be paid, to ensure that a consumer-facing company pays taxes in countries…

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