OECD speaks – POLITICO


With help from Aaron Lorenzo

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— It’s complicated, but the Organization for Economic Cooperation and Development believes it has figured out a “new and revolutionary” way to divvy up the taxes of multinationals around the globe.

— States that have legalized recreational marijuana have had a bumpy ride when it comes to raising revenues, which could be a cautionary tale for other states thinking about taking that plunge.

— Welcome back, Section 385: The Trump administration is thinking about paring back Obama-era rules on earnings stripping, Bloomberg reports.

WELCOME TO WEDNESDAY, where we’re kind of not sure if we will seek out the guinea pig ice cream the next time our travels take us to Quito.

Tick, tock: Today also marks 609 years since the first known mention of the Prague astronomical clock, now the oldest working astronomical clock in the world.

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Email: bfaler@politico.com, alorenzo@politico.com, teckert@politico.com and bbecker@politico.com.

You can also reach us on Twitter at @berniebecker3, @tobyeckert, @brianfaler, @aaronelorenzo, @POLITICOPro and @Morning_Tax.

PILLAR ONE IS HERE: It’s far from a stretch to say there’s a lot riding on this OECD process, given the spat that has already occurred between Washington and Paris over the French digital tax — and how many countries might follow France’s lead if global talks break down.

To that end, the OECD took a major step forward in those discussions today, releasing a path forward on one of the knottiest questions facing global taxation — how do you tax companies, like but not limited to Apple, Amazon and Google, that operate around the world but don’t have physical infrastructure in lots of countries?

The proposed solution is pretty complex, as our colleagues Mark Scott, Bjarke Smith-Meyer and Aaron Lorenzo report. Companies with at least 750 million euros in annual revenues and significant operations around the globe would be subject to the plan. Those businesses would owe taxes to their home country, but the revenue would be shared among other countries after profits reach a certain yet-to-be-determined threshold — dispersed through a formula that includes the amount of users or customers a company has in a certain country and how much online advertising it does there.

There’s still a long road ahead for the OECD, which is trying to build toward a global minimum tax. The group’s newest proposal will be presented to G20 finance ministers next week, and the OECD plans to finish its work within about nine months. But on some level, even the OECD’s Pascal Saint-Amans acknowledged to Mark that the group can only do so much to get a global agreement: “What we’re seeking is a political agreement, then politicians can make the call.”

Initial domestic reaction: Silicon Valley supporters took a bit of a wait-and-see attitude about the OECD proposal, with one industry advocate saying they wanted to see some of the current gaps in the plan filled in before commenting more fully — while also noting there were no deal-breakers in the proposal.

First related note: Margrethe Vestager, soon to be the European Commission’s chief of digital policy and competition, reiterated that she would push for a bloc-wide digital tax if the OECD efforts fall short, via our Marion Solletty.

Second related note: Italy is planning a “web tax” for 2020 that would hit digital companies on some internet transactions, Reuters reports.

REVENUES UP IN SMOKE? It’s not that cannabis revenues have been a disappointment in every state that has legalized — though that has certainly been the case in California, the biggest and highest-profile case.

But as your Morning Tax author wrote this week, the early returns — 11 states and D.C. have legalized pot, with sales underway in seven states — certainly show a volatile market, as government officials struggle to project how much revenue they can bring in to pay for key programs and try to figure out where the next set of questions to work through will come from.

Experts do expect revenue projections to become more reliable as legal cannabis gains more of a foothold — it hasn’t even been six years since Colorado made the first recreational sales in the country, back in early 2014. But states continue to cast about to find the right taxing regime, with California’s aggressive system taking at least some of the blame for the state’s disappointing revenues. Plus, there are still just plenty of unknowns — like what happens if the federal government relaxes its marijuana laws, and how state pot revenues would respond to a recession.

Related twist: A cannabis banking bill that recently passed the House, H.R. 1595 (116), could lead to lower retail prices, and thus lower revenues for states, Taylor Miller Thomas of the DataPoint team reports off of a Tax Foundation analysis.

View the full DataPoint graphic here. Want to add DataPoint to your POLITICO Pro account? Learn more.

HELLO, OLD FRIEND: It’s also not a stretch to say that those Section 385 regulations were perhaps the biggest tax story (at least from a U.S. perspective) during Obama’s last year in office. The Trump administration is now considering whether to at least lessen the reach of those earnings stripping rules, as the Bloomberg trio of Allyson Versprille, Isabel Gottlieb and Laura Davison report, and there’s an outside chance the regulations will be repealed altogether.

At its core, the debate over whether to shrink the rules comes down to whether you think the Tax Cuts and Jobs Act, H.R. 1 (115), reduced incentives for companies to seek corporate inversions. (Though to be fair, the business world has found the rules overbearing from the start.) But Treasury, Bloomberg notes, also “wants to tread cautiously because it knows it would be blamed if companies began using aggressive tax planning tactics to lower their tax bill.”

The Democratic response: “Rules preventing the offshoring of corporate profits should be strengthened—not weakened,” said Sen. Ron Wyden of Oregon, the top Democrat on the Finance Committee, charging that the Trump administration has made aiding and abetting tax avoidance a priority.

THE DAY IN 2020: Former Vice President Joe Biden rolled out a $750 billion plan for higher education on Tuesday, as Pro Education’s Bianca Quilantan reported. And as for those pay-fors? The plan includes some old favorites from the Obama administration years, like limiting the value of itemized deductions to 28 percent and ending the step-up in basis that allows wealthy investors to pass unrealized gains to heirs tax-free when they die.

ON SECOND THOUGHT: Malawi has dropped plans for a potential 1 percent withholding tax on mobile money transactions after getting complaints from a variety of corners, Bloomberg reports. Finance Minister Joseph Mwanamvekha now plans to substitute a different withholding tax, this one on trust funds set up by mobile companies to help pay for social programs. Among the critics of the transaction tax: Telekom Networks Malawi, the country’s biggest phone company, and consumer advocates who worried about the levy’s impact on lower-income residents.

WHAT DO THE PEOPLE WANT? When it comes to Chicagoans, the answer is no property tax increases. Mayor Lori Lightfoot set up an online poll to get residents’ views on a variety of potential fiscal options, as Chicago faces an almost $1 billion budget gap next year. And while around six in seven urged the city to hold the line on property and sales taxes, a healthy majority — almost three in four — backed a cigarette tax increase. Modest pluralities also supported increasing taxes on ridesharing, alcohol and garage parking, while there was more opposition to higher taxes on hotel stays, shopping bags and live entertainment events.

WaPo on Saez/Zucman: “For the first time in history, U.S. billionaires paid a lower tax rate than the working class last year.”

Congress needs to fix tax law glitch causing multinationals to pay taxes on previously exempted offshore investments.

Treasury floats a tax safe harbor to ease the transition away from LIBOR.

New Urban Institute report: “Are States Betting on Sin? The Murky Future of State Taxation.”

A very California tale: The property tax impact of selling your house to Mark Zuckerberg.

Tobacco is the leading cash crop in Malawi.





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