Subcommittee on Tax Matters Ordinary meeting EU Tax Symposium 2026
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FISC European Parliament
Follow its sittingsSpeaker 1
I know, it might be confusing. The red one is on the right, and the green one is on the left. But the green one, if you're in favor, is on the left. The red one, if it's a no or against, is on the right. And, of course, in the middle, there's the white one.
It's either, I don't know. I don't have an opinion. I don't care. Or an extension. I'm not sure if I want to vote yes or no.
But you have the opportunity to do so. At least the one seated down here and in the tribunes, we don't have that opportunity. Then there is also an events app. You might have seen it upon registering when you got your email. They had an application developed that you can download through the App Store or on Android phones.
It has everything. Everything you need to know about the speakers, well, everything that we want to make publicly available, of course, or that they wanted to make publicly available for you. It has the full program. You can chat with each other through the app, so I would encourage you to do so. In the email you got, you have an individual code, and that allows you to download and install the app, so we don't get funny people from outside installing the app and asking and chatting with you.
So we're sure. Then there's also a Wi-Fi network. I think we even have a slide of that, because it's actually quite easy. It's the European Parliament visitors network that you choose, and the login displays are always displayed in the seats where you're seated. You can also there's no, there's actually no code to be used over there, so it's quite easy.
And we also encourage you, of course, to share your feelings and your thoughts, everything you might want to share on social media using hashtag tax mix 2050. Tax mix, tax with a t, capital T, capital M. And it's tax mix and not Tex-Mex, of course. Tax mix 2050, and that's the one we want you to use. They are showing the Wi-Fi network over there, so it's the EP visitors network that you might want to use.
And then finally, there's the food and drinks issue. Do not worry about taking in food and drinks that you might want to store in case you get hungry or thirsty during the sessions. Rest assured, you will get plenty of food and drinks throughout the day outside of the hemicycle, because inside, drinks and food are not allowed. But we will serve you, we already served you breakfast. There will be a lunch.
There will be a nice networking cocktail. So plenty of opportunities to eat and drink during the day. So no need to take in food and drinks in this beautiful room. And, of course, I don't need to tell you anymore, as is the case in most of the countries and the member states, smoking is entirely prohibited throughout the premises, and that goes for e-cigarettes as well, of course. I think I covered most of the household rules.
So I promised you there were a few. I don't know if you agree with me if it's a few or a lot, but anyhow, those were the ones. And now we will kick off with the first vote just to get the system started, to get you started after the breakfast you had with your coffee. And the question, the first question for today is, do you consider yourself part of the Brussels bubble? I guess you all know what the Brussels bubble is. So do you consider yourself part of the Brussels bubble?
The vote is open, and that is the official sign for you to dig in with your hand and to push the left, middle, or right button. Mind the colors. Colors show up on the screen, as you see behind me, so we will know if you voted in favor or against. We will not do anything with it. Rest assured.
It will not be published. I'll give you a few more seconds to discover the system, to make sure that everyone was able to cast his or her vote. So do you consider yourself part of the Brussels bubble?
The people back home.
Speaker 1
You might reflect upon the questions as well. Unfortunately, you're not able to vote, but you might reflect on them as well. And then for me, the official call is the vote is closed. Like they would say in the casinos, so we stop all the bets. Well, what a nice result.
168 say it's a definite yes. One twenty-four say no, or they do not want to belong to the Brussels bubble. 30 abstentions and then 322 votes in total. Marvelous result. Thank you.
And that shows that the system works, that you're working, so everyone is ready and set to go for the day. Then we can officially kick off today's meeting because I'm not the one. Well, at least I'll be here through the day, but I'm not the main subject of the day. I'm not supposed to speak for the entire day. You're all waiting, of course, for the long-awaited line of guests that we've lined up for you today as well. And it's a beautiful lineup, even if I say so myself.
And it's my great pleasure to announce the first speaker of the conference today, and to invite her on stage. Would you all please join me in welcoming Missus Katharina Barley, vice president of the European Parliament? The floor is yours. Thank you.
Katarina Barley
Thank you so much, mister De Bruyne, dear chair, dear Pasquale, dear director general, mister Thomas, dear members, ladies, and gentlemen, dear participants, as vice president of the European Parliament in charge of the relations with national parliaments, it is a privilege to address you on the second day of the EU tax symposium 2026. So let me warmly welcome you who have joined us today in the hemicycle of the European Parliament, so to say, in the beating heart of the Brussels bubble. Today, we gather to confront one of the defining challenges of our time, how taxation can foster inclusive growth in an era of rising inequality, and profound global economic transformation. Taxation is far more than a technical exercise, and you know it. It is part of the social contract.
It funds the public services that underpin our societies and sustain our democracies. Yet, in a world where wealth concentration is increasing and digitalization is reshaping economic models, our tax system must evolve. They must do more than raise revenue. They must help correct imbalances, support fairness, and contribute to shared prosperity. At the same time, tax policy remains primarily a national competence.
The democratically elected parliaments of our member states hold the fundamental responsibility for shaping tax systems that reflect the priorities and needs of their citizens. This is precisely why the presence of national parliaments in today's discussion is so important. I am particularly pleased to welcome 33 members from EU national parliaments and two members from Norway, for a total of 35 parliamentarians, representing 13 EU member states and 17 parliamentary chambers across the union plus Norway. Your presence here reflects the essential role that national parliaments play in tax policy. They are at the heart of democratic decision-making on fiscal matters, adopting tax legislation, ensuring accountability in the use of public resources, and representing the fiscal choices of citizens.
In a policy era that touches directly upon fairness, redistribution, and economic opportunity, the involvement of national parliaments is indispensable. However, while tax policy remains largely national, the challenges we face are increasingly global. In a highly interconnected economy, no country can act in isolation. Tax avoidance and profit shifting by multinational corporations are issues that no single member state can effectively tackle alone. This is why cooperation among member states, as well as at the European and global levels, is not optional.
It says it is essential. The European Union has a key role to play in establishing common standards, preventing harmful tax practices, and ensuring a level playing field where businesses can innovate and grow. Recent agreements on the global minimum corporate tax rate of 15% demonstrate what can be achieved when countries work together. But our work is far from finished. We must continue reflecting on how future tax systems can both address inequality and support sustainable economic growth.
In this context, we will also have the privilege today of engaging in a discussion with two outstanding economists during the session on the future of taxation, global fairness, and growth in a new economic era. Among the high-level keynote speakers, we are honored to welcome professor Joseph Stiglitz and professor Philippe Aguil. Their insights will help us deepen our reflection on how taxation systems can respond to the major economic transformations of our time. This symposium offers a unique opportunity to exchange ideas, not only between panelists and representatives of national parliaments, but also with nearly 1,000 participants joining us from across the European Union and beyond. So, I wish you all a fruitful and inspiring day.
Thank you very much.
Speaker 1
Thank you for these very wise words and for your marvelous introduction on the importance of today's conference, because as said, it truly is a unique opportunity. There's nowhere else where you can find this opportunity to enter into discussion with this line of guests that you will find over here today. Thank you, Mr. Barley, for having shared your thoughts with us. And then the next two speakers of today, I could actually skip the introduction because if they come on stage and you do not know them, I don't know where you've been hiding over the last years. And I don't know if anyone in the right room, and if you know anything about taxation, because if you do, you should at least have seen them, have heard them somewhere.
If you were there yesterday, you'd most definitely have saw and heard them already because they shared already some words, welcoming words and thoughts with you during the day. But let me welcome once again, and officially today, the first cohost of this event, mister Pasquale Tridico, chair of the subcommittee of
Fiske.
Speaker 1
and member of the European Parliament, who will deliver his welcome words for the second day of the symposium. The floor is yours, Mr. Tridico.
Thank you.
Speaker 3
Thank you very much. Thank you for these nice words. Thank you to all of you for being here. And thank you, Madam Vice President, for being here. Thank you, Grasmus, for coasting with me.
And yesterday, it was a wonderful day hosted by the commission for this great event. I want to say a nice warm greeting as well for all national parliaments being here, regional parliaments being here from all over Europe. Thank you for this important effort that you have done to be here. So today, we are going to speak about two main issues which shape our economy. From one side, inequality.
From another side, grow. Unfortunately, we have been taught for many years, that there is a trade off between the two. But, actually, you can have more cohesion, a more sustainable development with growth without inequality. We do not necessarily have to suffer from inequality, poverty, unemployment to get economic growth. Of course, taxation is part of it.
Taxation is part of these two elements which combine the best equilibrium to get low inequality, low poverty, low unemployment, and at the same time, economic growth driving or driven by competitiveness. Today, particularly, we know that the world is changing so fast and so much. We have always seen economic growth being driven by technological progress. It's nothing new today with artificial intelligence in a way. But we know that artificial intelligence, as part of the new process of technology, is different from the previous process of technological progress, in fact.
It's very fast, much faster than before, and in particular, does not necessarily need humans to be reproduced. And this, in a way, challenges very much the consensus that so far economists have found. I'm very curious to see and to listen to today Philippe Pagion, who wrote very much about the so-called endogenous economic theory, growth theory, where technological progress has an important role in driving growth. Today, with artificial intelligence, it's different because artificial intelligence is reproducible itself. Does not necessarily need humans.
So, basically, you can have increasing return in the grow forever in a way. Now this is good from one side, but from another side, it challenges as well the view of ourselves, the way we the place that and the role that we have in the economy and this is in the society. It goes beyond economics. It involves as well an anthropological issue. Now let me say something about the role of the parliament, the European parliament, and in particular, the committee that I'm the owner to chair, the FISC committee, in trying to combine these two important things, from one side inequality, and from the other side, growth.
FISC committee was set up a few years ago, in particular to fight against tax evasion, tax fraud. But today, it is an agenda set for member states and for Europe. You see the role that it was mentioned by the vice president Bart Bartley, the role that the parliament played in fixing and in establishing together with the OECD the global minimum tax at 15%. We have tried as well to find a new solution for the digital economy. We know that this is a sector which is growing so much, and actually, it is probably today the source of the major growth.
And for many people, well, for few people, I would say, there is a source as well of accumulation of wealth, which many people consider too much, which goes beyond the productivity of the same labor that they do. So the digital transformation has posed a very important question, a very important challenge. Because in a way, we are not in front of the normal process of production that we had before with labor and capital. Artificial intelligence is part of technology, of course, but it creates a factor of production itself. And as you know, most of the wealth which is created in the sector is not taxed, or at least is not taxed quarterly or is not taxed everywhere in the same way.
That's why the European Parliament tried a few years ago already to fix an agenda on the so-called pillar one, which is basically the solution should be a solution to tax the digital sector. And many member states on their own have introduced the digital services tax. Of course, we do have controversy here. We do have different views among member states, among global players, and the views are different as well between Europe and the United States. But we are sure that in the next future, we'll find an equilibrium in this different view because it is necessary.
Europe, it is at a crossroad today between international tax cooperation and strategic autonomy in taxing as well as digital services. We are working in Europe on many issues which gives us strategic autonomy. Digital Europe, for instance, is one of them. And not only. We realize, as Europe, as a single market, to be a big player in the global scenario.
Now, should the EU focus on reaching a solution within the OECD or engage on more fronts? When will the time be mature for considering alternative EU level solution if no credible international agreement is reached. I'm sure that Secretary General Matthias Corman from ACD will give us very important insight about that in the session on digital taxation. And then we are going as well through the day on the second session, which is exactly on pillar two, exactly on the global minimum taxation that we have tried to introduce together with two ACDs. And there is as well a discussion going on at United Nations level.
Now we remain within the so far, we remain within the OECD framework. And we have formed an agreement in 2021 at fifteen percent. We have done some steps forward. And in particular, in the last year, in the last very few days, actually, on January 5, the ACD, together with United States and Europe, formed a final equilibrium trying to combine the side by side package asked by United States with the Pillar two, which was signed before. Now we need as well to stimulate growth, and we know how to do it.
And this is a lesson probably that we can learn from United States about how to stimulate investment for growth. We many of us appreciate the way Our United States promoted is incentivized with tax credit, for instance, investment, in particular for start-ups and for innovation-driven firms. The panel three will be dedicated on that, and I'm sure that on this session will come some more idea. Last but not least, I'm really honored to host here today two Nobel Prize winners, Joseph Stiglitz and Philippe Aguilen. Philippe Aguilen got the Nobel Prize a few months ago in 2025.
And Joseph Stiglitz got in 2001, and he's a very well known scholar. We rely on economic science in this respect. We rely on science. We rely on economic empirical evidence. We rely on data.
We rely on consensus as well within many member states, but in particular, we rely on the facts that we see. And I'm sure that the insights that come from two scientists, two scholars today will help us to understand better the global evolution of the economy system. Thank you very much to all of you for being here. Enjoy the rest of the day with us. Thank you.
Speaker 1
Thank you. Perfect. Thank you, mister Tridico, for sharing passionately your views and thoughts on the role of the parliament and the FIS committee and the whole process of the much needed debate on taxation. As I said earlier on, it's a cohosting because we're cohosting between the parliament and the commission, and that means that there is always a host on each side. And from the commission, the host is no one less than the director general of the taxation and customs union, Mr. Gerassimos Tomas.
The floor is yours, please.
Speaker 4
Good morning, everybody. Thank you very much for being here today. Those from Brussels, those from outside Brussels, quite a large part. I think two thirds of the people coming from institutions, government, private sector outside Brussels, and those from national parliaments. This is a particular honor to have the national parliaments present here.
Taxation is primarily a domestic issue, and we try to make sure that you see how it works around Europe. And thank you to Pasquale, to all the MPs in the FIS committee and elsewhere involved in this conference. It's the fourth year in a row, and we're very happy to host it. I want to apologize on behalf of Wopke Hoekstra, the commissioner. He could not be here for the opening.
We have a council of ministers meeting, with important discussions on ETS. So he will be here in the afternoon to give the closing. My remarks will be focusing on summarizing a bit yesterday's discussions. For those of you that were not here yesterday, were traveling, and or you didn't have the possibility to follow all the panels. For us in the European Commission, this EU tax symposium for all the colleagues who work in direct and indirect taxation, all the policy colleagues.
It's an important, you know, occasion to gather the thoughts, to stimulate the debate, and help us, you know, help the member states and take new initiatives. So yesterday, we examined the role of taxation to support competitiveness and economic fairness. The discussions focused on various elements, but I think there are three elements, three messages that, you know, came up from this discussion. The first is that precision is very important when we design tax incentives. It's policymakers, but must calibrate any support through tax incentives, both to ensure value for money and to avoid creating more complexity in the tax system.
So we start with the good intentions of tax incentives, but if we do not have precision in the design and good calibration, we can also have negative side effects. So we have to get incentives simple and targeted, and ideally time-limited as well, to help the policy goals that we try to achieve in order to stimulate growth and innovation. Second, tax incentives must cover SMEs for sure. In some cases, it should be primarily targeted to start ups and SMEs when it comes to innovation. But certainly, they have to be designed in a way that SMEs can access them across the EU.
The third element is predictability. This is the, let's say, bedrock for innovation in a new growth economy, where we need a lot of innovation. The last thing we need is to have small companies or startups worry about the changes of the tax system, the administrative system, and create them distract them from the main business. Then we had an important discussion on simplification of the tax systems to reduce compliance burdens and save guiding revenues. I think we came to recognize that the small businesses or the big businesses when they move outside the domestic environment, their member states where they are located, automatically when it comes to Europe, they face much higher compliance costs.
That's the fact that you move from country x to expand your business to another country, you have to face new regulations, new language barriers, and you need to have higher compliance costs on taxation. So complex reporting frameworks with different national interpretations even of European directives create an additional burden for businesses that we need to be mindful of and we need to eliminate. And they have a number of initiatives that we have taken to try to simplify, that is actually from the commission's point of view, our only job, our only competence. So we have no competence when it comes to domestic tax systems, but we need to be careful on how we simplify compliance cost across the border. Digitalization plays an important role.
So I think in the European Union, we have been champions of promoting digital technologies in the tax systems. It is true that in some of our member states or in some parts of taxation, we still have a paper error logic. I would say that, you know, we have certainly in 90% of the cases gone through the step of taking paper procedures and digitalizing, but we have not gone yet through the step by which we take away the paper logic from our digital systems and we go to a data driven logic. It's not so bad. Let's say I was in January in the US in a conference and some of our American friends are here and they had a, let's say, a panel with all the IRS commissioners in the US and they were discussing the challenges and they still have the majority of personal income taxation in the US is done by paper.
So, you know, in the country where we all think everything is run digitally with a big digital company. So I think we are ahead of this here in Europe. I think we hope, and I heard yesterday, some of the European speakers, even if it's a national competence, looking into the possibility of drawing from the experience on potential tax data hubs where, you know, data can be, you know, at the EU level used. We are spearheading this initiative in the customs area where we will create a European data hub, and all the customs data will be filed together, and they will operate as a single market in the customs union. So some of the examples and some of the practices of moving from a paper-based process to a data-driven process, not only digitalization, but the data-driven, I think it's trickling into the tax area.
And then we looked yesterday at the importance of not leaving any money on the table, the so-called tax data gaps. Tax gaps, excuse me, tax gaps and tax expenditures. I think there is a lot of lack of compliance. In the VAT, it is an area where for a long time we have had public statistics made together with the member states on a common methodology. So this is not a simple research project.
This is a commitment from all our member states to work together to create VAT, a common methodology on how to identify VAT gaps. I mean, it's more than 100000000000 every year. Last year, it was 128,000,000,000 euros in, sorry, in 2023. We are launching similar exercises to look at excise duty gaps in personal income tax gaps in CIT, tax gaps. I think it is very important to be aware of what is the cost of taxes that should have normally been collected that are not collected.
And I think there was a lot of support of this even if methodologically, there are issues to solve and time series to construct. So we were very encouraged. This is an important work that we are doing in the commission. Published now for the first time in November. The Mind the Gap report is a report giving the situation of tax gaps and compliance all over the 27 member states and for the union as a whole.
So as a whole, we were happy to receive encouragement on this. And we looked at the tax expenditures and the importance of transparency and regular reviews. This was important to look.
Speaker 4
this. For today, we have a number of important debates. They were introduced by the co-chair Pasquale Tridico. I must say that in all of them, the commission has taken an active role in the area of the digital economy. We have prepared for a long time either for the multilateral framework, the so-called pillar one discussion on the OECD.
We have also produced all the necessary for domestic initiatives. I think we now call the hand the ball is in the court of the OECD, who has this mandate to relaunch the discussion of the digital economy, and we are ready for this both as commission and as member states. We are also advancing in making sure that pillar two, you know, is implemented. It is implementable this year. The legislation and the companies are working on it and making further simplifications for pillar two companies.
We will propose some of this this summer. And, in areas like housing on savings and investment union, we will have a lot of, you know, we will hear a lot of the work that we have done around tax incentives. Last but not least, there are areas on which we are not taking legal initiatives for the moment, but we will publish in a few days two important studies, one on the taxation of high-net-worth individuals and one on the taxation in the financial sector. So a lot of work is going on, in order to cover all the areas and be able to be ready for a policy debate with national parliaments, European member states, and internationally. Thank you very much for being here.
Looking forward to the debates today. Thank you.
Speaker 1
Thank you. Thank you, Gerhard Schlos, for these words and the wonderful summary of what went on yesterday. So for those of you who could not attend or had to make, like everyone, a choice between panels, you just got the wonderful summary. Judging by the length of the summary, though, there's still a lot of work to be done. So today's conference is much needed, and the work after that is much needed as well.
So we will not be without the job in the very near future, at least on the commission side and the taxation and the fisc side. The next speaker of today is not able to join us live, but will be addressing you through a video message. As you most probably know, Cyprus is currently holding the presidency of the EU Council, and the minister of finance of Cyprus, Macky Skaravnos, wanted to address these few words to all of us today here present at the symposium, so we can watch the video together. Thank you.
Speaker 5
Distinguished colleagues, esteemed partners, ladies and gentlemen, first of all, I would like to begin by expressing my sincere apologies for not being able to attend the tax in Bosnia in person due to other urgent commitments. In any case, it is a great honor to address you today with this video message at this EU tax symposium in Brussels, which takes place at the decisive moment for Europe and the global economy. As we navigate an era of economic change marked by digital transformation, the platform economy, and the green transition, taxation remains one of the most powerful levers for supporting innovation, growth, and social well-being. By making the EU tax system responsive and forward-looking, we help the single market absorb shocks, support investment, and enable innovation while ensuring fairness and fiscal sustainability. The themes of this symposium, from simplifying tax systems to promoting competitiveness, closing tax gaps to tackling the housing crisis, are central to ensuring that our union remains resilient, fair, and forward looking.
If we speak about the future of taxation, we must ultimately speak about growth, how to generate it, how to sustain it, and how to distribute its benefits fairly. Economic growth depends fundamentally on confidence and responsiveness. Business invest when the rules are simple, adaptable and compliance is proportionate, providing a stable framework for decision making. A coherent tax policy aligns taxation with economic objectives, supports productive investment, ensures consistency across a single market that reduces barriers to cross border activity, and complements other economic tools to maximize its impact. In short, a coherent tax policy ensures that while the system can respond to economic change, it does so in a transparent and consistent manner that avoids sudden disruption.
Taxation must do more than finance public expenditure. It must actively support growth, encourage innovation, strengthen fairness, and enhance Europe's strategic autonomy. A modern tax system should not stand at the margins of economic strategy. It should sit at its core. Efficient taxation supports economic growth by allocating resources effectively, incentivizing innovation and fostering competitiveness. By minimizing unnecessary compliance burdens while safeguarding revenues, the tax system becomes a tool for sustainable development and for enhancing the overall productivity of the economy.
Tax systems can play a catalytic role in this process. Well-designed tax incentives for research and development, digital transformation, and the green transition can mobilize private capital and accelerate structural transformation. When carefully calibrated, they act as a catalyst for innovation and long term competitiveness. However, incentive must be approached with discipline. They must remain transparent, precisely targeted, and subject to regular evaluation to ensure they deliver measurable economic value.
When tax expenditures expand without proper oversight, they risk narrowing the tax base, distorting competition, and weakening perceptions of fairness. Promoting growth, therefore, requires not only vision and ambition, but also prudence and accountability. Fairness and competitiveness are sometimes portrayed as competing objectives. In reality, they reinforce one another. Greater compliance broadens the tax base and secures more sustainable revenues without resulting in higher tax rates.
Efforts to close the tax gap through digitalization, enhanced information exchange, and risk-based enforcement increase fiscal capacity while maintaining a level playing field. In this sense, fairness is not merely a social principle. It is a driver of economic strength and long-term competitiveness. It is an economic asset. At the same time, we must confront the cumulative complexity that has developed across the European tax system.
Layers of legislation, divergent interpretations, and administrative burdens create barriers, particularly for small and medium-sized enterprises seeking to scale across borders. Simplification reduces compliance cost, facilitates cross border activity, and improves legal certainty. Clarity strengthens enforcement and reduces disputes. Hence, simplification is not just a bureaucratic convenience. It is a growth enabler.
In this regard, the European Commission's broader agenda to simplify and declutter the European Union's regulatory and tax framework is both timely and necessary. Cyprus has sought to embody a balanced approach of fairness, competitiveness, transparency, and alignment with international standards in its recent comprehensive national tax reform covering both corporate taxation and personal income taxation. The reform aims to redistribute the tax burden more equitably, provide meaningful relief to households, and broaden the corporate base in a manner that preserves competitiveness. At the same time, it introduces targeted and carefully designed incentives for company's team. I have to enhance transparency and credibility.
By improving the overall investment environment and ensuring fairness, the reform supports entrepreneurship and productive investments contributing to sustainable economic growth. The international dimension of taxation is equally critical. The global tax landscape has undergone a profound transformation in recent years. Europe must remain committed to international cooperation, while also safeguarding its strategic autonomy and investment attractiveness. The objective is not isolation, nor is it fragmentation.
It is a balanced framework that prevents harmful tax competition, while ensuring that Europe remains an attractive destination for innovation and capital. As Cyprus is carrying out the presidency of the Council of the European Union, our approach to the European tax agenda is guided by a clear and forward-looking vision, one that embraces simplification, reducing the hidden cost of complexity that can weigh on growth, that strengthens international cooperation while safeguarding Europe's competitiveness in an increasingly fragmented global environment. Ladies and gentlemen, tax policy is often perceived as technical and complex. Yet, at its core, it shapes the incentives that drive economic behavior. It influences where businesses invest, how innovation develops, and how societies distribute opportunity.
If we succeed in modernizing and simplifying our systems while preserving fairness and fiscal responsibility, taxation can become one of the strongest pillars of Europe's economic dynamics in the years ahead, supporting its efforts to create prosperity for all European citizens. Let us seize this opportunity to align our tax systems with the realities of a new economic era, one defined by cooperation, competitiveness, and sustainable growth. Wishing everybody a very successful symposium. Thank you.
Speaker 1
Thank you, Minister Keravnos. It's always good to know, and as you've heard, we have the extensive support of the presidency of Cyprus. He hasn't heard your applause, but I'm sure that our friends from Cyprus, when they go back home, will tell him and let him know that we applaud his support and the support of the current presidency. So back to the room for the rest of this keynote speech, the second one. And I'm most proud to welcome our next speaker because although I know that we lost him to Australia, I still consider him as one of ours.
So it is my great pleasure to introduce Matthias Corman, Secretary General of the OECD, to deliver his keynote speech. The floor is yours.
Speaker 6
Well, thank you very much for that introduction. And I have to say, it always feels very special to speak in this room where I used to sit at the back as in my early twenties as an assistant to a member of the European Parliament. So it's been a long way. It's a long while, but it's great to be back in Brussels. So, good morning, everyone.
Thank you for the invitation once again to join you to share the OECD's perspective on the continuing need, and indeed the path forward, for international tax cooperation. Since we were founded as the organization for economic cooperation and development back in 1961. Our organization has supported countries in working together on tax policy for mutual benefit. Our efforts reflect a core economic reality. Domestic tax policies do not exist in a vacuum.
The effectiveness of domestic policy choices, and in some cases, the ability of a government to collect tax revenues and enforce tax laws, can be heavily influenced by the laws, policies, and practices of other jurisdictions. And the digitalization and globalization of our economies, of course, only amplified that dynamic. And further, countries around the world have entered a period of elevated pressures on public finances. Spending needs related to the economic and fiscal impacts of population aging, defense, infrastructure, climate, and digitalization are growing. So getting the policy settings right on the revenue side of budgets is, in many ways, more important than ever. Of course, we continue to recommend that governments ensure their spending is well targeted, subject to regular reviews, and optimizes opportunities for efficiencies.
But, you know, clearly, this alone is not sufficient. Growing fiscal pressures mean that governments are looking to more effective tax policies to raise the revenues they need to be able to finance the essential services that populations rely on, and to be able to make the necessary investments in long-term growth and prosperity. And in this context, with competition for tax revenue at an all-time high, international tax cooperation is as critical as ever to mitigate the risk of double taxation, prevent barriers to cross-border investment, and foster growth, but, of course, also, to prevent and address tax avoidance, safeguard domestic tax policy choices, and protect countries' tax bases. A well-coordinated international rules and standards that are evidence-based and agreed by consensus, reduce administrative burdens, and provide businesses with the certainty and stability they need to innovate, to invest, and prosper. At the OECD, we have a long and proud history of facilitating and driving international tax cooperation.
It is great to see my valued friend and former colleague at the OSD, Pascal Sattemont, here amongst us who made historically significant and globally significant contribution to our tax policy work over an extended period with us at the OECD. And including through work on information exchange agreements supporting more effective tax law enforcement, global standards that prevent tax avoidance and evasion, and common approaches such as the recently agreed global minimum tax raising the floor on taxation interrupts the rise to the bottom on taxation, reduces uneconomic distortions of investment decisions by solely on achieving low tax outcomes, and ultimately levels the playing field for participating jurisdictions. Towards this, the OECD provides, as I'm sure most of you know, an inclusive platform for cooperation among a wide range of participating jurisdictions. Yes. I mean, all 38 OECD member countries, but 148 members of the inclusive framework on base erosion and profit shifting all up now and 172 members of our global forum on tax transparency.
So we remain committed to facilitating engagement amongst jurisdictions to find evidence-based tax policy solutions to tackle the most pressing economic challenges of our time, while preserving national interest and fiscal sovereignty. Our work on tax began indeed with the twin goals of one, eliminating tax barriers to cross-border trade and investment to promote growth, and two, protecting tax bases, which is where the 1963 moral tax convention and the 1995 OECD transfer pricing guidelines are core international standards that help countries eliminate double taxation and prevent tax evasion. And since then, of course, our work has expanded to cover tax administration, tax policy and statistics, tax and crime, tax transparency, and environmental taxation, just to name a few. On base erosion and profit shifting, our base erosion and profit shifting initiative served to preserve these legacy achievements by modernizing and adapting existing international tax rules and standards to address modern business models and operating structures. Building on the success of the BEPS initiative and reinforcing its objectives, the inclusive framework adopted the global minimum tax back in 2021, as I mentioned, to reduce incentives for uneconomic profit shifting and tax-motivated investment distortions.
But the global tax also serves to reduce pressures on countries that offer tax incentives that end up costing revenue without creating real substance biased investment. And I know that this is the area of my remarks that might probably be most interesting, but with a critical mass of jurisdictions, 65 jurisdictions so far choosing to adopt this common approach around the pillar two global minimum tax, including all European Union member states. It was essential to do everything we could to secure this massive achievement for the long term. This meant addressing concerns that were raised about the application of the global minimum tax, including those raised by the United States regarding the interaction with its own global minimum tax arrangements. To that end, earlier this year, the 148 members of the inclusive framework agreed by consensus on a comprehensive side-by-side package that preserves the gains and policy objectives of the global minimum tax in pillar two while promoting stability and reducing compliance burdens for businesses.
This package includes a series of material simplification measures, clarifications on the expiry of transitional provisions, and greater alignment of substance-based tax incentives. It also introduces a side-by-side system that is based on strict eligibility criteria to ensure a robust minimum taxation. Importantly, and I'm gonna address a few points given some of the commentary in the media at the time and since then, the agreement does not result in exempting any group of multinationals from minimum taxation. The side-by-side agreement ensures the primacy of domestic taxation by guaranteeing that qualified domestic minimum top-up taxes remain applicable to all multinational enterprises operating in an implementing jurisdiction regardless of where the enterprise is headquartered. There is no exception for any jurisdiction from the application of the global minimum tax through the application of qualified domestic minimum top-up taxes.
The side-by-side system also does not exempt multinational enterprises from a minimum level of taxation in the absence of domestic top-up taxes. Instead, the system recognizes that preexisting systems, in particular the preexisting US regime, which indeed served as the impetus for the OECD global minimum tax, already imposes robust minimum taxation that is complementary to the policy goals of the global minimum tax and therefore can operate alongside that regime. Importantly, the spirit of the side-by-side agreement and the commitment to global minimum taxation is reinforced by a consensus on its commitment to address any base erosion and profit shifting or level playing field risks that may emerge moving forward. And towards this, a stock tag regarding the operation of the rules will be concluded in 2024. The side by side arrangement, I would suggest, is a major step forward helping to fulfill the original aims of the global minimum tax, simplify compliance for businesses, and allow robust domestic approaches with the same objectives to coexist under common safeguards agreed by the inclusive framework and on the foundation of a consensus involving everyone in the inclusive framework.
Facilitating the continued implementation of global tax is a core priority for us at the OECD and for members of the inclusive framework. And towards this end, we're working with the European Union and other members to support a coordinated and consistent implementation amongst the countries that have adopted the pillar two global minimum tax rules, including through stakeholder engagement such as the Amsterdam dialogue. And with the valued support of our friends and colleagues in the European Commission, we will provide assistance to 14 EU member states as they implement the global minimum tax. We will support implementation further through tailored capacity building, best practice and implementation guidance, and practical tools that facilitate upfront compliance and risk assessment. Beyond the global tax, we are working with the inclusive framework to resume a constructive dialogue on the taxation of the digital economy.
The steering group of the Inclusive Framework has expressed a common desire to return to the conversation on the taxation of the digital economy, and the importance of addressing the issues and challenges in a multilateral setting to avoid fragmentation and harmful unilateral approaches. Over the coming months, the OSD will support the inclusive framework as they review the work done to date, seek feedback on lessons learned, and explore how country priorities and ambitions have evolved to chart the course for future discussions. And we will go further in responding to other emerging tax challenges that governments are facing. First, addressing the implications of an increasingly mobile and remote workforce. For EU countries, these challenges are especially significant given deeper economic integration and higher levels of cross-border labor mobility.
Since the COVID-19 pandemic, the number of European employees working remotely has increased by over 80%, and 59% of EU startups operate with remote decentralized teams. To help address the tax challenges arising from this shift, the inclusive framework is exploring options to modernize tax rules for evolving work patterns, ensuring tax systems attract global talent, while also addressing potential risks when it comes to fair taxation. Second, exploring how tax policy interacts with inequality and economic growth. This work will follow a phased evidence and data-driven approach, first scoping the issues, including understanding the impact and interactions of various domestic tax policies in promoting growth and mitigating or exacerbating inequality. This will inform discussions in the inclusive framework on the way forward on priority issues identified through country consultations, including sharing experiences that inform domestic policy choices, for example, the effective taxation of capital and supporting business dynamism.
Beyond these efforts, effective international tax cooperation would not be possible without the right tools to enhance tax transparency and exchange of information. Our work helps enhance transparency in increasingly key financial areas such as crypto assets, where global market capitalization has grown sharply from around $740,000,000,000 US five years ago to about $2,500,000,000,000 US today. Through the crypto asset reporting framework, the global forum on tax transparency is helping to close transparency gaps and combat tax evasion by requiring the reporting of crypto asset transactions to the tax authorities. Over 70 countries have already committed to implementing this in 2027 or 2028, and the adoption and recent entry into force of the eighth directive on administrative cooperation places the European Union at the forefront of these efforts. In late 2025, we also released a framework for the voluntary exchange of real estate information, which extends tax transparency further by facilitating the automatic and regular exchange of readily available information on real estate.
26 jurisdictions have already indicated their intention to commit to this new framework. We're working with partner organizations and countries around the world to provide the support needed to participate in and benefit from the tax standards and tools that we help develop. The EU and its member states have been strong supporters of the OECD's global capacity-building efforts, fostering greater tax transparency and supporting green taxation, and we thank the European Union for that support. These efforts have yielded excellent results. For instance, the Tax Inspectors Without Borders initiative, our joint technical assistance program with the United Nations, a development program, has generated more than $2,400,000,000 US in tax revenues and $6,390,000,000 US in tax assessments in developing countries since it was launched a decade ago.
We're now implementing the next phase of this initiative that will support developing countries in better navigating emerging challenges from the digitalization of economies, increasingly complex cross-border arrangements, and evolving forms of illicit financial flows. It will also respond to demands from developing countries for specialized assistance that places more emphasis on peer-to-peer support. And this complements our broader program of technical support in partnership with other international regional organizations, as well as the OECD's tax crime academies in Italy, Kenya, Argentina, and Japan. In closing, it is no secret that this is a challenging and complex global policy environment. The OECD, we will continue to do our best in pursuing and supporting a constructive, mutually beneficial cooperation.
What we are achieving on tax together with our partners, including in particular the European Union, gives us good reason to be optimistic. The recent side-by-side agreement achieved by consensus by the now 148 member inclusive framework, I believe, is a testament to the continuing commitment to multilateral cooperation in tax to help secure certainty and stability, and enable a strong foundation for fiscal sustainability and growth. There is, of course, much more to be done, and we continue to make progress every day. But you can count on them to continue to be your partner in this endeavor. Thank you very much.
Speaker 1
Thank you, Mr. Korman, for these very wise words. Gerasimos told you that the ball was in your court. What I've heard right now means that the OECD is very actively picking it up and doing something, playing with that ball, playing its role, and doing something with it. I also would like to thank you for being one of our strongest and most loyal supporters of this tech symposium, honoring us with your presence year after year. Consider your seat booked for next year, I would say.
They will find you a topic. I'm sure there will be much more to tell by next year. Now we will start off with the panels. Let me call on stage the first panel for today, and that is a panel moderated by Pascal Saint Amard, already mentioned in Matthias Coleman's speech, and the four panelists. Please join me on stage for the first panel, the EU at a crossroads between international tax cooperation and strategic autonomy in taxing digital activities.
Before they kick off, and while they take their seats, we will go for another round of voting so that they know what you want them to talk about. Let me first re-explain the process, and particularly, I guess, to the younger generation, and by younger, I mean 35 or 40 and below, there's no need to touch that screen in front of you because I was told by technicians that some people try to vote using the screens. I know that if you're younger than 35, you think that everything is manipulated through a screen. Those of you who are older than 35 probably one day even had a phone where you still had to press buttons. This is actually what you have to do here as well.
So right beneath the screen, you will find a little hole. You can actually put your hand in it, so do not touch the screen. Look, and deep down in there, you will find the three buttons I mentioned earlier. So once again, green for yes or in favor, is the left button. The red one is on the right, no, and against it, and the white one is in the middle, of course.
So I would say, do your very best, because the vote is open. So hands in all the way down. Do not touch the screen. Just look at it. No need to touch the screen.
A wonderful view that we're getting on the screens, and people back home as well, for the hemicycle and full voting option. Yes. I see plenty of lights. I think everyone got the procedure by now, so the vote is closed, ladies and gentlemen. Oh, yeah.
It shows in the lights and the number of votes. So, yes, it's a definite yes. Almost 400 people agree with it. It should be, and it should remain a priority. So a very important role for you and your panel here today.
Speaker 8
We have a challenge here. We have 50 minutes for fantastic panelists to address the top priority, but we need to leave 15 minutes for the Q and A. So that doesn't leave much for the panel to address this priority question. And by the way, the question as phrased, the theme is a bit complex. The EU at the crossroads between international cooperation and strategic autonomy in taxing digital services.
There is a lot there. And if we try to summarize it, either unilateral measures in Europe or multilateral cooperation. We'll try to go through that. I'm Pascal Santamont. I'm a senior fellow at Brighorn.
And in prior life, I was at the UEC. And I'm glad to try to handle this hot topic today, because it's still very high. So a few words of introduction, and then we'll turn to the panelists. Words of introduction, you may have heard about Pillar two, the global minimum tax, still alive, being implemented, as Matthias Corman has just said, and pillar one that maybe some people have forgot about, which is about how to tax the digital economy or how to address the tax challenges arising from the digitalization of the economy. And each word has a special meaning.
But pillar one has been on standby for more than 5 years now. It's like brain dead or, as Christian put it, a zombie. A zombie is frightening. It's dead but alive, and everybody's frightened by it. So let's go back to history.
In 2012, when the BEPS project was launched, action one was about the digital economy. And the conclusion in 2015 was to say, well, we are not sure that there is such a thing as the digital economy. It's a broader issue. And then the Obama administration said, but nothing to do. Let's take stock of what BEPS measures will do in 2020.
A number of countries were very frustrated and started implementing unilateral measures, digital service taxes. The French, the Spaniards, the UK, Austria, and a few others. Then in 2018, there was a new report to the G20 saying, well, actually, there may be a problem. And the Trump one administration said, well, it's not a digital problem, but it's a problem of allocation of taxing rights beyond the digital economy. It's about the large companies which have rents, and the rents are not properly distributed among the countries.
And that resulted in pillar one, which was about developing a solution with a new nexus. You are taxable in a country even when you're not physically present, which is quite digital, together with the new profit allocation rules. Part of the rent of the companies will be allocated to the market jurisdiction. And the Biden administration, they came in, said, well, we need to do this solution for the largest companies above 20,000,000,000 of revenue, €20,000,000,000 of revenue, and for the most profitable company, €20,000,000,000 of revenue and 10% profitability. And there was an agreement, and the multilateral convention was written down to implement this, because if you want to change the nexus and profit allocation, you need to change tax treaties.
And then this convention was written and never signed. And that's where we are today, five years after the deal was reached at the OECD, with a question: what do we do? And the tension, which the panel will address, which is, what do you do? A multilateral solution which is not implemented. And a number of countries waited for this multilateral solution to get better taxing right, and they refrained or not from implementing unilateral measures like digital service taxes.
So that's how I think we can set the scene. Now I'll turn to the panel. I introduce them very quickly. We have Evelyn Reigner, who is a member of parliament with a trade union background.
You're.
Speaker 8
A veteran here in this parliament. You've been elected since 2009. We have Rebecca Birch, who is the deputy assistant secretary for international affairs at the Treasury in the US. So we're very anxious and curious to hear what you have to say. Your background is IRS, and you also practiced at We have Christian Kaiser, who's the global head of tax and corporate vice president at Siemens.
And you're also the co-chair of the tax committee of business at the OECD. And finally, we have Christoph Troutwetter, who's the executive director of Tax Justice Germany. So I would like to start with a basic question. We'll do two quick rounds. But the first question is, is it digital?
Is there something like the digital economy is about user contribution? What's the issue, after all, if we need to revisit this, kill the zombie, and move to a new approach? Maybe we start with you, Evelyn, and then we'll have Rebecca.
Evelyn Regner
An excellent good morning to everybody. Going to the question very quickly, but I would just like to thank very much mister Korman for the inspiration to all others in the room. There is a fantastic perspective to become the secretary general of the OECD. So let's work on a strong OECD and inspire all those who would like to forward to the question. We need a DG tax. We simply need it.
Otherwise, we're living in a tax Stone Age. Economy changed, we have to give an answer to the world as it exists right now. We need a European system structure change on how we tax. I mean, we are looking and taxing in a way that reminds us of the end of the nineteenth and the twentieth century, and we have to give answers that reflect the situation. And therefore, whether we call it a zombie or we call it whatever, we need these texts.
And therefore, I would rather like to say let's say it's right now in a freezer, but it's the right instrument. It's the good instrument. It's the instrument to answer these questions. What we like to do with the text?
Speaker 8
Thank you very much. Chris, Rebecca, the US said no such thing as the digital economy. Let's have a broader approach, but signing a multilateral convention is complex. What's the position of the administration on what the issue is?
Speaker 10
Well, I think that we have to put it in context. And when we started last year at Cape Town at the plenary, and we started discussing, the US theory of the case for side by side, we would say we wanna talk about pillar two in the multilateral format. It wasn't clear in early days of the first of the second Trump administration whether we'd stay at the table. And we said, we will stay at the table, and we want to have a multilateral discussion. And we were asked, well, what about pillar one?
We said, well, let's get through pillar two and see if this format, the OECD format, is the right one. It turned out that the discussions and the consensus basis and the honest information and feeling sharing that happened over the course of the last year did prove helpful. And so you saw the G7 in its June statement say, when we can discuss or decide on pillar two, we'll move to a constructive dialogue. When consensus was reached January 5, you saw secretary Bessen, the US Treasury secretary, also reminding that the US is interested in a constructive dialogue. That is what I have a mandate to do.
I think having a mandate to do that means listening and hearing, being here. Right? Showing up is half of the battle, defining what it means to have a constructive dialogue, what will prevent a constructive dialogue, and what will promote one. I think we have to slow down and be very cautious about running to a solution. Because you talk about how to tax the digital economy, I think it's whether we can, whether we should.
What is the basis? You said we need it. I hear that. Let's talk about that. What are the assumptions on which this tax was first designed?
Have we changed? Has the world changed or not? And what principles? And really challenge those principles. If we fail to do that, if we rush towards a solution, I fear, happy to have a discussion about it, but I fear what happens is that we end up again in amount a that will not be adopted by The United States.
And that's what I'm trying to avoid.
Speaker 8
Thank you very much, and emphasizing dialogue. Christian, if we go back to what the issue is, it started with frustration by European countries not to get taxing rights on American tech companies, mostly because it's the American companies which have been successful in developing digital models. And then the dialogue shifted over time to capture a broader set of companies. And the amount A, which is part of Pillar One, sorry for the jargon. But amount A is the solution, which says that a quarter of the rents of the largest companies will be allocated to market jurisdictions where the revenue is sourced, whether there is a permanent establishment or not.
So with this new nexus, which is based on the threshold of sales, that captures many more companies. It captured most of the tech companies, the successful tech companies as we know them, but also other companies including, I mean, cloud services, and Siemens. Do you think there was a problem? And what's your approach of the scope of amount, and what's your dream answer there?
Speaker 11
Well, actually, we at Siemens believe we are a tech company by now. So that's the industrial company that moves to becoming a tech company. So maybe there's no contradiction in that regard. Your question is actually, what do I think about pillar one? Is there a future in that?
Is this about the digital economy? And it is not about digital economy. It was not tailor made to capture only digital economy because with perhaps action item one, one of the problems back then was that nobody could agree on a definition for what digital economy is, and it's actually not possible to differentiate because the digital elements are a component of pretty much all industrial and business offerings by now. So, actually, this differentiation is not going to fly. If you look at the automotive industry in Europe, every car is generating data, and every car by now is using data.
So there is a digital component in there. So forget it. There might be very little businesses left which have no digital component. So differentiating doesn't make sense. If you now go to the solution that was addressed around a, which is a step into the direction of formulary apportionment.
I'm a big fan of that. I always was a big fan of pillar one. The problem with pillar one is, theoretically, it's great. In practice, it is not going to fly. And it was not going to fly back then.
It is definitely not going to fly now. Look at the environment we are living in. It doesn't look like you will be able to achieve a global consensus on profit allocation on any sort of apportionment. That is always some countries losing, some winning. Nobody knows what the outcome will be. Even within the European Union for VAT, it was not possible to achieve consensus on the allocation mechanism for VAT.
That is why we are still living in the VAT environment we are in. So if even it was in the EU, you can't achieve that, you can forget it. And that's why I always say it's a zombie. And it's actually a zombie, not in the way of a frightening zombie. It's a very slow-moving thing.
Right? So it moves. It moves. It is being kept alive sort of or kept dead. It's very difficult to say.
I would be a big fan of that, but only based on a global consensus, and that is not around the corner.
Speaker 8
I think you're right. It's been kept alive despite all the context. And the reason for that, if I may, going back to history, was to try to convince countries not to take unilateral measures. So that has been, but we'll go back to that in the second round of questions. That has been the paradigm, trying to get a multilateral solution to avoid unilateral measures.
Christophe, we heard there is a need to address the issue. We heard there is a need for dialogue. We heard, yeah, a multilateral solution is better. What is the issue from a tax justice perspective? And what is where is the EU?
At the crossroads between what and what?
Speaker 12
So first of all, I think the issue is that pillar one hasn't been declared officially dead, not even today. Everyone has avoided it so far, so maybe we could do that. And then start discussing other solutions for the issue at hand. You have said we won't reach a global consensus, then we might have to talk about EU unilateral decisions, measures to the issue. And to talk to say clearly what the issue is, I think we've talked around that point as well.
Speaker 13
We have a problem with very big companies. When you started negotiations about the BEPS package, from that time on, the profits of the three companies that would have been most affected by pillar one have tripled to now €400,000,000,000 per year. That is twice the budget of the European Parliament, and that's a problem for this society. That is growing and needs to be resolved urgently, like we heard already. And pillar one tried to do exactly that.
Speaker 12
Pillar one didn't focus on digital companies, but pillar one tried to tax the biggest and most profitable companies that until today pay the lowest tax, which makes them grow even faster and bigger. And that I think is the central issue for the economy, but also for inequality. We need to turn that around for the sake of fair competition. We need to support the smallest companies, the small companies, new competitors. The tech system should be there for them and not for the biggest and most profitable companies that managed to exploit it to shift their profits away.
And those companies at the moment happen to be the big tech companies at the top of the list. But in the list of the most profitable and biggest companies, there are the banks, the oil companies, the pharmaceutical companies, the big brand companies. And all of them, what they have in common is that they have captured the market, that they extract economic rents, that there is no sufficient competition to reduce those rents even after many years. And that is exactly what we need to address. That's what pillar one tried.
That's why it's a pity if it dies, but we need to kill it to get to a better solution.
Speaker 8
Thank you. Very clear and support from the room. So let's move to the second round of questions, which is okay. So there is some form of consensus to say that there is an issue, and there is a need to discuss. I didn't hear anyone saying it.
But what kind of solutions are possible and can be implemented? Because multilateralism requires all the countries to be there, and they all have their own constitutions and their own constraints to adopt multilateral legal instruments. In the absence of a multilateral solution, you have unilateral measures, but they raise a number of problems, including trade tensions between the countries. And I would just add another dimension, which is with the upcoming wave of artificial intelligence and the consequences in terms of profit allocation, even though they may run losses for a long time, at some point they will run profit. This issue will be even more crisp to the extent that AI may also disrupt the economies and generate public costs. So in that environment, second round is about what solutions.
So what are the ideal solutions, and what are the practical solutions in case we didn't get to a perfect multilateral solution. We'll start with you, Evelyn.
Evelyn Regner
Thank you very much. Of course, the perfect solution would be like the one that we're all having the same goal that we say, okay, let's all over the world find a global solution in order to tax in a sense that there where the profits are made, there where the value is generated, taxes are paid. So somehow that would be the wonderful plan, I think everybody in the room is dreaming of, but somehow it doesn't reflect reality. And therefore I say when we see right now that it's so bumpy, the whole road is so bumpy, we have to think also of a plan B. And plan b for us as Europeans could be when you see that bridges are cracking, when bridges are breaking, that we as Europeans learn to swim even if it's against the stream, even if it's very tough, and even when enterprises, I'm very much aware of that, companies are sort of swallowing.
I think we have to do that. We need something like DSA, sorry, Digital Services Act for taxes. However, you call that. But we really have to focus on that, because we have to look at the whole picture of companies we do have. We have those few who are really sucking and taking a lot of the profits, and then we have so many. And Europe European Union, we are living on all those wonderful smaller small and medium enterprises.
I always give this example in Vienna. The Viennese cafes, the Viennese, they are paying their taxes and they can't escape in a sense. And, of course, we have excellent big companies in the European Union and we love to cooperate in a globalized world with big ones, but we have to think on what's happening if all those taxes are slipping away to tech bros. We need the money in order to finance our welfare states, and therefore I'm pleading to find a European solution, not in order to replace it with global solutions. It's wonderful what's done in the UN, and of course, I would like to push everything that is done at OECD level to do all that.
But we need sort of a push in order also to get to life again, good global solutions.
Speaker 8
Thank you. Thank you very much, Evelyn. Rebecca, I think we heard you say we're here to listen more than to explain what the solution would be. Still, what's your approach to potential unilateral measures to the European Union as such or to different countries, knowing that it was a bipartisan consensus in the US to say DSTs were not good and that the US would not take it well? But if there is no multilateral instrument, how can we move forward?
What's the path?
Speaker 10
Well, I do wanna, when we go towards, we have to have a solution, we have to go our own way. That is what can happen. That is absolutely what can happen. It is clear from this administration that there's an executive order that talks about 301 investigations on countries that have already enacted DSTs. That is not a secret. That is something that was discussed last year during the pillar two conversation.
What about pillar one or DSTs? The US continues to feel that DSTs are trade irritants, but right now, they are operating under their own executive order in the trade space. My hope is that this constructive dialogue gets DSTs and a solution back in the tax space, but it doesn't have to be. That's not it, it doesn't have to be there. I'm trying to set up the opportunity for that discussion.
Again, when you go to, we're gonna go it alone, we're gonna do our own thing because we must do it. I think that abbreviates the conversation. And I'm not wanting a conversation just to hear myself and others speak, most assuredly not. I want a conversation about where this started and where we are today, because things have changed. Pillar two, QDMTTs are things that weren't taken into account. But I also do not see a way to find consensus if we are not talking, and if we are not going through the assumptions on which these rules were based, if we are not talking about whether we agree with the first principles.
It could be a very short conversation, perhaps. But I worry that we are gonna just say, go it alone. We have to do our own thing. It can be an answer. That can be the end of the constructive dialogue.
I understand that. But I'm trying to open the pathways so that there is room if there is going to be consensus for us to find it.
Speaker 8
Thank you, Rebecca. So ongoing dialogue to take place. The question is how much time it will take, given that it started in 2012. Christian, your take on what would be an ideal solution. You said I like amount a, but I don't like amount a because it would fail in practice.
What would be the right theoretical solution? And in the absence of a multilateral solution, what is the second best?
Speaker 11
Let me start slightly differently because I believe this is a right question, but there's another question. And that this other question is why are the most successful companies in that area and the most valuable companies in the world all based in the US? What did Europe do wrong? Why don't we have them over here? And what can we do to catch up?
And the answer to this question is not a digital tax act. That's certainly not the answer. I'm pretty convinced about this one. So actually, if you come up with that question, if you can have so many digital service taxes in the world, that will not help any of the startups in the European Union to catch up and close the gap. We will not make this.
Actually, we have to put the gears into forward and focus on growth. That is what we have to do. And digital taxation is likely not achieving that. It is honestly for me an ideology that is driving the tax discussion. Right?
And for me, economy should drive tax discussions, because tax is only one input parameter for economic decision making. So, what would be the right approach to this one? I absolutely believe we need to have this dialogue because we can't live in a fragmented world. And we have heard that before from Matthias Corman, and we heard it from the finance minister of Cyprus. A fragmented world is nothing where the economy can prosper because we have to deal with many inconsistent rules.
And even if the EU comes up with one digital service tax or digital tax whatsoever, and it would be applicable. It was in all the member states. This would inspire so many other countries around the globe to go into a similar direction but with their domestic rules. And then what we have is the situation that we have to comply with dozens of different sets of rules. And I believe there is the idea out there that in a company, in a big M and E, you press on a button and you have all the data.
That's not true. That's not true. The cost of compliance is tremendous. We have costs for complying with digital service taxes in Turkey and other countries where the cost of compliance is so much higher than the digital service tax that we pay in that country. And this is economically a misinvestment.
It's a lost opportunity. I could donate the compliance cost to the country, right, instead of the tax, and it would be better off. It would be economically better. So I honestly believe we need to have a discussion, and we need to come to a global solution. And the forum, the platform for this, is still the OECD.
I'm not happy with many things that happened there. And it's not a secret. I'm not a big fan of Pillar Two. But still, we have a global platform, and that is the best way to achieve consensus. And we need this consensus, and we need to focus on growth.
That is what we need to do and not on taxing stuff.
Speaker 8
So no. You need actual measures, that's clear from Christian, but consensus, what's on remains to be found? Christophe, a few minutes ago, you killed Pillar one, reluctantly so, but you did, to start anew. So what can you dream of, and what can you dream of which could be implemented by default? So what's the first best and the second best, practically, in the months to come if we want to ensure a strategic autonomy of the European Union?
Speaker 12
So first, I wanna expose a contradiction in what you said in your first statement. You said global consensus is impossible, and now you said we need a global consensus. I think that's the big contradiction also of our panel today. But what I have to say is we can't wait another 10 years for the problem to be resolved because it's growing and it's getting too big to handle. The biggest companies get too big to regulate and also too big to compete against.
So if we want the European digital economy to grow, which I fully agree with you, we need to solve the issue. We need to create a level playing field for them. And we need to do it quickly. And this, at the United Nations at the moment, this year, a negotiation about multilateral solutions to global tax justice. They want to pass a resolution in 2027.
So that's an ambitious schedule, a very timely schedule. We can't wait for the OECD, like mister Korman said, to work to resume dialogue. When the dialogue is already happening in New York, it has already happened for 2 years, you shouldn't let this unique chance pass. And if we don't get to a global resolution at the UN, which I think is not unlikely in the given times, we need a plan B. And this plan B for the European Union is a digital services tax.
Very easy.
very.
Speaker 12
Clearly. Basically, just take what France is doing and do it in the whole EU. I don't like the digital services tax. It's not a good solution. But because it's not addressing the real issue, but it hits exactly the same companies, it solves the problem by accident.
And it's the only plan B that we have to pass quickly enough to address the issue.
Speaker 8
Thank you. Before moving to questions from the room, I would just like to do a last round because we have two tensions there. One is multilateral versus unilateral. And multilateral, everybody agrees, is ideal but takes time and maybe takes forever, while unilateral is far from ideal and may raise difficulties but is feasible, but creates uncertainty. The second tension, and it's not been clarified during our conversation, is what are we talking about?
You just talked about digital. What is digital? Digital service taxes capture models like Meta or Google, but they don't capture cloud services. Amount A did capture that and beyond, even the digital company that Christian works for, which is Siemens. So the last question I would quickly ask you is, what should be the scope of whatever solution, whether it's a unilateral or multilateral, focus on digital, and how do you define it, and do you include AI to come, even though we don't yet really know the business models, whether subscription or advertisement or whatever, or should it be broader?
So maybe if in one minute you can answer that, whatever other message you want to pass on to the room, and then we'll take the questions. Evelyn Witte.
Evelyn Regner
I mean, in general, taxes should look at where the value is created, where the profits are made, and then we just don't have to talk only if it's digital or if it's still very conservative. So simply to have a focus on that, and therefore somehow my ideal world would like that we have a CCCTB or, like, now as we decided in the European Parliament, so that could be a basis. So I invite the council to take it and implement public CBCR, and on that to build a digital tax. So somehow a system that doesn't divide the companies because more or less, as you already explained, every company is working in a digital way today. So let's focus on where the profits are made, and let's make that transparent, and then profits can be taken.
And then also the story of this sharing, is it now in Ireland or is it in another country in the European Union where it's a bit more difficult to look where this is coming from could be done. And of course, to do that in a global way, that's my dream.
Rebecca?
Speaker 10
And I think that it is helpful to hear those remarks, especially as they're contrasted with the response you gave earlier about us going alone in the EU. Because now I feel like you just started a constructive dialogue saying, well, you know, where is value created? I think that is how we start to frame what a constructive dialogue looks like. Where is value created? What is the value?
Where does it get allocated? And are the tools that we have able to produce those results? I think the other remark, to end with, is this idea that we know what the problem is and, therefore, we know how to solve it. I don't think that's accurate, and I don't think that you can define what the problem is. I think there's gotta be a much broader audience, including those who are going to be expected to pay the tax, the stakeholders.
This is something I heard in Tokyo at the PCT conference on smaller jurisdictions wanting to engage with their business community and understand how the theoretical tax policies are really going to impact their ability to compete, invest, and grow. And, I thought it was a good lesson taken and one I would share today, especially as we define the problem, that it can't just be you defining it, but there's a lot of stakeholders at issue here.
Speaker 8
Thank you very much, Christian. I think you've been cleared. I would add a very quick question, which is value creation. Pillar one was saying, well, there is something to be allocated to the market jurisdiction because current transfer pricing failed to do that. What what's your reaction to that?
Speaker 11
First of all, I wanna say something on BFIT, formerly known as triple CTB, because you killed this. The European Union killed their own idea. Triple CTB is dead because it doesn't work with pillar two. If you have cross-border loss utilization, you're immediately low tax. There's top-up tax.
Forget it. Under pillar two rules, you have to apply the arm's-length principle. That's part of the rules. So the idea of getting rid of the ALP, the arm's length principle within the European part of the group, is gone. So you lost two of the three advantages of triple CTB.
I would call this inconsistency in the political and policy approach. Right? I'm a big fan of BFIT, but it's dead. And that's not even a zombie. It will never happen, and it's dead.
And even if we did it, it would not generate any advantage. Full stop. Value creation. Christophe earlier said the big tech companies, they are under tax. They don't pay taxes.
That was pillar two. Paying a minimum level of tax was pillar two. That was not pillar one. Pillar one was on profit allocation. So that source countries get their share of the tax.
Speaker 11
has nothing to do with the level of taxation. Honestly, we did simulations. My company, we would benefit from pillar two because of a different allocation of the profit and differences in tax rates. So the value creation, the question where value is created is a question for a value added tax VAT in one area. And if you really wanna change the profit allocation and focus on taxing where value is being created, you need something like pillar one.
And when I said there's no consensus, I meant no consensus on pillar one. No global consensus. I'm very confident that in other questions, there can be a consensus. And a dialogue leading to a consensus doesn't mean that all countries around the globe have to implement the digital service text. It could as well mean that they agree on a common design of how this text should look like and that we don't have a fragmented approach then.
This is what I believe is possible, and that is why we need a global platform. And I'm not very positive about the UN as a global platform. I'm a big believer that the OECD is the right platform.
Speaker 14
Thank you. Christophe, your last word, and then we'll turn to the room.
Speaker 12
Just two quick keywords, I think, that make clear how the debate is going in the wrong direction. What the big tech companies, what the big artificial intelligence companies do is not creating value. They're extracting rents from the markets. And we have a very new supporter in Germany for the digital services tax, the journalists union that writes the texts, that produce the knowledge that is then extracted by the marketing companies and later now the artificial intelligence companies into answers, into knowledge, into text. And this rent extraction is only increasing with artificial intelligence, and that's the target we need to address.
And I agree pillar one did it much better than the digital services tax. But right at the moment, the digital services tax by accident reaches exactly the same goal, because it's the same problem, the same companies. And we don't want Google. We don't want Microsoft to grow. We want alternative companies to grow.
We want Europe.
I want them to grow.
Speaker 12
I think they have been too big. They're too big to handle for humanity. They're growing too fast. We don't want to speed up their growth. We need to slow it down.
We need to slow down the development of artificial intelligence for humanity to catch up with it. And we want other things to grow, not this problem.
Speaker 8
Thank you. Thank you very much. Before wrapping up, we'll take questions. But please, thanks for the panel. We'll take a few questions.
And I would like to first call the member of parliament Baral Yakos from Greece, the Hellenic Parliament, Seat 111.
Speaker 15
Mister coordinator, members of the panel, ladies and gentlemen, colleagues, we live in a world where the economies are interlinked, and digitalization of the economy is moving very fast. And we think it's important to strengthen multilateral cooperation. International rules for taxation should sufficiently reflect this new reality. The initiatives at international European level for strengthening transparency and combating tax evasion and the just taxation of the multinational very big companies, these are important steps towards a balanced tax architecture. Greece is supporting the solution of the two pillars and the reform of the international taxation system and expresses its support towards the efforts of the OECD and of Pillar one and the completion of Pillar one.
Europe is called upon to find a balance between its engagement to have international cooperation on the one hand, and the need to assure tax justice and strategic autonomy. In this framework, I would like to address a question to Mrs. Reigner and towards the honorable members of the panel. Now the possibility, how do you see the possibility of unilateral European actions concerning the digital tax, and if a unilateral approach could create problems in competition for European economies? This is my question, and thank you very much.
Speaker 8
We'll take a second question, from Miguel Matos from the assembly of the Republic of Portugal, number 243.
Speaker 18
Good morning, everyone, and thank you so much for the enlightening discussion. It's time to act. This race to the bottom, this fiscal competition, it's leaving states. I'd rather say it's leaving people without the resources to invest in climate protection, to invest in housing and culture, to invest in better opportunities for the young and care for the elderly, but also to invest in innovation and digital. If we want to be competitive, we need to be able to get these resources.
Speaker 17
And that's why, look, the OECD is not enough. We need to act more inclusively through an agreement within the United Nations framework. It needs to be an ambitious and binding framework. Binding on national policies about where money is taxed, but also binding with regards to bilateral agreements. And we shouldn't settle for the lowest common denominator.
Speaker 18
Look. I understand we need to advance European Union cooperation, and it's worked very well. But if we don't reach unanimous agreement, we need to be able to achieve cooperation as well. And so my question for the panel is, why don't we act with the countries that are willing to act? Why don't we act at multiple speeds so that we can go as fast as possible?
Thank you very much.
Speaker 8
Thank you very much. The last question from the room will be la part de Florence Blatrix, sénatrice, Francis.
Merci. Thank.
Florence Blatrix Contat
Thank you to all the speakers. Good morning, everyone. Firstly, one question. This juxtaposed approach has opened the way in Pillar 2 to the benefit of The United States. It was opened in '25, '20.
Is this the price we have to pay to seriously negotiate with, pillar one? And then there's the slowness of work on the pillar one, and the EU is having trouble finding its own resources to finance new policies they need to finance. They need to have an ambitious budget to fight inequalities, to fight for competitiveness, and its own growth. So I'd like to reiterate the need to resume this plan for a European digital services tax. The Bruegel Institute says itself that this is necessary.
It would bring €37,000,000,000. This is a fair contribution from the multinationals. And as Missus Ragneaux said, it would help us adapt to the evolution and development of the economy. We've got to move forward now. Thank you.
Speaker 25
Thank you so much. When we talk about the annual framework or the budget where you've quantified part of pillar one is own resources.
Speaker 8
Sorry. I couldn't help but speak French for a second. You have maybe a few minutes to respond. There are questions addressed to you, Rebecca, to you, Evelyn, but more broadly. So we'll start with you again.
Evelyn Regner
Thank you very much for the remarks and the questions. I mean, it was quite outspoken when I said, and I still say that, we need digitex, however you call it, and however it is right now organized. We need it because time is running. And therefore, towards the first speaker from Greece, I mean, I'm very much aware of the political situation in member states and on the political situation in the parliament. I mean, when saying like I always love to say that I love taxes because I don't see only that it's money taken, but it's also money distributed in a more equal way, then I always see what can be done with that.
And I'm aware of the political situation as it is right now with the system of unanimity on tax questions in the European Union. So I'm very much aware of how difficult it is. But on the other hand, I think it's so important in this situation when you see money is going away, is leaving, is not staying in the European Union countries, and we need it so much in order to finance the society that we should speak out what the right thing is. And the right thing is we have to find a way, best way globally, second best in a European way to get as quickly as possible to this money we need in order to finance housing, the social services we like to offer, health system and so on. And therefore, we have to go for a European way for the digital solution.
And that was what I meant with my input. And maybe the second also referring because it was more or less very close from the French speaker. So of course the UN finding a binding solution at the UN level would be what we are dreaming about, and would be the most reasonable for the whole world society. We should look very closely, we have mentioned it so far, at the assessment of the side-by-side agreement that has to be implemented. What does that mean, right now?
Is there money running out? Or can we capture and implement it in an appropriate way? We have to be very careful when assessing it and really look at what it does mean also in taxes.
Speaker 26
Thank you very much. Rebecca, maybe one question was directed to you. Thank you.
Speaker 24
I wasn't sure that was a rhetorical question. I didn't really appreciate it was a question that was necessary to answer.
Speaker 11
This is with regard to competitiveness. Please. Because that was part of one of the questions. So what will be a potential impact on competitiveness? Well, first of all, outside of competitiveness but related, this digital service tax is going to drive up inflation.
Because if you are a market leader and you have digital service offerings, you will just roll over the cost of the digital services tax to the consumer. And that happens where you do like this, but it's the European consumers who have less money in their pocket. It's driving up inflation. And, honestly, inflation is a big driver of political and election decisions. Right?
Why is the far right and the far left picking up in speed? Why do they have more support? It's just because people are unhappy, and this is partially because of inflation. Partially. I'm not saying it's only that.
Right? So this is one topic. Then you have direct and indirect effects on competitiveness. The direct effect is that European business will have to comply with the rules. Compliance is an administrative cost.
It's just this. And when you have certain sectors in industry like automotive in various countries, by the way, in various member states that are struggling so hard to really want to burden them, we are speaking about decluttering on the other hand, and then we inject more complexity and more administrative burden. Actually, I don't think that this is a good growth story. And indirectly, if I listen to your narrative, Christoph, and I believe you mean it that way, this is a retaliatory text against US companies. That's what you said.
They have become too big, so we have to do something. It's protectionism. So guess what's gonna happen? There will be retaliation. Right?
So and that is going to hit all of Europe. And I'm not saying that we should shy away because we believe somebody will react, but that is something we should consider in a fragile environment, in a geopolitical situation where actually nobody knows what the next day is going to bring. I think it's just very bad timing and the wrong point in time to start this discussion.
Speaker 27
So we'll finish the panel with something like an intra-German conversation. But in one minute, Christophe, I think we got the points. One minute, and then we'll conclude.
Speaker 12
I'll be very quick because the question was unilateral. Can we do it unilaterally? The answer is a clear yes. Technically, it's not a problem. For competition, I think it's exactly the opposite.
What you said is correct. It will make digital services of Google and Facebook more expensive, and it's good for competition. It's not protectionism. It's protecting favoring competition because then services of other providers that are not taxed because they're too small get more attractive in comparison. So it's protecting competition, not protecting Europe.
And the last question, you rightly said, is a political one in the end. And I would say we need to call the bluff of Donald Trump if he wants to tax European investment in the US, if he wants to increase tariffs, it will finally increase prices for US consumers. It will make investments in the US less attractive. It's nothing that he wants. Just call this bluff and go ahead to text the companies fairly.
I think I'm gonna have to respond.
I was hoping for.
you. And.
Speaker 10
I'm happy for you to say that. And if you go right there, then we have some we're gonna jump all the way over the constructive dialogue, which can be the result. But I am sitting here because I am trying to find a solution, and the solutions to date have failed. You can go unilateral. I'm trying to do more than that.
But I don't see a way forward unless we are having a conversation, and it's not a conversation that cites US companies only. It is about first principles, the right to tax, whether value is created, whether it's not about value created. That exchange right there was useful. Your last comments were not. And they and I'm happy to hear them because that is what a constructive dialogue is going to have to involve.
Very uncomfortable conversations, but it is with the hope that we get somewhere. And if we don't, then you can call the president of the United States bluff.
Speaker 8
Thank you very much for the panel. I would just first recognize that we have 20 more questions in the room, but we're already over time. So sorry for the frustration. You have to bear with us, but you can also come to the panel and dialogue with them. Two, Christian mentioned competitiveness.
I'm glad to recognize that the commission issued an RFP to call for a renewal of the EU tax observatory, which will now have two branches, one on the tax gap, the other on tax competitiveness. And I'm very glad that Bruggell will lead a consortium working on competitiveness. So it's high on the agenda of the commission. And researchers will try to provide the commission with some evidence-based research. Maybe to conclude, and I think the last exchange was quite interesting, so that was good that the panel was animated.
We have a conundrum. We had the conundrum for more than 15 years now. And this conundrum is everybody recognizes that the global solution is better. There are questions on what the scope of the global solution is. But we have to recognize that it's difficult.
There may be a way forward. And Rebecca clearly indicated a constructive dialogue. If there is no way forward, there is a fundamental question of back to fragmentation, to potential tensions, which may reflect the state of the world as it is today, but that nobody likes. On that, I would like to thank the panel, call for further applause, and thank you very much. Thank you.
Speaker 1
Thank you, Mr. Saint Amard. Thank you all, panelists. It was extremely interesting. I would like to add, they've been talking a lot about talking to each other, but it's like in life, with a good tango, you need to be two. So if you're talking to each other, that supposes that the other one is listening.
And by listening, I mean actively listening on both sides, in trying to understand each other. And I'm sure that there was a will that a solution will be found, and I think the entire room entrusts that to the politicians on both sides of the ocean and on both sides of the oceans, I should say, because it goes even broader than US EU. Let's have a very short coffee break. So we'll be back and kick off the meeting at 11:25 sharp. That gives you the time to take a coffee to the people seated in the center.
Go down one floor. You exit the hermetical. Take the stairs one floor door for a coffee. People seated in the tribunes, you take the elevators and go to the 2nd floor. And people seated on the sides, you can have your coffee right outside in the antechambers.
If you come back in, don't forget to take your speaking cards for the next round of questions. Enjoy coffee and tea. See you later.
Wait.
Speaker 1
Welcome. Back to all of you. Welcome back to the people at home. I hope you enjoyed some coffee and tea as well. Please take your seats for the next panel of today.
Rest assured, those of you who couldn't finish their coffee, usually caffeine keeps you awake, but you will not need it because it's going to be a very interesting panel, so you will not need the caffeine to stay awake during this panel session.
I would like to call to the stage the moderator of this next panel, Francesco Saraceno, deputy Deluxe Servatoire Francais de Conjunctur Economy, as well as the three panelists. Thank you for joining us on stage. And taking up your seats.
While they are doing so, I will launch another round of votes, because we want to know your opinion as well. Could we have the voting question? The vote is on: should the commission assess the effects of pillar two? Sorry.
That went a bit too fast. The commission assesses the effects of filler two on competitiveness in the coming years. So I repeat the question. Should the commission assess the effects of pillar two on competitiveness in the coming years? And the vote is open, so you can cast your vote. There again, insert your hand and by pushing one of the three buttons, and I will see the screens that light up. I see a lot of green screens from where I'm standing already, and we will close it.
The vote is closed. And we will see if the results show the same thing I was seeing clearly. 180 people say, yes. The commission should assess the effects of pillar two on competitiveness in the coming years.
So a lot for you to debate on. I will not take up much more of your time because we've already shortened it a little bit. So please feel free to enter the topic right away. The floor is yours.
Speaker 28
Thank you very much. Welcome to everybody. After the break, we have a very short and tight schedule. So let me get directly to the point. We discussed a zombie working there or maybe an already dead pillar this morning, pillar one.
The second round table is on the evolution of pillar two, recent evolution. That pillar is certainly not dead. It's working. And one of the things we will have to assess during this panel is whether it's working in the right direction. Or not.
So as you know, the second pillar of the BEPS agreement was concerned with the minimum global minimum taxation. The big news about the second pillar that was actually implemented after 2021 in many countries, and the big news is, of course, the withdrawal of the Trump administration.
Administration with an executive order signed on the very first day of the presidency. In last January. And that, of course, led to a round within the G7, so a subgroup of the OECD, that eventually came on an agreement, the side by side agreement that basically creates a sort of safe harbor for American corporations that do not have to comply with the requirements of a pillar two.
So the discussion today will be about this side-by-side agreement, what it is exactly, what is the assessment our panelists have on that. And also on whether or what we should do going forward regarding these problems.
We saw even in remarks actually the OECD secretary general this morning that this is a very controversial topic because the assessment of the side by side agreement is actually not very much consensual.
And I'm very happy and honored. And I repeat, I won't really go directly to the discussion to have a discussion on that, a very distinguished panel. So the first is RALUCA and Akem, I've asked you to help me with the pronunciation of your names, of course.
Raluca heads KPMG's U UTAC Center. That is the hub that helps clients understand how the EU and international tax developments can impact European operations. And she has a focus on the anti-abuse measures and tax transparency initiatives.
Thank you very much for being part of the panel. The second panel is Zorka Milin. She's the policy director of the US-based Financial Accountability and Corporate Transparency, or FACT, coalition, which brings together civil society, labor unions, small businesses on international tax and transparency issues. And Zorka is also a fellow at the Roosevelt Institute and previously practiced tax law with two major global law firms.
And last, but of course not least, Tim Power, head of business and international tax at the UK Finance Ministry. He's also chair of the OECD Committee on Fiscal Affairs and co-chair of the Inclusive Framework.
The following, which both pillar two and eventually the side-by-side agreements were developed. So let's start with theme, actually, because theme had a really pivotal role in the negotiation process that led to the first, the BEPS agreement and then to the side by side.
And they would like Tim, if you can, to explain how this side by side agreement came through, what are its main features, and of course, is your assessment of this compromise that was found to bring the US back to within the BEPS agreement.
Speaker 29
Well, thank you, Francesco. I mean, the side by side agreement has a number of components. It introduces simplifications to the rules that I think Ranuka will talk about later. It makes changes to the treatment of tax incentives under the pillar two rules, which I'll come on to talk about. But it also, perhaps most importantly, addresses how US multinational groups should be treated under the pillar two framework, and this applies some of the pillar two rules to US groups.
On account of the separate US minimum tax rules that apply to those groups. I think the agreement was a very substantial achievement, particularly given the sensitivity of the subject and the speed at which it had to be reached.
Think it wasn't the outcome that the UK and many other jurisdictions would have ideally chosen. Now, pillar two was predicated on the idea that the same standard should apply to all multinational groups irrespective of where they're parented. The side-by-side agreement clearly departs from that and raises some questions from a competitiveness and level playing field standpoint.
At the same time, I think there were three things that really drove us towards compromise. I think there was, first, an unwillingness for this to be a major source of tension in an already very crowded geopolitical environment. I think secondly, a big concern about potential threats of retaliation of the type that have been proposed by Congress under section 899. And then third, but perhaps most importantly, I think there was significance that countries saw to the US administration trying to reach a negotiated multilateral solution on this issue, and a view that coming to a negotiated multilateral solution rather than having re bilateral solutions would best help to uphold and preserve the Pillar two system more widely, but also maintain the right conditions for international cooperation on tax on issues like digital taxation. So I think it was a political and pragmatic compromise, but I think it's important to look at its evaluation and assessment, taking into consideration what might have happened had we not reached that agreement.
There are kind of four points of detail that I would just bring out that I think helped countries like The UK, but also EU member states, to reach this agreement even if they were looking at this through a very pragmatic lens.
Think the first is the point that Matthias raised in his keynote speech, which is that this isn't an exemption for US multinational groups. It disapplies the rules for US multinational groups on account of the existing US minimum tax rules that apply to their domestic and foreign profit.
And those rules are different from pillar two, and we might come on to some of the differences. But they are meaningful rules. They have the same overarching policy objective; their existence predates Pillar two.
And I think all of those things are important. I think, secondly, the agreement preserves the right of jurisdictions to tax the local profits of US groups. If, for example, a US group is subject to low taxation in Hong Kong, the UK can no longer apply top-up tax to that profit. But if Hong Kong chooses to do so, it can. And if a US group has low tax profit in the UK, the UK is entitled to tax that.
And I think that's important. It's important in preserving sovereignty of jurisdiction to tax local activity. But also, I think, important in preserving the policy aims of pillar two because many jurisdictions have introduced domestic top-up taxes since the rules came in, even some quite tax-favored jurisdictions traditionally.
And then the final two points. I mean, the third point is that the agreement doesn't close the door to other jurisdictions accessing similar treatment, but the door is only very slightly ajar and very heavily guarded, I would say. And that was a deliberate choice, and I think it's important in trying to preserve the common approach in the policy and administrative benefits that come from that, and avoiding there being a big patchwork of different domestic rules in different countries. And then the fourth and final point, but a very important one, is that the agreement crucially includes a commitment to review the rules and undertake a stocktake in 2029, and to take action if there are issues that emerge from the perspective of the level playing field or from a BEP standpoint.
And I think that is a really important commitment, and one that means that some of the concerns that have been legitimately raised can be evaluated again and evaluated with empirical data and evidence to support that as well.
Speaker 28
Disappointing. Because it's double standards, but the double standards. They're not really double standards. And b, it was a price worth paying to avoid adding to the international tensions that we're living in right now.
Well, the same question now goes to the other two members of the panel. What do you make of this assessment? Let's start with Zorka.
Speaker 30
Thank you. So I wanna start just by saying that, I support pillar two. And perhaps you don't hear that very often from US perspective, but that is one of the things that I wanna frame this, that there is still significant constituents in The US that, you know, believe that, you know, pillar two is in The US interest.
And overall, I think Tim already kind of summarized it, and I largely agree. I think that pillar two was necessary, but regrettable. And one of the, I just wanna list a few reasons that from my perspective, it was regrettable, but also some positives. And, you know, to start with, I think it is unfortunate to have double standards. Especially unfortunate because the US is weaker in some respects than pillar two.
I don't want to go into the details. We don't have time for that. Some of that evidence has already been shared with members of the parliament by US professor Clausing. And it's true that other countries can apply for the same treatment, but there is nonetheless this double standard, because we know that this was done kind of under considerable pressure from the Trump administration. You know, threatening punitive retaliatory taxes that were, in my view, frankly ludicrous.
And we've heard the US economy, perhaps most of all. And so in my view, I think that the section 89 really never really stood much of a chance of passing congress anyway. So, I think that was all very unfortunate. It's also regrettable in terms of knowledge, transparency and legitimacy. I mean, it's just not a great look that this was kind of done in secret, behind closed doors.
I understand that it had to be done that way given the sensitivities, but it wasn't evidence based. And, you know, that's just not ideal. And I have to say, also from where I sit, I'm surprised.
I'm stunned, frankly, that the US was able to convince other governments that it taxes its companies robustly. I mean, we know that it was the tax practices of major American multinationals like Apple and others that kind of prompted this discussion in the first place. And we know that some of these problems persist to this day because I looked at annual statements of major American companies that have been recently filed, we still find significant evidence of profit shifting. So the problems have not gone away by any means.
And there are also considerable revenues at stake, so not to go into the details, but I know there are some early figures from the UK, from Netherlands that kind of show that this will have revenue costs.
So that's the glass half empty, but I want to also turn to the glass half full. And first of all, I wanna commend Tim and other negotiators and the OECD staff who I think navigated this very tricky terrain quite well. And it resulted in an outcome that was overall sensible. I mean, not ideal, but I would say sensible.
What is sensible about it? I think the fact that the standard for side by side treatment is, you put it so well that the door is kind of ajar, but slightly and heavily guarded. I think that also kind of helps to preserve the baseline from the US perspective and reduces the risk that the US can go lower, and I think that's important.
And second, and maybe I think, from my perspective, the most important thing is that there is going to be a stock take in a few years, which is a chance to kind of look at how the rules are or are not working. And I really hope that this stock take will be done in a more transparent and objective way then.
If the way that the negotiations took place. So yes, in my view, the bottom line, I think the side by side, with all of its pros and cons and flaws, was not perfect, but hopefully, it can be improved.
Okay.
Speaker 28
Two glasses are empty and full. And I note also that you both highlight the importance of having an assessment, you know, in the medium term. The floor is yours, and the question is the same.
Speaker 31
Thank you. I guess from my perspective, the biggest problem with what happened last year was that we spent a whole year basically talking about the need for a side-by-side solution. When we were in desperate need for, you know, more clarity on how to apply the rules. So in my mind, the fact that we lost all that time was something that should be considered. I do agree that we needed a solution. And I think it was really important to have it done when it was done, because we were living in this environment of total uncertainty.
And I think more than anything, businesses need certainty around how to apply the rules, whether the rules apply to them or not. I also think it's a big win that domestic minimum top-up taxes have survived.
So Tim explained, each jurisdiction that is part of the pillar two framework is free to apply the stop-up tax domestically. Even though maybe the upper layers of pillar two don't apply.
So I think those are two big wins. When it comes to impact on competitiveness for EU businesses, I think the assessment that was already mentioned and underlined by you as well will be very important.
There is probably a clear disadvantage for European businesses investing in The United States. Because they are not protected by the side-by-side safe harbor. And they will have to deal with both the US guilty regime is not called guilty anymore, but let's call it that for argument's sake, and the income inclusion rule or UTPR under pillar two. And I think that's something that will need to be considered when the functioning of the system is assessed.
Although some of that is mitigated through the preferential treatment of incentives that I think Tim is going to talk about. So, pluses and minuses. But I think one point that is maybe lost in the conversation is that there is a tendency to focus on the competitiveness of the EU when compared to the United States, but we probably need to look at competitiveness compared to other parts of the world. So if we look at Asia, for example, I think we, in Europe, need to ask ourselves whether it's to assess our competitive position.
With respect to Asia. And I think the answer is yes. And what pillar two has achieved is it has sort of leveled the playing field when it comes to Europe versus Asia as well, because there are actually significant top-up tax amounts being paid by jurisdictions that are headquartered in Asia.
So I think we need to look at this holistically. As has been said, it's not ideal in my opinion, we spent way too much time talking about this. But there are some pluses as well.
Speaker 28
Thank you very much, Luca. So I think what I take from your answer is that first of all, that there is a contradiction. Right? Because Trump is trying to attract non-American firms with his tariff policies. And at the same time, the side-by-side agreement actually will hamper the relocation of EU firms' activity in the United States.
Quite an interesting remark. And the other remark I want to make is that, I mean, it seems that the major problem with the side by side agreement is that it kind of dents a little bit into this principle that was introduced with pillar two, which is that fiscal competition something we should try to curb. And that was, in my opinion, the main, if you want, profound implication of pillar two. And this is a little bit weakened.
But let's go a little bit into the details because, as Tim said in his very short introduction, there are other provisions in the set by side agreement, which seems to me more consensual and more and more important and more and more positive.
The first is that the tax incentives change a little bit with respect to what they were under a pillar two, and then there's a very strong emphasis on simplification of the rule because two was considered to be a little bit cumbersome.
And so let me start again with the team. What can you say about tax incentives? What do you think, where do you think we stand after this modification of the agreement? Yeah.
Speaker 29
I mean, thanks Francesca. So the side-by-side agreement changes how tax incentives are dealt with under the pillar two framework. The original agreement said that corporate income tax credits that are refundable to claimants who don't have taxable profit should not be treated as a reduction in corporate income tax for the purposes of pillar two. Even if they're actually set against corporate income tax liabilities. And that had a logic.
Refundable credits have many of the same properties as government grants, and are accounted for on a similar basis as items of income rather than reductions in tax. But despite that logic, that approach, and the distinction between refundable credits and nonrefundable credits, proved to be very contentious.
There was strong opposition in the US to the nonrefundable US R and D credit having less favorable treatment under pillar two than, for example, the refundable R and D credits in the UK and France. There was strong opposition of countries that said that this was favoring more developed and better resource countries who are better able to police some of the fraud risk that comes from refundable credits.
And there were other jurisdictions that said this was creating some arbitrary differences in how they try to incentivize important economic objectives, whether those relate to infrastructure, the environment, digitalization. And I think it was clear that to land this side-by-side package, needed to be a change in this area, one that didn't remove the distinction between refundable credits and nonrefundable credits, but made the effects of that distinction less pronounced. I think the discussions on what that something was were quite difficult.
I mean, once you move away from a discussion on know a credit objectively similar to a government grant, you end up with quite a subject debate about what credit should be subject to more or less favorable treatment under pillar two based on their perceived harm. And you obviously had jurisdictions approaching that from very different standpoints. Some wanting very permissive treatment, some wanting very restrictive treatment. But I think we've ended up with a sensible compromise in the package, which basically provides for more generous treatment of nonrefundable credits insofar as those incentives are tied to and support economic activity in a jurisdiction rather than just facilitating profit shifting. I think some will argue that those modifications weaken the Pillar Two framework, and some will argue that they lead to some of the circular arrangements that we've seen today with countries raising top-up tax, but then passing those benefits directly back to groups.
But I think it was an essential component of the agreement, and I think the additional flexibility it provides to jurisdictions might actually increase the likelihood of jurisdictions adopting and retaining the pillar two rules.
And kind of back to the point I raised around the side-by-side agreement, I think those incentives for adoption and retention are gonna be the thing that ensures that this is durable and sustainable over time.
Speaker 28
Overall, the assessment is quite positive. It kind of reduced the distortions that were in pillar two.
Speaker 31
What about simplification rule? Well, for those of our that haven't seen the package, I would like to just say that the part on simplification in the side-by-side package is close to 60 pages. So I don't know if we can call that a real simplification.
I think there's still room for improvement. Of course, joking aside, it was important to have that simplification. It was probably less than what some MNEs were hoping for. Because it's still based on accounting data, and that is very difficult for MNEs to source. And I think there was not sufficient understanding in the initial stages of pillar two around how much data MNEs actually have on hand.
In particular, when it comes to basing that data on local accounting standards. I think we're now in a better position of understanding, you know, the accounting implications and how those financial reporting standards relate to pillar two, and a better understanding of what data is actually available and how much effort and resources I'm had to put into becoming compliant with pillar two.
So there is still room for simplification. In my mind, we have a tension between the need for clarity and the need for stability. So on the one hand, we want to have more and more guidance on how to interpret some of these provisions. But on the other hand, we want the system to stabilize.
Right? Because as I said, certainty is probably the most important part of being compliant. Obviously, you know, when it comes to interpretation by local jurisdictions, that it's an added layer.
And you would not believe how much time we spend on one word in a particular paragraph in the pillar two rules or in the commentary, and we look at how different jurisdictions have translated that word into their legislation. So every single aspect of the pillar two rules creates complexity. And I fear that that's not going to change. I think in an ideal
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