Finance updates on MLI and Pillars One and Two

Comments of Brian Ernewein included:

• It is unclear whether a Budget will be tabled before 2021, and also whether a technical amendments package will be released before the first half of 2021.
• Although Canada effectively erred on the side of caution in adopting only certain of the optional provisions in the MLI, it would be wrong to assume that Canada rejects any of the other optional provisions, which could be adopted either in bilateral treaty negotiations, or through withdrawal of MLI reservations.
• A comprehensive limitation on benefits (“LOB”) clause is something that Canada would probably look to discuss in every treaty negotiation, and there are treaties where Canada would seek to include a comprehensive LOB.
• Canada is negotiating bilateral treaties with Switzerland, Germany and Brazil with a view to incorporating the BEPS minimum standards. Brazil did not sign the MLI, so that bilateral negotiation is required for it, whereas Switzerland and Germany signed, but indicated a preference for bilateral protocols to update their respective treaties.
• Comprehensive and substantive documents should be released in October on the two Pillars. Intensive work on landing each of these proposals in going to continue beyond the end of this year and well into the next.
• The idea of Pillar Two (the global minimum tax, which can be analogized to the CFC rules or the US GILTI) is conceptually more familiar than what is being discussed under Pillar One, and there is a sense that it is more likely that agreement can be reached on its technical design ahead of Pillar One. It is understood that the U.S. is supportive of Pillar Two.
• The design issues for Pillar One seem more challenging, but there could possibly be agreement on it as well, either on digital alone (for which there is a better policy argument) - but also, with some greater difficulty, on the consumer based businesses basis. The position expressed in December by the U.S. Treasury Secretary - that they would support the adoption of Pillar One only on an elective basis - does not appear to be a workable approach, and if the U.S. so insists, it is difficult to see how agreement could be reached on Pillar One.

Neal Armstrong. 15 September 2020 IFA Webinar – Finance Update.