The OECD is concerned that developing nations may suffer in the digital tax race

The OECD warns the G7 and central bank governors that developing nations may lose pillar two tax revenues if they are not supported by digital tax transformation.

May 11, the OECD warned G7 finance ministers and central bank governors that dependence on technology for tax reporting may exacerbate the gap between advanced and developing nations.

The OECD issued the 2023 Progress Report on Tax Cooperation for the Twenty-First Century, which is a follow-up to the original report issued in May of last year. At the request of the G7 Japanese presidency, it was given to G7 finance ministers and central bank governors.

According to the paper, there is an increasing reliance on technology and digital skills for executing the two-pillar system and, in particular, the Crypto-Asset Reporting Framework.

It revealed the OECD's concern that the shift to digital tax regimes could create an unfair playing field across countries with varying economic capacities.

“There is a risk that the gap between advanced economies and lower capacity economies could widen,” the report said.

The OECD defines "functional or technological specifications" as a standardised digital solution that enables for seamless communication.

According to the OECD, effective digital cooperation is a critical necessity for the global anti-base erosion (GloBE) standards to be effective and ensure data protection.

“The demand for assistance is huge, but the supply of expertise and resources is not meeting that demand,” the report said.

Countries with little resources are likely to lose revenue that advanced economies will be able to obtain if they are not assisted in keeping up with the digital progress of tax administrations throughout the world.

“Support of the implementation of pillar two is urgent, particularly with respect to GloBE rules, where countries are likely to forgo the opportunity to collect revenues from 2024 if no change is made,” the report said.

The OECD has created nine pilot schemes to assist developing countries in collecting pillar two tax revenues so that they can obtain their share of the estimated additional $220 billion available.

The pilots will be used to collect data on the challenges that developing nations have when implementing GloBE standards in order to better guide future support.

When seeking a solution, the OECD stated that it will focus "long-term outcomes" that can help accomplish the Sustainable Development Goals.

By fLEXI tEAM