IBFED comments on OECD ‘Pillar One’ tax exclusion for financial services

The International Banking Federation—of which ABA is a member—filed a comment letter last week with the Organization for Economic Cooperation and Development regarding the international taxation of financial institutions. The OECD is conducting a multiyear project to address perceived tax policy shortcomings created by the digital economy with respect to taxation of international businesses.

Because technology has enabled businesses to operate in various jurisdictions without having a physical presence, the OECD has proposed rules (the “Pillar One” rules) to address these circumstances with regard to taxation. As the rules were developed, the IBFED tax working group and other interested parties have advocated that the rules should not apply to regulated financial services providers, due to the various unique restrictions and oversight that already apply.

Late last year, the OECD announced that an exclusion for regulated financial services entities would be included in the final rules. However, they deferred announcing details on how to apply the exclusion. Earlier this month, the OECD issued a consultation document with the proposed application of the rules and asked for comments.

The IBFED’s comment letter generally supports the proposed exclusion rules, but includes a number of suggestions, including expanding the narrow application of the rules due to definition of entities, questioning the use of deposits and other thresholds and making changes to activity definition lists and other activities.