By Steve Pociask, American Consumer Institute
Last October, the Organization for Economic Cooperation and Development (OECD) released its Pillar One and Pillar Two Blueprint, a plan that would fundamentally change tax rules between nations. The OECD also gave, until December 14th, an opportunity for public comments. In the comments we submitted, we concluded that the international community should pause and comprehensively reevaluate its approach, because of a number of serious overarching flaws that would hurt technological innovation, the environment, low-tax nations, poorer nations, and global economies. We asked the OECD to take a step back and reconsider this tax Blueprint.
As background, the OECD’s Pillar One proposal is designed to address the explosive growth of the digital economy that has been supposedly eroding the OECD’s tax base, and do so by constructing a legal framework for profit shifting and by allowing taxation by some countries regardless of whether a particular tech company operates and is physically present in that country. The OECD’s Pillar Two proposal would set a global minimum tax rate on large multinational companies in the hopes of reining in tax arbitrage and stopping companies from venue shopping. Essentially, Pillar One targets primarily large U.S. technology companies – think Google, Twitter, and others – and Pillar Two would affect any large multinational enterprise.
In our comments, we concluded that the international community should take pause and comprehensively reevaluate its proposals. Specifically, our comments showed a number of significant flaws with the OECD Blueprint, including implementing inconsistent and discriminatory tax rules; undermining competition; establishing an international tax cartel; negatively impacting the global economy, and impeding long-term technological innovation; and implementing tax changes that disproportionately impact poorer and low-tax nations.
But it will also significantly and negatively impact the environment, something that the OECD claims it wants to protect. In fact, when it comes to global warming, there is great irony to the Blueprint’s consequences on the environment, sustainability, and mitigating climate change. Because taxes will now be applied to such international services as insurance and reinsurance, the very services needed to backstop against storms, protect citizens from catastrophic events like earthquakes, and incentivize mitigation and resilience will be taxable under Pillar Two’s rules.
While the OECD claims to be concerned about global warming and investing in sustainable infrastructure, Pillar Two would tax the world’s means for protecting itself against the harmful effects of climate change. These taxes would undeniably lead to significantly higher insurance premiums for consumers, businesses, and governments, thereby discouraging their use and creating moral hazard. It will hurt the environment.
Regarding Pillar One, many empirical studies have demonstrated that broadband and information technology services reduce and avoid energy use, and thus help the environment. This is evident in how these technologies affect where we work, how we shop, and what we consume. For instance, electronic communications and messaging services have reduced the demand for first-class letters and newspaper subscriptions, which, in turn, have reduced the need for paper, saved trees, conserved energy, reduced water pollution, and decreased greenhouse gas emissions into the atmosphere.
As employees work from home, billions of gallons of gasoline are saved in the U.S. each year. While e-commerce also means fewer cars are driven on the road, it also means that less square footage of commercial, retail and wholesale facilities are needed, which saves the energy required to build and operate these facilities. As workers teleconference, business travel is reduced, which spares the emission of greenhouse gases. While there are countless such examples, it is clear that internet applications affect how people shop, communicate, travel, work, and use digital products that are environmentally friendly. If improving the environment is a key topic of serious concern, as the OECD suggests, its tax policy should be in harmony with these concerns.
In a published study, we estimated online technology applications to have reduced U.S. greenhouse gas emissions by more than 1 billion tons over a ten-year period – including savings related to business-to-business and business-to-consumer e-commerce (206 million U.S. tons), telecommuting (560 million tons), teleconferencing (200 million tons), and the reduction in paper and plastics (125 million tons). Lawrence Berkeley National Lab found that, for a 10-year period, the tech economy could decrease the growth of carbon emissions by 67% over what would otherwise occur. In addition to the fuel savings from telecommuting, Joseph Romm estimated that home offices use significantly less energy than a commercial office and would avoid the construction of office space, thereby reducing greenhouse gas emissions.
To summarize, both Pillars One and Two will lead to higher tax collections, and therefore increase costs on insurance and reinsurance, impede infrastructure resilience and mitigation, and delay innovations that would reduce pollution and emissions for years to come. Facing global warming concerns, the OECD is proposing the taxation of services that so clearly benefit the environment.
As it is currently written, the plan would collect a lot of new tax revenue for some nations at the expense of other nations, and it would do this by taxing the very services that we should encourage – those that help the environment. For the sake of the OECD’s credibility on this issue and for the benefit of consumer across the globe, if tax changes are needed, the OECD needs to align its proposals with its environment principles.
The current OECD tax plans do not.
Steve Pociask is president and CEO of the American Consumer Institute, a nonprofit educational and research organization. For more information on the Institute, visit www.TheAmericanConsumer.Org, or follow us on Twitter @ConsumerPal.