Opening remarks by Lisa Kelaart-Courtney, Director, Prevention and Compliance Division, ADB Office of Anticorruption and Integrity, at the Regional Consultation on International Tax Matters for Asia-Pacific, 5 December 2022

Distinguished participants, colleagues, ladies, and gentlemen.

My name is Lisa Kelaart-Courtney and I am Director of the Prevention and Compliance Division of the Office of Anticorruption and Integrity of the Asian Development Bank. On behalf of the Asian Development Bank, it is my pleasure to welcome you to this in person Regional Consultation International Tax Matters for the Asia Pacific. This is truly a special moment since it is the first on-site consultation at ADB Headquarters since the COVID-19 pandemic.

I am delighted to learn that over 84 participants from more than 37 jurisdictions are represented here today. I would also like to greet all participants that are joining us on-line. Let us seize this opportunity to make this regional consultation a meaningful dialogue, with your active engagement, constructive learnings and key takeaways for implementation.

Let me also take this opportunity to thank the Organisation for Economic Co-operation and Development (OECD), the Commonwealth Association of Tax Administrators (CATA), Pacific Islands Tax Administrators Administration (PITAA), and the Study Group on Asia-Pacific Tax Administration and Research (SGATAR) for co-hosting this consultation.

Tax challenges of the digitalized economy

Since our first regional consultation in November 2019 in Manila, there has been significant progress made by the Inclusive Framework on finding a solution to taxation of the digital economy, which culminated with the landmark Inclusive Framework Statement of October 2021 that agreed on a two-pillar solution for taxing digitalized economy:

• Pillar One creates a new taxing right that requires multinationals to reallocate a percentage of residual profits to market jurisdictions that have a revenue nexus, and
• Pillar Two imposes a global minimum tax to ensure that multinationals pay a minimum level of taxation. This is calculated at a jurisdictional level, with a minimum effective tax rate of 15 percent required in order to avoid top-up-tax being imposed.

While the potential revenue benefits from the Pillar One reallocation may be modest for certain DMCs, the implementation of the Inclusive Framework multilateral solution seems to be certainly the preferred approach. The failure to implement such a solution by the Inclusive Framework could mean that many jurisdictions move forward with unilateral actions. This would likely create unintended effects such as double or multiple taxation and develop unintended obstacles to cross-border trade.

Pillar Two is in a more advanced stage with the OECD currently developing the Global Anti-Base Erosion (or GloBE) implementation framework. Meanwhile several DMCs have started, or are considering starting, the process of implementation of the GloBE model rules into their domestic laws. This demands substantial resources in terms of timing and expertise but also relevant policy decisions.

As we know, many DMCs rely on tax incentives to attract foreign direct investments. This will be impacted by the adoption of a global minimum tax under the GloBE rules which will mean that low taxed income in a jurisdiction will need to have top-up tax imposed to the minimum agreed rate of 15 percent ETR. Therefore, governments may need to revisit their tax incentives policies to prevent the tax foregone under those tax incentives being taxed in another jurisdiction pursuant to the mechanics of application of the GloBE rules. In this regard Pillar Two also increases the relevance of non-tax factors that are valuable drivers of competitiveness.

Overall, this demonstrates that DMCs should be aware of the important consequences of Pillar Two and be prepared to start revising their tax incentives and consider the adoption of certain fundamental aspects of the GloBE model rules, such as the qualified domestic minimum top-up tax.

BEPS actions in Asia and the Pacific region

The establishment of the BEPS (Base Erosion and Profit Shifting) Inclusive Framework in 2016 represented a landmark for global tax cooperation, enabling developing economies to participate on an equal footing in international tax developments and carry out the necessary reforms in their domestic laws and international tax agreements.

It is important to raise awareness of the potential impact of the BEPS Action for developing economies, which can reap significant benefits from anti-BEPS measures to prevent aggressive tax planning practices and increase domestic resource mobilization. It is also important to understand the ways the ADB and the other relevant partners can assist DMCs in implementing and benefiting from BEPS Actions as a way to protect tax bases and increase domestic resource mobilization.

ADB Asia Pacific Tax Hub

ADB officially launched the Asia Pacific Tax Hub during the ADB 54th Annual Meeting on 3 May 2021.

The Tax Hub stands ready to assist each DMC to participate in the Inclusive Framework, implement the BEPS standards and build the necessary technical capacity to discuss and implement the two-pillar solution to tax the digitalized economy in a manner that makes sense for the specificities of each developing member. As you will hear in more detail throughout this consultation, specific initiatives have been developed by the Tax Hub for this purpose.

In closing, let me again thank you all for joining this regional consultation. I’m sure that the expert presentations and your contributions during these two days will help us gain a better understanding of the progress achieved by developing economies in the region from the participation in the Inclusive Framework, the role that the Inclusive Framework can play in improving domestic resource mobilization and the current status of two-pillar solution for taxing digitalized economy.

Thank you very much for your participation, and I wish you all a very productive meeting. And on behalf of ADB, we look forward to hosting and working with you during the next two days of consultations.

Remarks by John Versantvoort, Head, ADB Office of Anticorruption and Integrity, at the Partners' Corner: Challenges and Solutions to Promoting Tax Transparency Reforms, Global Forum Plenary Meeting 2022, 10 November 2022

Firstly, let me thank Spain and the Global Forum for inviting ADB to this plenary meeting and their heart-warming hospitality, and my fellow panelists for their insights.

As in other global challenges like the fight against climate change, the causes and effects of tax evasion and harmful tax planning do not stop at national borders. As a matter of fact, they have been allowed to flourish with impunity for too long as a result of national borders. I am therefore delighted to speak today on the importance of international partnership generally, and our partnership with the Global Forum specifically.

Countries in the Asia-Pacific region have been experiencing unanticipated increases in public debt and shrinking tax revenues during the years of the pandemic. Added to this are the external shocks that they must now contend with, such as the steep rise of energy prices and other inflationary pressures. All these have hit the poor and vulnerable populations in Asia and the Pacific region disproportionately hard, exacerbating income inequality along the way. Now more than ever, developing countries need substantial and predictable revenue streams – so that they can get back on a path to strong, sustainable and inclusive growth; address challenges like climate change; and prepare for future crises.

As evident from the report of the fledgling Asia Initiative, the region is making good progress on adoption of international tax transparency standards. At the same time, we see that the Asia-Pacific region is lagging in the adoption of international standards. Eighteen of our developing members – almost half – have not yet joined the Global Forum and committed to automatic exchange of information. This is due to three main challenges.

The biggest challenge is often a political one. Obtaining political buy-in is difficult because the benefits from the substantial reforms required to increase tax transparency are not always considered self-explanatory. With many competing priorities, reforms considered more pressing end up higher on the agenda.

Second, many of our developing members lack sufficient technical and human resources to adopt, implement and benefit from tax transparency reforms. At the opening plenary yesterday and the session earlier today, we heard success stories from Georgia, Samoa, Armenia and Thailand – all countries that ADB had the privilege of assisting in their journey towards adoption of international tax standards. But for each country with a success story, there are still as many countries struggling to keep up with the proliferation of international standards in the increasingly complex global financial architecture – such as those from the Financial Action Task Force, the Inclusive Framework on Base Erosion and Profit Shifting or – indeed – the standards from Global Forum.

Thirdly, the Asia-Pacific region is vast and diverse in all respects – culturally, economically, politically, developmentally. Moreover, a host of bilateral and multilateral efforts are underway to assist countries in achieving their sustainable development goals, including the goal to strengthen domestic resource mobilization. These efforts can lead to fragmentation, duplication or gaps in development assistance.

ADB feels that partnerships are key in addressing these challenges. In November 2021, President Masatsugu Asakawa launched the Asia Pacific Tax Hub. The Tax Hub serves as an open and inclusive platform for strategic policy dialogue, knowledge sharing, and development coordination on tax matters. One of the three strategic building blocks of the Asia-Pacific Tax Hub is promoting international tax cooperation. This includes supporting the efforts of the Pacific Initiative that we launched in October 2020, together with the Global Forum, Australia, New Zealand, World Bank and other development partners; and the Asia Initiative, launched by Indonesia and the Global Forum in November 2021. The Tax Hub and these other regional initiatives play three critical roles.

First, by promoting policy dialogue, they increase policymakers’ awareness of the tax transparency standards and facilitate the process of getting political buy-in from all relevant stakeholders.

Second, through the development of knowledge products and organization of training events, they help disseminate knowledge and build the governments’ capacity and technical skills to promote and implement tax transparency reforms.

Third, by strengthening multilateralism, these regional initiatives create the necessary momentum and coordination in each region to achieve meaningful results.

Under the Tax Hub, ADB remains firmly committed to supporting our developing members’ efforts to promote tax transparency reforms.

We look forward to continue enhancing our partnership under the Asia and the Pacific Initiatives in many years to come.