UK and International Tax news

OECD Issues Road Map For Resolving Tax Challenges Arising From Digitalisation Of The Economy

Friday 7th June 2019

The OECD/G20 Inclusive Framework on BEPS has recently adopted a Road Map/Programme of Work laying out a process for reaching a new global agreement for taxing multinational enterprises.

In January 2019, the OECD issued its consultation document and sought public comments on possible solutions to tax challenges arising from the digitalisation of the economy. The condoc covered proposals involving two pillars.

The first pillar focussed on how the existing rules, that divide up the right to tax the income of multinational enterprises among jurisdictions, including traditional transfer pricing rules and the arm’s length principle, could be modified to take into account the changes that digitalisation has brought to the world economy. This would require a re-examination of the ‘nexus’ rules, and how to determine the connection a business has with a given jurisdiction, and the ‘profit allocation’ rules that govern how much profit should be allocated to the business conducted there .

Proposals based on the concepts of “marketing intangibles”, “user contribution” and “significant economic presence” and how they could be used to modernise the international tax system to address the tax challenges of digitalisation were to be considered.

The second pillar aimed to resolve remaining BEPS issues and would explore two sets of interlocking rules designed to give jurisdictions a remedy in cases where income is subject to no or only very low taxation, within a “global anti base erosion” proposal.

The Programme Of Work, which calls for intensifying international discussions around the two main pillars, was approved during the 28-29 May plenary meeting of the Inclusive Framework, which brought together 289 delegates from 99 member countries and jurisdictions and 10 observer organisations. It will be presented by OECD Secretary-General Angel Gurría to G20 Finance Ministers for endorsement during their 8-9 June ministerial meeting in Fukuoka, Japan.

It will explore the technical issues to be resolved through the two main pillars with the involvement of Working Parties 1, 2, 6 and 11. There will be public consultation as necessary in order to obtain stakeholder feedback as the various proposals are refined. The intention is to deliver a final report by the end of 2020.

If you would like further detail on the above, please contact Keith Rushen on 0207 486 2378.


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