UK and International Tax news
OECD Issues Update On Addressing The Tax Challenges Of The Digitalisation Of The Economy
Wednesday 30th January 2019
The OECD has issued an update on the approach being adopted in addressing the tax challenges posed by the digitalisation of the economy.
Countries and jurisdictions participating in the OECD/G20 Inclusive Framework on BEPS are to step up efforts toward reaching a global solution to the growing debate over how to best tax multinational enterprises in a rapidly digitalising economy, under Action 1 of the BEPS Report.
Renewed international discussions will focus on two central pillars identified in a new Policy Note released after the Inclusive Framework’s 23/24 January 2019 meeting, which brought together 264 delegates from 95 member jurisdictions and 12 observer organisations.
The first pillar will focus 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 will require a re-examination of the so-called ‘nexus’ rules, in particular, how to determine the connection a business has with a given jurisdiction, and the 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 can be used to modernise the international tax system to address the tax challenges of digitalization are to be considered.
A second pillar aims to resolve remaining BEPS issues and will 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.
Given the significance of the new proposals for the international tax system, the Inclusive Framework will issue a consultation document that describes the two pillars in more detail, and a public consultation will be held on 13 and 14 March 2019 in Paris as part of the meeting of the Task Force on the Digital Economy.
Further details on the consultation process, including how stakeholders can provide input and most effectively participate, along with the consultation document, will be published in the coming weeks.
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