Businesses Welcome Int'l Push For Digital Tax Solution

by Ulrika Lomas, Tax-News.com, Brussels

12 February 2019

Businesses have welcomed confirmation from the OECD that countries have committed to a seek an international agreement on the taxation of the digital economy, rather than pursue unilateral measures.

At its January 23-24 meeting, the BEPS Inclusive Framework agreed to focus discussions on two central pillars. First, how 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 digitaliZation has brought to the world economy. This will require a re-examination of the so-called "nexus" rules – namely 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.

According to the OECD, the Inclusive Framework will look at proposals based on the concepts of marketing intangibles, user contribution, and significant economic presence and how they can be used to modernize the international tax system to address the tax challenges of digitalization.

Second, the Inclusive Framework will seek 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.

Representative body Business at OECD (BIAC) said new international tax provisions governing the digitalized economy "will impact all businesses and is of critical importance to the integrity of the international tax system. The OECD Inclusive Framework can reach international consensus in this area, and Business at OECD is committed to engaging a diverse and effective business network in the consultative process going forward."

"Broad consensus on measures for taxation of the digitizing economy is crucial to ensure innovation, growth, and stem instances of double taxation," stated Will Morris, Chair of BIAC's Committee on Taxation and Fiscal Policy. "In this context, measures should also enable tax administrations to collect revenue needed for essential and efficient governmental functions."

"The OECD is the appropriate forum to have a discussion about changes to the international tax system," added Carol Doran Klein, US Council for International Business Vice President for Tax Policy. "Countries should forego unilateral changes while that consensus develops."

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