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OECD Releases Comments On Taxing Digital Economy

by Ulrika Lomas,, Brussels

30 October 2017

Ahead of a November 1 meeting with stakeholders to discuss next steps, the OECD has released the feedback it received on emerging policy ideas on taxing the digital economy.

On September 22, 2017, the OECD released a request for input on further work on base erosion and profit shifting Action 1, on addressing the international tax challenges raised by the digitalization of economic activities.

The request for input was released shortly after ten EU countries, led by France, Germany, Italy, and Spain, threw their weight behind the concept of an "equalization tax" on digital companies that are subject to a low tax burden or an alternative measure.

The OECD's "Final Report" on BEPS Action 1 report, on addressing the tax challenges of the digital economy, was published in October 2015. It recognized that digitalization, and some of the resulting business models, present challenges for international tax policymakers. However, the report also acknowledged that it would be difficult, if not impossible, to "ring-fence" the digital economy from the rest of the economy for tax purposes because of the increasingly pervasive nature of digitalization.

In the context of direct taxation, the 2015 report considered a new tax nexus concept of "significant economic presence," the use of a withholding tax on certain types of digital transactions, and a "digital equalization levy." None of these options was recommended for adoption, although it was acknowledged that countries could introduce any of these options in their domestic laws as additional safeguards against BEPS, provided they respected existing tax treaties and international obligations. Instead the OECD recommended instead that other areas of its BEPS Action Plan would address the digital economy, such as Actions 3, 6, 7, and 8-10, and put forward indirect tax proposals instead.

However, the OECD is now revisiting the work on direct taxation, which has seen increasing focus from the EU. In its recent consultation, it specifically asked for feedback on the design of an "equalization levy" and proposals for digital permanent establishment rules. It also sought comments on the impact of digitalization on business models and value creation, challenges and opportunities for tax systems, and on the implementation of the measures outlined in the BEPS package. This consultation closed on October 13, 2017.

On October 25, 2017, ahead of a November 1 public meeting with stakeholders, which will be streamed online for those not attending in person, the OECD released all the feedback it had received from stakeholders. It received comments from a total of 62 stakeholders – an unusually high number, compared with the responses received in earlier consultations on BEPS Action items – from the private sector, tax professionals, business associations, think tanks, and universities.

The November 1, 2017, meeting will be held at the University of California, Berkeley. Speakers and other participants at the public consultation have been selected from those who provided timely written comments on the request for input, the OECD said. No advance registration is required to view the meeting in real-time online, and a replay is to be made available by the OECD after the meeting.

TAGS: tax | business | value added tax (VAT) | law | professionals | withholding tax | France | Germany | Italy | Spain | BEPS

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