The Organisation for Economic Cooperation and Development (OECD) –  Public Consultation on Digital Tax Reform

 

 

On the 13th /14th March the OECD held a public consultation in Paris on possible solutions to the tax challenges arising from the digitalisation of the economy.

Whatever is decided change is coming in the way that international businesses are taxed, potentially including businesses that operate in few countries but export goods and services to many.  Already there are a broad range of unilateral measures as countries address that challenges that they see with the tax system in the digital age.  Some are targeted at so called ‘highly digitalised’ businesses but others are broader and likely to affect all business. 

The alternative to a number of uncoordinated unilateral measures is an aligned international solution.

The current OECD proposals have two main pillars.

Pillar 1 contains three proposals:-

  • ‘User Participation’ Proposal i.e. a tax on profits of certain ring-fenced business including social media platforms, online marketplaces and search engines, this proposal is closely modelled on the UK’s digital services tax
  • ‘Marketing Intangibles’ proposal, incorporating some recognition of user value creation, which provides a more generalised approach and is not restricred to highly digital businesses but potentially applies to all data, relationships or promotional activity
  • A high level proposal for digitalised permanent establishment

Pillar 2 is a combination of two further proposals:-

  • A minimum taxation of targeting businesses and
  • A restriction on base eroding payments.

It was clear from the consultation that the ‘user participation’ proposal had the least appeal. It was thought to be conceptually flawed and also have practical concerns which could render the tax unworkable. There was particular concern over the real difficulty in identifying ‘users’ and then allocating ‘value’ to them. 

This lack of appeal should alert UK Tax policymakers to a need to reconsider their current thinking. The path these policymakers are going down seems increasingly out of sync with that of international businesses and policymakers who appear to be moving away from a pure ‘ user participation’ tax.

Instead there appears to be a real preference for a modified variation of the ‘market intangibles’ model, whether implemented via a formulaic method or by building out from the existing transfer pricing rules.  Ultimately there was an acceptance in Paris that pragmatism would be required to reach a broad political consensus and actually be able to develop a solution that works not only in theory but in practice.

The OECD will reflect on the responses it has received to its consultation, and would be grateful for information to feed into this from any businesses willing to share the impacts of the different proposals on their particular tax position.  The OECD aims to present an agreed solution in by 2020, so watch this space.

OECD will reflect on the responses it has received to its consultation, and would be grateful for information t

The Tax Recruitment Company and its directors and staff do not provide tax, legal, or accounting advice. This communication/material has been prepared for general information purposes and guidance only. This communication/ material does not constitute tax, legal, accounting or other professional advice, and should not be relied on or treated as a substitute for any such specific advice relevant to particular circumstances.  You should consult your own tax, legal and accounting or other professional advisors for any specific advice following receipt of this communication/material.  

The Tax Recruitment Company and its directors and staff do not provide tax, legal, or accounting advice. This communication/material has been prepared for general information purposes and guidance only. This communication/ material does not constitute tax, legal, accounting or other professional advice, and should not be relied on or treated as a substitute for any such specific advice relevant to particular circumstances.  You should consult your own tax, legal and accounting or other professional advisors for any specific advice following receipt of this communication/material.

The Tax Recruitment Company and its directors and staff do not provide tax, legal, or accounting advice. This communication/material has been prepared for general information purposes and guidance only. This communication/ material does not constitute tax, legal, accounting or other professional advice, and should not be relied on or treated as a substitute for any such specific advice relevant to particular circumstances.  You should consult your own tax, legal and accounting or other professional advisors for any specific advice following receipt of this communication/material.

The Tax Recruitment Company and its directors and staff do not provide tax, legal, or accounting advice. This communication/material has been prepared for general information purposes and guidance only. This communication/ material does not constitute tax, legal, accounting or other professional advice, and should not be relied on or treated as a substitute for any such specific advice relevant to particular circumstances.  You should consult your own tax, legal and accounting or other professional advisors for any specific advice following receipt of this communication/material.

The Tax Recruitment Company and its directors and staff do not provide tax, legal, or accounting advice. This communication/material has been prepared for general information purposes and guidance only. This communication/ material does not constitute tax, legal, accounting or other professional advice, and should not be relied on or treated as a substitute for any such specific advice relevant to particular circumstances.  You should consult your own tax, legal and accounting or other professional advisors for any specific advice following receipt of this communication/material.

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