OECD says it is exploring several proposals to address the challenges of the digital economy
In its latest report on the challenges of tax and the digital economy, the OECD says it is exploring several possible tax proposals to address these issues. In its new policy note, "Addressing the Tax Challenges of the Digitalized Economy", the OECD says it is looking at proposals that suggest revising the geographical allocation of taxation rights through amending profit allocation and nexus tax rules. The report also says the OECD is looking at proposals for how to address remaining BEPS issues.
The OECD says it will review each of the proposals listed within the report in-depth, and intends to report on its progress to the G20 Finance Ministers in June 2019, with a view to deliver a multilateral consensus-based long-term solution in 2020.
A public consultation document with additional details of the proposals is expected next week, with a public consultation in Paris mid-March.
The proposals in this report are grouped under two categories (i.e., "pillars"). They are summarized as follows:
These proposals focus on geographically-based tax rights, including nexus issues. They would typically allocate more taxing rights to market or user jurisdictions where value is created through businesses' participation in the user or market jurisdiction that is not recognized in the current framework for allocating profits. Three of these proposals consider allocating tax rights based on either: user participation, marketing intangibles or significant economic presence (in certain instances), respectively.
The OECD says that under some of these proposals, the current transfer pricing rules would need to be reconfigured as they apply to non-routine returns; other proposals could potentially go even further. In all cases, the OECD notes that these proposals would lead to solutions that go beyond the arm's length principle. They also go beyond the limitations on taxing rights determined by reference to a physical presence.
The proposal under this pillar would be designed to address the continued risk of profit shifting to entities subject to no or very low taxation through the development of two inter- related rules: an income inclusion rule and a tax on base eroding payments.
Members of the Inclusive Framework agreed that any new rules should not result in double taxation, or taxation when there is no economic profit. They also stressed the importance of tax certainty and the need for effective dispute prevention and resolution tools.
For more information, seethe KPMG Insights TaxNewsFlash, "OECD: Initial impressions about digital economy project", and KPMG Insights TaxNewsFlash, "OECD: Update on digital economy work; arm's length implications".
For more information, contact your KPMG adviser.
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