In his third and final article on the digitalisation of tax, KPMG’s Darren Anton considers how international solutions will be needed to ensure digitalisation is a benefit and not a burden.
Previously we have looked at how digitalisation is revolutionising the tax system. On the one hand, this is a very positive move as it brings efficiencies in collection and compliance, and can reduce the risk of fraud.
On the other hand, we have seen that the historical lack of an international approach to digitalisation results in individual governments taking unilateral protective measures. This in turn leads to the potential for double or triple taxation headaches that businesses will need to try to resolve.
There is a basic principle that tax should not distort the market to the point it creates a barrier to trade. Clearly, where this happens, businesses will begin to consider which markets they want to operate in – and may be forced to make some choices that they wouldn’t otherwise contemplate.
The way to avoid this situation is to find a solution that will gain international consensus and which can be applied and enforced consistently across borders.
There is some progress. International bodies such as the OECD and the EU are working to find solutions that are acceptable on a worldwide stage. Of course, these proposals are flushing out new concerns but this is all part of the process of finding something that workable and, ultimately, adoptable.
The longer this takes, of course, the greater the danger that governments will become increasingly reliant on unilateral measures and the tax revenues they bring.
We may not be able to see the answer clearly at this stage, but the OECD has recently released a programme of works to develop a consensus solution which retains a similar structure to its earlier proposals but delves deeper into the detail. Following on from this, the OECD has now published public consultation documents and public consultation were held. Hopefully, through this discussion and debate, these proposals will become more defined as building blocks for a new framework are developed - although the US has already raised concerns about these approaches applying to US multinationals.
Ultimately, progress will depend upon finding a framework that governments will be willing to support and that they feel is worth sacrificing their own unilateral measures for the greater good of an international solution.
No matter whether we represent governments, tax administrations, businesses or the tax profession, this is work that we need to encourage. Building a tax system for the digital age was never going to be easy but it’s a critical requirement for businesses as they evolve in a globalised and digital world – and, of course, to support the business models of tomorrow that are still to be developed.
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