The OECD hosted a webcast on 29 January 2019, in which it shared a status update about its work into taxing the digitalised economy. In particular, Pascal Saint-Amans, the Director of the OECD’s Centre for Tax Policy and Administration, provided a summary of the Policy Note, Addressing the Tax Challenges of the Digitalised Economy, which was approved by the Inclusive Framework on 23 January 2019. We will be holding a webinar on 8 February discussing these latest developments.
The Policy Note sets out some potential ways to reform the taxation of the digital economy, and is intended to facilitate the emergence of a consensus view on this topic. The Policy Note sets out four proposals (which will be explored by the Inclusive Framework over the coming months on a without prejudice basis), and divides them into two ‘pillars’:
- Pillar 1 addresses the topics of nexus and profit attribution in the context of the digital economy, and may result in recommendations that go beyond the arm’s length principle. In particular, Pillar 1 will seek to explore in more detail the use of user participation (advocated principally by the UK) versus marketing intangibles (advocated principally by the US) as methods by which to allocate additional taxing rights to jurisdictions. Pillar 1 will also involve an exploration of the appetite amongst participating jurisdictions to change the ‘permanent establishment’ threshold by introducing a ‘significant digital presence’ concept; and
- Pillar 2 addresses related BEPS considerations, and is focused on outbound base-eroding payments that are subject to a low effective rate of tax in the recipient jurisdiction. Pillar 2 will explore a range of possible approaches, including the introduction of a minimum tax rule in payee jurisdictions (similar to the US ‘GILTI’ rules) and back-stop rules for payer jurisdictions (such as rules that deny the availability of withholding tax exemptions where payments are going to low-tax payees).
The key next steps are as follows:
- Join our webinar on Friday 8 February 2019 at 9am on the Taxation of the Digital Economy where we will explore the latest Policy Note and what it could mean for clients and businesses;
- A public consultation document on the taxation of the digital economy is expected to be released later this month, with a public consultation to be held in Paris in mid-March; and
- Following the public consultation, there will be an Inclusive Framework meeting in May 2019 to discuss and agree the detailed programme of work, with a view to reporting progress to the G20 Finance Ministers in June 2019.
For further information please contact: