The Organisation for Economic Cooperation and Development (OECD) today released a “policy note” concerning the digital economy.
The OECD policy note—Addressing the Tax Challenges of the Digitalised Economy [PDF 316 KB]—was approved by the entire Inclusive Framework on 23 January 2019, and has the consensus of a broad cross-section of developed and developing economies.
In a related presentation, the OECD acknowledged the growth in unilateral measures and expressed hopes that a multilateral solution would be delivered. According to informal notes regarding the OECD presentation, there are four leading proposals that will be explored by the Inclusive Framework over the coming months, with these proposals being divided into two “pillars” of work.
The OECD reports that this proposal’s strongest advocates are France and Germany. Proposal 4 is independent of Proposals 1–3; in other words, Proposal 4 may be the entire solution or may simply complement Proposals 1–3.
These solutions are intended to be further developed with a report due by May 2019 and then to be presented to the meeting of G20 Finance Ministers in June 2019.
The OECD acknowledged the degree of “multinational nervousness” over the possible explicit deviation from the arm’s length principle, the potential for double taxation, and the need for more effective dispute resolution mechanisms. It also acknowledged the views expressed by particular countries, especially China, that the rules need to provide a greater degree certainty to tax administrations and taxpayers.
The proposals being put forward could affect all businesses, going well beyond the highly digitalised "platform" business models on which so much attention has been focused in recent years. New rules would apply in place of current international tax rules, from physical presence permanent establishment (PE) to the traditional transfer pricing arm’s length principle, for in-scope enterprises. In view of the 18 months set between the June 2019 G20 meeting and the end-of-2020 completion date, OECD officials have observed that the task is bigger than the BEPS project, and with less time.
Read a January 2019 report prepared by the KPMG member firm in Australia
Read a January 2019 report prepared by the KPMG member firm in China
Read a January 2019 report prepared by the KPMG member firm in Ireland
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.