Article

OECD: Digitisation tax for multinationals criticised over double taxation risk.


Added on 12/03/2019

As published on accountancydaily.co, Monday 11th March, 2019.

 

Over 200 global professional institutes, business groups and multinationals, including Uber, Spotify, Vodafone and GlaxoSmithKline, responded to the first call for evidence from the OECD Task Force on the Digital Economy (TFDE), which sets out possible solutions to the tax challenges arising from the digitalisation of the economy. These include three options based on marketing intangibles, user participation and significant economic presence.

The OECD has now published 210 individual submissions with feedback to the initial consultation, which closed 6 March and had to be extended due to the level of interest. The outcome of any discussions and future measures will be put to G20 ministers in 2020.

Any measures adopted would have a significant impact on the taxation basis for social media platforms, search engines and online marketplaces.

There was a general acceptance that the existing fragmented approach to digital tax and the changing face of international, cross border operations means that tax law is seriously outdated in this area, but global governmental agreement would be required to change current legislation.

However, there are deep seated concerns that taking a unilateral approach to global tax by focusing on one sector of the economy is not the right approach, with the singling out of digital companies being seen as unfair ‘ringfencing’.

Non-digital companies also expressed strong reservations about the scope of the proposals.

Pharma giant Astra Zeneca stated: ‘We find the proposed approaches to be of significant concern as the scope appears to go beyond highly digitalised businesses to traditional businesses where value is not created based on the impact of the digitalisation of the economy and challenges the ongoing application of the arm’s length principle.’

On the other hand, the highly digitalised tech industry feels that it is being particularly targeted.

In its submission, music streaming platform Spotify stated: ‘Attempting to isolate certain highly digitalised business as a separate sector for tax purposes will inevitably require arbitrary lines for applicability and create an administrative nightmare for MNEs [multinational enterprises] as well as tax authorities. “Digital” enterprises should not be subject to special and differential tax rules. Any new system should be applicable economy wide.’

While the company supported the principles of fair taxation, it added: ‘The developments and debates around taxation of highly digitalised business models is of substantial concern to us. Some governments appear to see “fair” taxation as working only one way; the digital enterprises that operate in many markets should pay tax without any substantiation in value creation and realised profit.’

Taxi hailing and food delivery app Uber was also highly critical, stating: ‘The significant economic presence (SEP) proposal ring-fences highly digitalised businesses by applying new nexus standards only to those companies leveraging technology, a feature that potentially discourages investment in technology and does not justify unequal taxation of a business compared to its analogue counterpart.’

At the same, the introduction of unilateral measures in certain jurisdictions, including the UK, Australia, India and Italy, with France set to follow, has helped to create a more complex tax environment for multinationals with conflicting rules.

There were also concerns that the OECD may look to change the tax landscape with the introduction of a turnover tax, which many businesses are against, although some argue this could create a fairer environment for traditional businesses facing severe price competition from major tech giants such as Google and Amazon.

Silicon Valley Tax Directors Group, representing all significant US digital giants, warned that the proposals require significant intergovernmental cooperation, stressing that whatever approach is selected ‘must deal with both losses and profits, must refrain from introducing withholding taxes as a collection/enforcement mechanism, and must be accompanied by a true commitment to effective dispute prevention and resolutions’.

It also warned that a damaging outcome could put at risk the amount of research and development (R&D) invested by the largest digital multinationals - Google, Amazon and Facebook – and listed IT companies, which represent 37% of total R&D spend of the S&P Global 1200 at $216m a year.