Article

OECD: Organisation holding public consultation on the tax challenges of digitalization.


Added on 13/03/2019

As published on jdsupra.com, Tuesday 12th March, 2019.

 

The Organisation for Economic Co-operation and Development (OECD) will kick off tomorrow a public consultation on its most recent foray into the tax challenges arising from the digitalization of the economy. The consultation follows the release of a discussion draft last month that provided five different policy options under two different “pillars” for addressing potential difficulties in taxation caused by the digital economy. The discussion draft asked for feedback on design considerations, scope limitations and best approaches to reduce complexity for the various policy options, and over 200 stakeholders submitted written comments by the March 6 deadline. The Treasury Department has signalled that it supports the “marketing intangibles” option – an approach that would apply across industries and would allocate taxing rights to businesses’ extraordinary returns from marketing intangibles to market jurisdictions. The public consultation will run through Thursday and will be broadcast live on OECD WebTV.

The recent focus on the tax challenges surrounding the digital economy began at the OECD in 2013, when the OECD and G20 governments launched the Base Erosion and Profit Shifting (BEPS) project. The BEPS project identified fifteen different “action” areas where tax rules could be strengthened to prevent BEPS, and “Action 1” focused on the tax challenges of the digital economy.

In 2015, the first report on each of the 15 action areas — Addressing the Tax Challenges of the Digital Economy, Action 1 – 2015 Final Report — was delivered. The report identified the challenge of allocating taxing rights on income generated from cross-border activity in the digital age and the accompanying BEPS concerns, but did not recommend any proposals to address the challenge (and pointed out that any potential solution should not attempt to “ring-fence” the digital economy due to the increasingly pervasive nature of digitalization). However, they did renew the mandate of the Task Force on the Digital Economy (TFDE) – the Task Force that produced the Action 1 report – to continue to monitor developments in respect to digitalization.

In March 2017, G20 finance ministers mandated the TFDE’s current effort, asking the TFDE to deliver a final report in 2020 with the goal of coming to a “consensus-based solution” addressing the profit allocation and BEPS concerns caused by the digital economy. Last month, the TFDE released a “Discussion Draft” that gave the most detailed view yet of what these solutions could possibly be, and a public consultation on these proposals kicks off tomorrow.