On Tuesday 29 January, the OECD announced that it had made “important progress toward addressing the tax challenges arising from digitisation of the economy”.
127 countries involved in work on tax base erosion and profit transfer (OECD/G20 Inclusive Framework on BEPS) have agreed to “continue working multilaterally towards achievement of a new consensus-based long-term solution in 2020”, the organisation said in a statement.
The announcement was welcomed by the French Minister of Economy and Finance, Bruno Le Maire, who intends to introduce a tax on digital services at the national level (see EUROPE 12154) and push in parallel for an agreement at the European level in March on the taxation of online advertising (see EUROPE 12152).
Important OECD announcement on the taxation of digital giants. “We have been fighting for months to move this issue forward. The lines are moving: 127 countries are committed to changing tax rules”, he reacted on Twitter.
In a statement on Wednesday 30 January, the Independent Commission for the Reform of International Corporate Taxation (ICRICT) welcomed this “change of direction at the OECD, which has just decided to examine radical solutions to put an end to tax evasion by multinationals”.
In its interim report on the taxation of digital businesses, published on 16 March last (see EUROPE 11983), the OECD concluded that there was no international consensus at that time on the need to change international tax rules to adapt them to the digital age.
However, in a policy note, approved by the Inclusive Framework on BEPS on 23 January, the OECD laid the foundations for what could lead to a potential consensus.
In particular, countries agreed to consider proposals involving two pillars: one addressing the broader challenges of the digitalised economy and one addressing remaining BEPS issues.
Some proposals imply a review of the current rules and could lead to solutions that go beyond the “arm's length principle” - which allows multinationals, through transactions between their subsidiaries, to transfer their profits to countries with the lowest tax rates - the note says.
Any solution chosen should address in parallel the problems of profit allocation and the connection a business has with a given jurisdiction, it said. Thus, the OECD will study several proposals based on the concepts of marketing intangibles, user contribution and significant economic and digital presence.
The solution will have to find the “right balance between accuracy and simplicity”, the document explains. In this respect, countries do not exclude the establishment of simplified mechanisms to reduce administrative burdens and simplify tax collection, provided that they do not lead to double taxation.
The OECD has also announced that it will work on the issue of minimum company taxation (see EUROPE 12182) - a subject that will also be at the heart of the French presidency of the G7 (see EUROPE 12176).
Next steps. The Inclusive Framework on BEPS has mandated its Steering Group to develop a detailed work programme, which will be submitted to the members for approval at its May meeting. A public consultation will also take place on 13 and 14 March in Paris, during the meeting of the Task Force on the Digital Economy.
Objective: to review progress with G20 Finance Ministers in June and present a solution in 2020. (Original version in French by Marion Fontana)