UK and International Tax news

OECD Releases Interim Report On The Tax Challenges Arising From Digitalisation

Tuesday 20th March 2018

The OECD/G20 members of the Inclusive Framework on BEPS have recently released an Interim Report on the Tax Challenges Arising from Digitalisation with the intention of working towards a consensus based solution by 2020.

Building on the 2015 BEPS Action 1 Report, the Interim Report includes an in-depth analysis of the changes to business models and value creation arising from digitalisation, and identifies characteristics that are frequently observed in certain highly digitalised business models. Describing the potential implications for the international tax rules, the Interim Report identifies the positions that different countries hold, which drive their approach to possible solutions. These approaches range from those countries that consider no action is needed, to those that consider there is a need for action that would take into account user contributions, through to others who consider that any changes should apply to the economy more broadly. The Interim Report lays the ground to move forward at the OECD towards a long-term multilateral solution in the next phase of work.

Under the BEPS Project, a number of important new standards were delivered aimed at tackling double non-taxation.  Country-level implementation of the wide-ranging BEPS package is already having an impact, with evidence emerging that some multinationals have already changed their tax arrangements to better align with their business operations. The measures are already delivering increased revenues for governments [for example, over 3bn euros in the EU alone as a result of the implementation of the new International VAT/GST Guidelines]. Despite this success in tackling BEPS, the Interim Report underlines that many countries believe challenges to the international tax system still remain.

Inclusive Framework members recognise that they share a common interest in maintaining a single, relevant set of international tax rules.  As part of the next phase of their work, they have agreed to undertake a coherent and concurrent review of the “nexus” and “profit allocation” rules, fundamental concepts relating to the allocation of taxing rights between jurisdictions and the determination of the relevant share of the multinational enterprise’s profits that will be subject to taxation in a given jurisdiction. In exploring potential changes, members would consider the impacts of digitalisation on the economy, relating to the principles of aligning profits with underlying economic activities and value creation.

While agreeing to work towards a long-term solution by 2020, some countries believe that there is a strong imperative to act quickly and are in favour of the introduction of interim measures, while other countries are opposed to them and consider that such measures will give rise to risks and adverse consequences. Those countries in favour have identified a number of considerations that they believe need to be taken into account to limit the possible adverse side-effects.

The Interim Report also looks at how digitalisation is affecting other areas of the tax system, including the opportunities that new technologies offer for enhancing taxpayer services and improving compliance, as well as the tax risks, including those relating to the block chain technology that underlies crypto-currencies.

 

If you would like further information on the Interim Report, please contact Keith Rushen on 0207 486 2378.

 

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