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Tax challenges of digitalisation: global developments

Tax challenges of digitalisation: global developments

KPMG's analysis of the OECD's Interim Report on tax and digitalisation has found International consensus is vital to addressing the global tax challenge posed by digitalisation, however it may be elusive in the current geopolitical climate.

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The Organisation for Economic Cooperation & Development (“OECD”) Inclusive Framework on Base Erosion and Profit Shifting (BEPS) has been a leading vehicle for international consensus on global tax issues – including the taxation of digitalised businesses.

More than 110 countries have participated in the Inclusive Framework’s work on digital tax policy, which, on 16 March 2018, ultimately led to the publication of Tax Challenges Arising from Digitalisation – Interim Report 2018 – a key milestone in the journey toward achieving a consensus-driven, internationally coherent tax policy on digitalised business models by 2020. This paper seeks to summarise the analysis and arguments that have been put forward in the Interim Report.

The Inclusive Framework’s focus is not solely on corporate structures that appear designed to achieve low-tax outcomes. It is principally about allocating taxing rights fairly to the location(s) where commercial value is created.

This work is likely to impact all enterprises with an element of digitalisation in their revenue streams, and not just to those highly-digitalised businesses that are consistently in the financial headlines.

Responding to the Interim Report and a challenging global environment, this paper looks at the issues faced by the Inclusive Framework in achieving its objective of global consensus.

Internal differences of opinion among the members of the Framework, and broader geopolitical tensions, have led countries and groups of countries to seek their own solutions outside of the work of Inclusive Framework.

Unilateral and multilateral initiatives, such as those proposed by the European Commission and several major economies, may present a challenge for progress towards establishing a global consensus-based response to the tax challenges of digitalisation.

The paper also seeks to consider some of these initiatives, and aims to draw out key considerations for multinational businesses to consider further in responding to this environment.

© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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