The OECD is seeking public comments on the key issues identified and the potential options to address these challenges.
On 22 September the OECD published a ‘request for input’ on the tax challenges of digitalisation. This document outlines the background work done as part of the BEPS Action 1 report and invites comments on: the impact of digitalisation on business models and value creation; challenges and opportunities for tax systems; the implementation of the measures outlined in the BEPS package; and potential options to address the direct tax challenges of digitalisation. Comments have been requested by 13 October 2017.
This new request for input was published the day after the European Commission published its own communication on this topic (a Euro Tax Flash from KPMG’s EU Tax Centre provides more details on that). The BEPS Action 1 report published in October 2015 recognised that digitalisation and some of the resulting business models present some challenges for international taxation. However, it also acknowledged that it would be difficult, if not impossible, to ‘ring-fence’ the digital economy from the rest of the economy for tax purposes because of the increasingly pervasive nature of digitalisation.
In January 2017, the Inclusive Framework on BEPS approved a renewed mandate for future work on tax and digitalisation and an interim report is expected to be delivered to the G20 Finance Ministers in April 2018. As well as the request for input, the OECD’s Task Force on the Digital Economy (TFDE), which is leading this work, will hold a public consultation meeting on 1 November.
As with much of the BEPS project, it clear that the OECD is seeking to obtain as much input from businesses and tax professionals on the practical challenges and commercial realities of digitalisation. The request for input is broad, ranging from the impact on operating models, the impact on cross-border and multi-jurisdictional transactions, and the likely future direction of developments in digitalisation. We welcome these efforts by the OECD to fully understand the practical and commercial challenges, and the apparent attempt to ensure any proposal is ‘future proofed’. The request for input also sets out the potential tax responses and requests views on these – e.g. the introduction of a ‘virtual PE’ concept, a withholding tax on digital transactions and an equalisation levy. This will provide companies with an opportunity to make their voices heard, especially in light of the current activity at an EU level which seems to be seeking a short term solution, potentially involving one or more of these options.
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