Brass tax - April 2019

Apr 01, 2019
Following the inconclusive BEPS project, the OECD has embarked on a second attempt to determine how to tax the digitalised economy.

A planned revision of international tax rules for the digital era is currently being debated at OECD level. 127 countries and territories have agreed to tackle some of the most disputed issues of international taxation; not least, where digital firms’ income should be taxed. More details materialised recently in the OECD’s consultation on the taxation of the “digitalised economy”. The 2015 Base Erosion and Profit Shifting (BEPS) project was inconclusive on how the digital economy might be taxed. This OECD consultation is part of a second attempt to work it out. In effect, it’s BEPS II.

The digital tax debate has been top of the European Union’s (EU) agenda for some time now. So perhaps the only good news emerging from the OECD proposals is that the EU looks set to ditch its plan to introduce an EU-wide digital tax. The EU has, however, agreed to work on the global reform of the taxation of digital companies.
The OECD is seeking to reform the wider international tax system under the concept of ‘digitalisation of the economy’ by moving beyond its narrow focus on highly digitised businesses to address the growing concerns surrounding the taxation of business models built upon technology innovations. The proposed work programme is broad in scope and could potentially affect all businesses operating internationally, across all sectors.

Determining how to tax the digitalised economy is not straightforward. The OECD is proposing that companies should be taxed more by reference to where their markets are, rather than where they might have a management or physical presence. That’s an attractive proposition for larger economies with larger markets. For smaller countries, this approach will not be a source of delight. 

Public consultation took place at OECD headquarters in Paris on 13 and 14 March. The OECD is still in the early stages of this process and stakeholders should engage at each stage – the significance of this consultation should not be underestimated.

Brid Heffernan is a Tax Manager at Chartered Accountants Ireland.