OECD publishes proposals to tax the digital economy

Oct 14, 2019

Last week the OECD Secretariat published a public consultation document proposing a ‘unified approach’ to address the tax challenges arising from the digitalisation of the economy. This document follows proposals published earlier in 2019, and aim to advance international negotiations on how to tax the digital economy.

The OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) adopted a Programme of Work in May 2019, consisting of a two-pillar approach to address the tax challenges of the digitalisation of the economy. The consultation published last week covers ‘Pillar One’ of the Programme of Work.

The ‘unified approach’ proposes to re-allocate some profits and corresponding taxing rights to countries and jurisdictions where Multinational Enterprises (MNE) have their markets, as opposed to the current rules where MNEs are taxed where they have a physical presence. This means that MNEs carrying out business in jurisdictions without a physical presence would be taxed in such jurisdictions where sales exceed a certain threshold. The proposals include the creation of new rules setting out where tax should be paid (‘nexus rules’) and on what portion of profits MNEs should be taxed (’profit allocation’ rules).

These proposals should only impact large consume-facing businesses. Consideration is given to company size limitations such as the €750 million revenue threshold used for country-by country reporting requirements.

The public consultation closes on 12 November 2019 and will be followed by a public consultation meeting on 21-22 November in Paris. Under the auspices of CCAB-I the Institute will be responding to the consultation. Should members wish to share their views on the proposal please contact tax@charteredaccountants.ie.