OECD renews tax reform efforts to tackle the digital economy

Feb 04, 2019

The OECD recently published a Policy Note which steps up efforts to resolve the international challenge of taxing the digital economy along with a renewed effort to resolve outstanding BEPS issues. 

The Policy Note was published following a meeting of the OECD/G20 Inclusive Framework group on 23/24 January which brought together 264 delegates from 95 member jurisdictions and 12 observer organisations.  According to the OECD, countries and jurisdictions participating in the Inclusive Framework will step up efforts toward reaching a global solution to the growing debate over how to best tax multinational enterprises in a rapidly digitalising economy.

The first pillar of the Policy Note focuses on how existing rules that divide up the right to tax the income of multinational enterprises among jurisdictions, including traditional transfer-pricing rules and the arm’s length principle, could be modified to take into account the changes that digitalisation has brought to the world economy. According to the OECD, this will require a re-examination of the so-called ‘nexus’ rules which determine the connection a business has with a given jurisdiction and the rules that govern how much profit should be allocated to the business conducted there.   The Policy Note identified a second pillar which aims to resolve remaining BEPS issues.

In the Policy Note, the OECD restates its intension to deliver a solution on the taxation of the digital economy by 2020

The Inclusive Framework will issue a consultation document that describes the two pillars in more detail, and a public consultation will be held on 13 and 14 March 2019 in Paris as part of the meeting of the Task Force on the Digital Economy. According to the OECD, further details on the consultation process, including how stakeholders can provide input and most effectively participate, along with the consultation document, will be published in the coming weeks.