Public comments have been invited on the discussion draft Tax Challenges of the Digital Economy. It is based on the sweeping tax reforms to stop multinationals abusing outdated tax rules as part of the OECD’s 15-point Action Plan, published last year.
The OECD said that the aim of the consultation is to “identify the main difficulties that the digital economy poses for the application of existing international tax rules and develop detailed options to address these difficulties, taking a holistic approach and considering both direct and indirect taxation".
“Issues to be examined include, but are not limited to, the ability of a company to have a significant digital presence in the economy of another country without being liable to taxation due to the lack of nexus under current international rules, the attribution of value created from the generation of marketable location relevant data through the use of digital products and services, the characterisation of income derived from new business models, the application of related source rules, and how to ensure the effective collection of VAT/GST with respect to the cross-border supply of digital goods and services. Such work will require a thorough analysis of the various business models in this sector.”
Taxing digital companies was at the heart of the debate over tax avoidance in Britain as public anger increased following revelations over the tax affairs of major companies including Amazon and Google last year. This culminated in senior tax officials from the Big Four being called before the Public Accounts Committee (PAC), where they were accused of “exploiting loopholes”.
In the US, Apple head Tim Cook was called before a Senate committee and grilled on the technology giant’s tax record.
Chris Morgan, head of tax policy at KPMG UK, said, “The digital economy presents an enormous challenge to tax authorities around the world. In total the OECD has 15 separate workstreams looking at tackling ‘Base Erosion and Profit Shifting’ covering a wide range of tax issues but the digital economy is probably the hardest one to grapple with.
“The digital revolution has had a massive impact on virtually every area of our lives. It has meant that businesses providing services we couldn’t have even imagined just a decade or so ago are now worth several billion pounds. Tax authorities want to ensure they get their fair share of the digital revolution and the OECD has the difficult task of trying to develop a framework to cope with this fast-moving sector.
“A key issue is that the technology has significantly affected many businesses from those that are purely web-based to traditional ‘bricks and mortar’ operations. For example, one question the OECD is asking is whether or not it is possible to ring fence the digital economy from the rest of the economy and tax it under its own special rules.”
Comments on this discussion draft should be submitted electronically (in Word format) before 5pm on 14 April.