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June 16 — The OECD plans to take another crack at developing consensus recommendations for addressing taxation of the digital economy, the organization's tax chief said.
Meanwhile, don't be surprised if some countries go their own way on digital economy tax measures, said Pascal Saint-Amans, head of the OECD's Center for Tax Policy and Administration.
The Organization for Economic Cooperation and Development's 15-item plan for fighting base erosion and profit shifting, issued in October 2015, managed to make consensus recommendations on closing rule gaps that allow multinationals to drastically reduce their tax bills. The recommendations, recently adopted into the OECD transfer pricing guidelines, include major updates to better take intangible assets into account, as well as documentation rules and requirements for the largest multinationals to report on their taxes paid and profits earned in each country of operation (116 ITM, 6/16/16).
But the project failed to produce consensus recommendations on taxing the digital economy. “That's why we shouldn't be surprised that some countries take unilateral action in this area. I think it's a good illustration of what happens where multilaterally we are not able to reach a conclusion,” said Saint-Amans.
The official commented during the OECD's June 16 briefing on the organization's recent and planned tax policy work.
Saint-Amans noted that the digital economy task force's report on BEPS Action 1, which identified sources of BEPS resulting from the digital economy and explored options for dealing with bigger issues of how to tax that economy, was inconclusive.
“We should therefore not complain too much about countries taking unilateral actions, even though that's not what we at the OECD favor,” he said.
Major unresolved issues include how to impose tax when a company has a digital presence but doesn't have a physical presence. Those cases raise questions about source and residence taxation, and how much taxing right a country should have over a company that has marketing activity in its jurisdiction when intangible property or services are located elsewhere, Saint-Amans said.
France and some other countries have long called for special or amended rules to deal with taxation of digital companies, such as Google Inc., Apple Inc. and Facebook Inc. The U.K. announced a diverted profits tax targeting technology companies in 2015 (115 ITM, 6/12/15).
France, too, recently announced billions of euros in proposed tax reassessments on multinational Internet companies, and it has pushed for a new system under which digital companies could be taxed on the volumes of user personal data they “exploit.”
OECD Secretary General Angel Gurria recently warned that divergent unilateral measures to implement the BEPS recommendations could create new system “cracks” that tax evaders could exploit.
Saint-Amans said the digital economy task force plans to continue its work, although it hasn't yet scheduled a meeting. The aim is “to explore this further and provide concrete solutions which hopefully will be consensual, so that we move away from unilateral action,” Saint-Amans said.
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