Q4/2019 - OECD, Public Consultation, October – November 2019

Proposal for a “Unified Approach” to Digital Tax, Paris, 9 October 2019

On 9 October 2019, the OECD published a proposal that was designed to give impetus to the international negotiations on the taxation of highly digitalised multinational enterprise (MNE) groups with high profitability. The aim behind it is to achieve that enterprise can be taxed in the future at the place where they do business and create added value. The OECD’s proposal comprises elements of three earlier competing proposals and is based on the current work of the OECD and G20 about base erosion and profit shifting within the scope of the BEPS Inclusive Framework. 134 countries and jurisdictions are negotiating on an equal footing the reform of international taxation rules with the aim to adapt them to the requirements of the 21st century. The OECD proposal is now open for public consultation. According to this proposal, the allocation of profit and the corresponding taxation rights must be changed, so that multinational enterprises are taxed in the country where they create revenue – even if they are not physically present in that place. It requests rules that determine where taxes are to be paid (nexus rule) and which share of the profit is to be taxed (profit allocation rule). OECD Secretary-General Angel Gurría warned that the risk of independent national and regional solutions would grow considerably if no agreement was reached by the end of 2020; this in turn would have a negative effect on the global digital economy[1].

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  1. [1] Public consultation document: OECD Secretariat Proposal for a “Unified Approach” under Pillar One 9 October 2019 – 12 November 2019, Chapter 2: A “Unified Approach” – the Secretariat’s Proposal: „10. The three alternatives set out in the Programme of Work under Pillar One have a number of significant commonalities:1. though there is some variation in how the proposals address the digitalisation issue, to the extent that highly digitalised businesses are able to operate remotely, and/or are highly profitable, all proposals would reallocate taxing rights in favour of the user/market jurisdiction; 2. all the proposals envisage a new nexus rule that would not depend on physical presence in the user/market jurisdiction; 3. they all go beyond the arm’s length principle and depart from the separate entity principle; and 4. they all search for simplicity, stabilisation of the tax system, and increased tax certainty in implementation. 11. There are nevertheless gaps between the proposals. As noted, the focus on digital businesses varies, with the user participation proposal making specific reference to such businesses and the marketing intangibles proposal operating more broadly and not referring explicitly to digital businesses. 12. The nature of the reallocation of taxing rights also differs between the proposals, with the marketing intangibles and user participation proposals reallocating a portion of non-routine profit to the user/market jurisdiction, and the significant economic presence proposal looking at all profits (routine and non-routine) as the starting point. 13. The Secretariat has sought to develop a possible new approach based on the commonalities between the three proposals, taking account of the ultimate aim of these proposals, the views expressed during consultations, as well as the need to deliver a solution that is as simple as possible.” in: https://www.oecd.org/tax/beps/public-consultation-document-secretariat-proposal-unified-approach-pillar-one.pdf