Work at the OECD on international tax reform is more and more becoming a reality. In fact, on 31 May, the OECD announced that the international community has agreed on a roadmap for resolving the tax challenges arising from the digitalization of the economy, and committed to continue working toward a consensus-based long-term solution by the end of 2020. The 129 members of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) adopted a Work Program laying out a process for reaching a new global agreement for taxing multinational enterprises. The document calls for intensifying international discussions around two main pillars and it will be presented by the OECD Secretary-General to the G20 Finance Ministers for endorsement during their meeting on 8-9 June in Fukuoka (Japan).
Taking into account the analysis included in a Policy Note published by the OECD in January 2019 and the results of the public consultation held in March 2019 – to which Ecommerce Europe replied – the Work Program explores the technical issues to be resolved through the two main pillars. The first pillar explores potential solutions for determining where tax should be paid and on what basis (“nexus”), as well as what portion of profits could or should be taxed in the jurisdictions where clients or users are located (“profit allocation”). The second pillar explores the design of a system to ensure that multinational enterprises – in the digital economy and beyond – pay a minimum level of tax. According to the OECD, this pillar would provide countries with a new tool to protect their tax base from profit shifting to low/no-tax jurisdictions, and is intended to address remaining issues identified by the OECD/G20 BEPS initiative.
Ecommerce Europe is pleased to see that, overall, work at OECD level is progressing. In fact, the European e-commerce association is convinced that current international corporate tax rules are not fit for the realities of the modern global economy. However, this is a global issue, which requires a global solution. That is why Ecommerce Europe has been advocating against unilateral solutions, at EU and/or national level, from the very beginning of the discussions around the European Commission’s intention to introduce a Digital Services Tax (EU DST Proposal). A global approach at OECD level is the only viable approach to address the tax challenges of the digitalization of the economy. In that sense, Ecommerce Europe believes that some key principles should be carefully taken into account in the context of the discussions around any tax reform debate.
As already mentioned, any tax reform should be pursued internationally to minimize risks of double taxation or spur protracted tax disputes between countries. Also, a fair and modern taxation system must be channel-neutral, since the wider economy is fast-digitalizing and cannot be “ring-fenced”, especially because it is hard to anticipate the future evolution of business models. Taxes should also be based on profits, because taxes based on revenues have a discriminatory effect on start-ups and growing companies, which invest and often operate at a loss in their growth phase, and on companies in sectors with a high turnover and low margins, such as retail. New tax rules should be designed in such a way that they are easy to comply with and simple to calculate, in order to avoid higher compliance costs for businesses that are already paying their fair share of taxes. Finally, new tax rules should be globally and easily enforceable, in order to avoid putting non-EU companies in a competitive and unfair advantage vis-à-vis EU businesses. All players should face real consequences for non-compliance or fraud.
More information on the analysis of the OECD proposals performed by Ecommerce Europe can be found here.