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OECD Public Consultation Document: IBFD Task Force on Digital Economy issues commentsMar-07-2019

On 13 February 2019, the OECD/G20 released the Public Consultation Document “Addressing the Tax Challenges of the Digitalization of the Economy”. This document describes the proposals prepared by the Inclusive Framework on solutions to the tax challenges arising from the digitalization of the economy, which are divided into two pillars, one allocating taxing powers to the market/user jurisdiction and the other focusing on tackling BEPS.
 
IBFD continues to be at the forefront of developments in the tax arena and provides comments on and analysis of the impact of changes in the international tax framework. In this light, we have provided comments on the consultation document.
 
The IBFD Task Force on the Digital Economy has submitted its scholarly and independent comments on the three proposals addressed in pillar I (the “User Participation”, “Marketing Intangibles” and “Significant Economic Presence” proposals). The comments put a specific emphasis on the need to achieve a fairer allocation of taxing rights among jurisdictions that are connected with value creation in companies’ production processes. Each of the proposals has been assessed in the framework of compliance with the policy principles in the Ottawa Taxation Framework and the impact of the proposals in ensuring inter-nation equity and fair allocation of taxing rights. Even though each of the three proposals has merits and shortcomings, the IBFD Task Force on the Digital Economy expresses a general preference for the “Significant Economic Presence” proposal, as it is inclusive, neutral, fair, effective and simple. Furthermore, the proposal broadly corresponds to the reform option suggested by the European Commission in 2018, which could therefore aggregate consensus and more easily operate in this region of the world. Although the IBFD Task Force on the Digital Economy believes that the “Significant Economic Presence” proposal would more comprehensively and sustainably address the international tax challenges arising from the digitalization of the economy, it also finds that the three proposals calling for a revision of profit allocation and nexus rules are not mutually exclusive and can, therefore, be bundled together in different ways. In addition, the levying of withholding taxes could also operate in conjunction with any of the three proposals, as long as it does not lead to double taxation.
 
The final version of this document will be published soon in ITAXS, an online IBFD publication.