February 2017  
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Issue No. 1 - 2017 of the World Tax Journal is now available online.

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Number 1 - 2017 contains the following:

International Taxation in the Digital Economy: Challenge Accepted?

Marcel Olbert and Christoph Spengel

The digitalization of the economy is considered as a key driver of innovation, economic growth and societal change, and is a major challenge for the international tax system. The OECD has addressed this challenge in its extensive Action 1 Final Report as part of its BEPS project. This article critically depicts the OECD’s view and reform proposals on taxing businesses in the digital economy. Further, recent literature contributions on the matter are synthesized. While taxing profits according to value creation is detected as the new paradigm in international taxation, this review reveals that the understanding of the digital economy and corresponding reform proposals for taxation are premature. The authors show that the OECD has systematically missed the opportunities to define the paradigm of value creation and to analyse digital business models accordingly. Considering the current challenges, the key pressure area for taxing digital businesses in the near future is transfer pricing. Drawing from practical case studies and research in industrial economics, accounting and management science, this article derives a concept for value creation in digital businesses. Based on this concept, the authors propose a framework to refine transfer pricing guidance in order to come closer to the goal of aligning profit taxation with value creation.

Tax Abuse and Aggressive Tax Planning in the BEPS Era: How EU Law and the OECD Are Establishing a Unifying Conceptual Framework in International Tax Law, despite Linguistic Discrepancies

Paolo Piantavigna

The article aims to demonstrate how EU law and the OECD are establishing a unifying conceptual framework in which the two different seminal phenomena, “tax abuse” and “aggressive tax planning”, can be acknowledged in the new (global) operating environment. The purpose of this article is to critically assess the meaning of these concepts, broadly used in several EU and OECD soft law instruments. These concepts cannot be completely formalized or objectified, but the resulting uncertainty of their application can be reduced to an acceptable level. In the search for a useful reference point to delimit tax abuse from aggressive tax planning, particular attention is paid to the definitions conveyed (and the wording used) by EU institutions and the OECD. Indeed, the purpose of this article is also to establish a starting point for the discussion on linguistic discrepancies that can arise, and it provides for a preliminary categorization of them. Further to the analysis of these discrepancies, the article explains the reciprocal influences between the European Union and the OECD, and highlights how the promotion of a theoretical understanding and careful empirical handling of the relevant practices should enrich the discussion and foster consistent implications. In particular, how consensus on the development of a linguistic and conceptual framework could enhance the resolution of some issues is emphasized and, more specifically, to what extent EU law allows the BEPS Project to be applied in the EU area, knowing that EU institutions cannot provide for any ex ante guarantee on the compliance of BEPS with EU law. To ensure that the important goals of global tax coordination – that the implementation of the BEPS Project implies – are achieved, this contribution aims to delineate preliminary clarifications in these areas.

International Profit Allocation, Intangibles and Sales-Based Transactional Profit Split

Ulrich Schreiber and Lisa Maria Fell

Information technology has greatly changed the economy and intangible assets have become dominant value drivers of multinationals’ business. Firm-specific intangibles challenge the time-honoured arm’s length principle. The OECD’s Action Plan on Base Erosion and Profit Shifting addresses this issue, aiming at an allocation of profits associated with the transfer and use of intangibles that is in accordance with value creation. The OECD proposals are in line with inter-nation equity, but may have undesired effects on the investment location decisions of multinationals. The authors take the OECD’s proposals as a starting point and explore a sales-based transactional split of profits associated with intangibles to ensure both international investment tax neutrality and inter-nation equity. Sales-based taxation of intangible-related profits calls for an appropriate nexus in the sales jurisdiction. The authors examine possible avenues to expand the current permanent establishment rules to cover intangible-related business activities.

References to the OECD Commentaries in Tax Treaties: A Steady March from “Soft” Law to “Hard” Law?

Craig West

This article addresses, in part, the use of the OECD Commentaries with respect to the interpretation of bilateral tax treaties. However, the article has as its focus those instances in which a tax treaty or protocol to a tax treaty, in the main, directly reference the OECD Commentaries as an interpretational rule. Such direct references to the OECD Commentaries spark a number of questions and reopen issues such as the hard law/soft law dichotomy; the static versus ambulatory nature of the OECD Commentaries; policy reasons for such inclusions and the consequences of such inclusions. This article equally provides the base from which the rise of such references can be monitored. The article collects and analyses the direct references, stratifying these “rules” into types while looking for trends. While the number of instances remains low relative to the total number of bilateral comprehensive tax treaties worldwide, the inclusions of such rules equally open the debate regarding the formation of customary international law. Currently, these rules may simply achieve the aim for which they appear to have been created, being the affirmation that the parties consider the OECD Commentaries as a key interpretational resource and, although still to be tested, to force the courts to actively consider the rules in making judgments in tax treaty matters.

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