Ireland And The US Seeking Global Tax Fix For Digital Economy

; posted on
December 13th, 2018

According to an official speech released by the Irish Government, the US and Ireland agree that a global solution for taxation in the digital era is best achieved through the OECD. Irish Finance Minister Paschal Donohoe explained that an OECD-facilitated consensus could drive progress towards tax cooperation without creating the trading risks that can arise under unilateral measures.

Position in Taxing the Digital Economy

Ireland has encouraged an OECD solution on digital taxation, opposing the EU’s proposed DST, which busted during the December 4 meeting of the Economic and Financial Affairs Council. Ireland believes that the proposal could create double taxation issues that would contravene bilateral taxation treaties between member states and third countries. Further, they argue that EU-only measures would damage European competitiveness and may exacerbate trade tensions with the US at a difficult time.

Meanwhile the US believes that there is no principled basis for distinguishing digital companies from other companies, and that this recognition generated the need to explore other bases for nexus and profit attribution regimes that would apply to and address issues with a wide range of business models. Apart from its opinion in taxing digital economy, the US fully supports international cooperation to address broader tax challenges arising from the modern economy and to put the international tax system on a more sustainable footing. US also does not recommend the unilateral action to address this issue.

Ireland and the United States are like-minded in the belief that the solutions to these challenges are within the corporate income tax system, rather than taxing turnover. This principle encourages investment and growth, which ultimately can benefit the wider society. It is in everyone’s interest that the ongoing work results in an international tax framework that is sustainable into the long run to provide certainty to businesses and to governments in the future. As such both nation seeking solution from OECD to streamline the action to tax digital economy

OECD Options

The OECD’s Task Force on the Digital Economy continues to discuss the long-term taxation model, sifting through several proposals that have split support among countries. Meanwhile, unilateral tax proposals emerging in Europe have created strange bedfellows among U.S. lawmakers as US sending letter to EU for many times to ditch EU digital tax proposal.  

Up to date, some potential options to address the challenge raised by digital economy have been analyzed, ranging from a withholding tax on digital sales to a new concept of nexus based on having a “significant economic presence”. Other options are also offered to focus on data and user participation, like the United Kingdom’s planned DST. However, among the options offered, the consensuses between the members haven’t been reached yet. Therefore the OECD is expected to come up with a plan to tax the digital economy.

The OECD’s task force is targeting January 2019 for an update on the progression of its work, with the objective of reporting on developments to the G-20 finance ministers in June 2019. The ultimate goal is global consensus on a long-term solution by 2020.

Source: Irish Government


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