The Organization for Economic Co-operation and Development (OECD) released its document Program of Work to Develop a Consensus Solution to the Tax Challenges Arising from the Digitalization of the Economy.
Following a Policy Note released in January 2019, the Inclusive Framework has continued to develop the proposals presented earlier under the two Pillars used to organize the ongoing work. Pillar One seeks to develop new profit allocation rules based on user participation, significant economic presence, and marketing intangible. Pillar Two focuses on achieving a minimum income taxation for multinational enterprises (MNEs).
To date, the OECD has not been able to reach an agreement to narrow the three alternative Pillar One proposals down to one proposal. However, the Workplan recognizes that the long-term solution to be submitted to the Inclusive Framework in January 2020 will have to reduce the number of options to be pursued under Pillar One so that political agreement on a unified approach can be reached.
The Workplan raised technical issues that need to be resolved under Pillar One by grouping three building blocks: new profit allocation rules, new nexus rules, and implementation of the new market jurisdiction taxing right.
In addition, with regard to Pillar two, the workplan states that the Global anti-base erosion (Globe) rule under pillar two, are intended to advance a multilateral framework that achieves a balanced outcome, limiting the distortive impact of direct taxes on investment and business location decisions.
The Workplan makes it clear that the scope of the Globe proposal is not limited to highly digitalized businesses.
G20 leaders are expected to endorse the Program of Work at their 8-9 June 2019 meeting. By January 2020, the members of the BEPS Inclusive Framework are expected to agree on fundamental issues (such as options to be pursued under Pillar One, or the interaction between the two Pillars) with the aim to deliver a final report with the consensus-based solution by the end of 2020.
If the OECD does not achieve a reform of the international tax system, companies should expect EU Member States to further seek agreeing on and implementing EU-wide measures inspired by the OECD options.
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