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More than 110 countries and jurisdictions have agreed to review two key concepts of the international tax system, responding to a mandate from the G20 Finance Ministers to work on the implications of digitalisation for taxation.
The members of the OECD/G20 Inclusive Framework on Base erosion and profit shifting (BEPS) will work towards a consensus-based solution by 2020, as set out in their Interim Report on the Tax Challenges Arising from Digitalisation released last Friday.
The report is a follow-up to the work delivered in 2015 under Action 1 of the BEPS Project on addressing the tax challenges of the digital economy. It describes how digitalisation is also affecting other areas of the tax system, providing tax authorities with new tools that are translating into improvements in taxpayer services, improving the efficiency of tax collection and detecting tax evasion.
The Interim Report was presented by Organisation for Economic Co-operation and Development (OECD) Secretary-General Angel Gurría to the G20 Finance Ministers at their meeting which held on Monday March 19, 2018 and Tuesday March 20 in Buenos Aires, Argentina.
Inclusive Framework members recognise that they share a common interest in maintaining a single, relevant set of international tax rules. As part of the next phase of their work, they have agreed to undertake a coherent and concurrent review of the “nexus” and “profit allocation” rules – fundamental concepts relating to the allocation of taxing rights between jurisdictions and the determination of the relevant share of the multinational enterprise’s profits that will be subject to taxation in a given jurisdiction.
In exploring potential changes, members would consider the impacts of digitalisation on the economy, relating to the principles of aligning profits with underlying economic activities and value creation.
“The international community has taken an important step today towards resolving the tax challenges posed by the digitalisation of the economy,” said Gurría.
“We have underlined the complexity of the issues, and highlighted the importance of reaching international agreement, both for our economies and the future of the rules-based system. The OECD stands ready to accompany countries as they seek to build a common understanding of the issues related to the digital economy and taxation, as well as the long-term solutions,” he said.
Under the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project, a number of important new standards were delivered aimed at tackling double non-taxation. Country-level implementation of the wide-ranging BEPS package is already having an impact, with evidence emerging that some multinationals have already changed their tax arrangements to better align with their business operations.
Iheanyi Nwachukwu
