Today the OECD Secretariat published a proposal to advance international negotiations to ensure large and highly profitable Multinational Enterprises, including digital companies, pay tax wherever they have significant consumer-facing activities and generate their profits. The new OECD proposal brings together common elements of three competing proposals from member countries, and is based on the work of the OECD/G20 Inclusive Framework on BEPS, which groups 134 countries and jurisdictions on an equal footing, for multilateral negotiation of international tax rules, making them fit for purpose for the global economy of the 21st Century.
The proposal, which is now open to a public consultation process, would re-allocate some profits and corresponding taxing rights to countries and jurisdictions where MNEs have their markets. It would ensure that MNEs conducting significant business in places where they do not have a physical presence, be taxed in such jurisdictions, through the creation of new rules stating (1) where tax should be paid (“nexus” rules) and (2) on what portion of profits they should be taxed (“profit allocation” rules).
“We’re making real progress to address the tax challenges arising from digitalisation of the economy, and to continue advancing toward a consensus-based solution to overhaul the rules-based international tax system by 2020,” said OECD Secretary-General Angel Gurría. “This plan brings together common elements of existing competing proposals, involving over 130 countries, with input from governments, business, civil society, academia and the general public. It brings us closer to our ultimate goal: ensuring all MNEs pay their fair share.”
”Failure to reach agreement by 2020 would greatly increase the risk that countries will act unilaterally, with negative consequences on an already fragile global economy. We must not allow that to happen,” Mr Gurría said.
The Inclusive Framework’s tax work on the digitalisation of the economy is part of wider efforts to restore stability and certainty in the international tax system, address possible overlaps with existing rules and mitigate the risks of double taxation. Beyond the specific elements on reallocating taxing rights, a second pillar of the work aims to resolve remaining BEPS issues, ensuring a minimum corporate income tax on MNE profits. This will be discussed in a public consultation foreseen to take place in December 2019.
The ongoing work will be presented in a new OECD Secretary-General Tax Report during the next meeting of G20 Finance Ministers and Central Bank Governors in Washington DC, on 17-18 October.
For more information on the OECD/G20 BEPS Project, see: www.oecd.org/tax/beps/.
Media queries should be directed to Pascal Saint-Amans, Director of the OECD Centre for Tax Policy and Administration (+33 1 45 24 91 08) or Lawrence Speer in the OECD Media Office (+33 1 4524 7970). Working with over 100 countries, the OECD is a global policy forum that promotes policies to improve the economic and social well-being of people around the world.
1 The tax challenges of the digitalisation of the economy were identified as one of
the main areas of focus of the Base Erosion and Profit Shifting (BEPS) Action Plan, leading
to the 2015 BEPS Action 1 Report.1 Policy discussion on those challenges remains an
important part of the international agenda.
2. Following a mandate by G20 Finance Ministers in March 2017, the Inclusive
Framework, working through its Task Force on the Digital Economy (TFDE) delivered an
Interim Report in March 2018: Tax Challenges Arising from Digitalisation – Interim
Report 2018 (the Interim Report).2
3. Conscious of the ambitious G20 time frame and the significance of the issue, the
TFDE further intensified its work following the delivery of the Interim Report. Drawing
on the analysis included in the Action 1 Report as well as the Interim Report, and informed
by the discussions at the July 2018 and December 2018 meetings of the TFDE on a “without prejudice” basis, a number of proposals were made by delegates to the TFDE. Theseproposals, together with the recent discussions and comments from members of the
OECD/G20 Inclusive Framework, lay the grounds for the Inclusive Framework to agree on
the way forward to achieving a consensus-based solution in 2020.
4. In January 2019, the Inclusive Framework issued a short Policy Note, which
grouped the proposals under consideration into two pillars.3 Pillar One, with which this
document is concerned, focuses on the allocation of taxing rights and seeks to undertake a
coherent and concurrent review of the profit allocation and nexus rules. Pillar One
comprises the “user participation”, “marketing intangibles”, and “significant economic
presence” proposals. The Policy Note stated that these proposals would entail solutions that go beyond the arm’s length principle. Pillar Two is concerned with the remaining BEPS issues.