As the OECD is studying the Pillar One blueprint, and the UN is contemplating its own Digital Services Tax (DST) proposal, attached is a useful reference for unilateral DST initiatives.
France has also determined that it will collect its DST payments in December this year, notwithstanding trade/tariffimplications.
The DST regimes will, inexplicably, involve more complexity, differing tax systems globally and the possibility for more disputes to arise, although such disputes may hopefully have efficient arbitration remedies.
Sweden may have, as of 1/1/2021 new economic employer rules vs. the current rules of legal employer. If the legislation is passed as proposed, there will be an increased governance role, and complexity, for employees visiting Sweden for which the local business may derive benefits therefrom.
The OECD Corporate Tax Statistics, Second Edition, published this year reveals interesting trends, including the results of the anonymized and aggregated Country-by-Country (CbC) data which includes statistics from 26 countries for the 2016 tax year.
Tax administrations are moving toward more data analysis as an audit tool, and multinationals should be aware of this data which is used as a risk assessment tool, among others.
The OECD International Compliance Assurance Programme (ICAP) is a voluntary programme for a multilateral co-operative risk assessment and assurance process.
ICAP uses Country-by-Country (CbC) data as part of its risk assessment analysis and includes potential benefits for participating taxpayers re: certainty and avoiding double taxation, among other benefits.
ICAP is still fairly new in practice, although the process should be understood as a tool in pro-active compliance.
The IRS and Treasury have released Final Regulations (T.D. 9910) on base erosion and anti-abuse tax (BEAT), with a controversial provision of not allowing the ability to decrease previously waived deductions on an amended return or during an exam.
The Regulations, however, do provide the benefit to waive deductions to avoid BEAT.
IRS issued new regulations for translation in Sec. 986(c)
The IRS also issued new LB&I guidance addressing computation of Sec. 986(c) computations, attached for reference.
US T.D. 9909, Final Regulations, in coordination with the issuance of proposed regulations, REG-124737-19, addressing Sec. 245A and the exception to subpart F income under Sec. 954(c)(6). The final regulations address extraordinary dispositions and reductions.
The UK will drop its Digital Service Tax (DST) initiative, knowing it would only increase its stimulus by several hundred million dollars , while COVID-19 has set the country back hundreds of billions of dollars in stimulus. It will be interesting how other countries, who have adopted or are thinking about a unilateral DST, will react prior to the OECD Project addressing this in Pillar One.
The UN tax committee members have issued a proposal re: taxation of digital service income. The proposal will be discussed in meetings later this year, making their way to become a part of the UN Model Tax Convention.
This will be an interesting dynamic, as the OECD is working diligently to finish their digital tax project this year. It is hopeful that both proposals will have a similar framework, avoiding a natural clash in methodology prone to dispute.
In summary, the UN and OECD digital tax proposals should be monitored to watch the progress, and changes prior to finalization envisioned by the end of this year.
The OECD provided this guidance in April, 2020, although the PE issue remains in many countries due to the COVID-19 crisis. The guidance revisits OECD PE guidelines and commentary, and also represents opportunities to revisit potential PE issues for employees working from home as companies adopt regional and global work from home policies.
The document highlights the fact that temporary COVID-19 interruptions should not change a permanent establishment (PE) determination, although tax administrations should publish more guidance on their domestic PE laws and determinations.
Home offices, agency PE and construction site PE situations are addressed. Summaries are also provided for place of effective management (POEM)/dual residence, income tax considerations for cross-border workers, and treaty residence issues.
The guidance is a valuable read, especially as countries are now starting to address these issues with more focus. The diminished fiscal growth may also change the direction of penalty abatement, especially in areas that may subject to interpretation.