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.
Click to access TAX%20TREATY%20PROVISION%20ON%20PAYMENTS%20FOR%20DIGITAL%20SERVICES.pdf
The recently concluded G20 Leaders’ Summit continues to endorse the OECD’s digital project, which includes future debates on nexus allocations, profit allocations and minimum tax.
EY’s Global Tax Alert highlights these developments, as well as remind international tax colleagues to continually monitor these important developments.
Click to access 2019G_003186-19Gbl_G20%20Leaders%20endorse%20OECD%20plan%20re%20new%20intl%20tax%20rules.pdf
On 31 May 2019, the Organisation for Economic Co-operation and Development (OECD) released its document Programme of Work to Develop a Consensus Solution to the Tax Challenges Arising from the Digitalisation of the Economy (the Workplan).
The Workplan describes the planned approach for addressing the tax challenges of the digitalization of the economy that has been agreed upon by the 129 jurisdictions participating in the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS). The Workplan was approved at the 28-29 May plenary meeting of the BEPS Inclusive Framework, which brought together 289 delegates from 99 member countries and jurisdictions and 10 observer organizations.
A final report is envisioned for 2020, including:
Pillar One focuses on the allocation of taxing rights, and seeks to undertake a coherent and concurrent review of the profit allocation and nexus rules;
Pillar Two focuses on the remaining BEPS issues and seeks to develop rules that would provide jurisdictions with a right to “tax back” where other jurisdictions have not exercised their primary taxing rights or the payment is otherwise subject to low levels of effective taxation.
Under Pillar One, the first option (i) Modified Residual Profit-Split method would allocate to market jurisdictions a portion of an MNE group’s non-routine profit that reflects the value created in markets that is not recognised under the existing profit allocation rules, or (ii) the fractional apportionment method involves the determination of the amount of profits subject to the new taxing rights without making any distinction between routine and non-routine profit, or (iii) distribution-based approached that would provide a baseline profit attributable to marketing, distribution, and user-related activities. The concept of losses is also to be recognized in the relevant model.
As stated in the workplace, the real risk is that “A further issue is the recognition that if the Inclusive Framework does not deliver a comprehensive consensus-based solution within the agreed G20 time frame, there is a risk that more jurisdictions will adopt uncoordinated unilateral tax measures.”
Additionally, the current workplace is focused on digital tax, although some concepts may creep into discussions of income tax.
A reference to the Workplan is provided for reference.
Click to access programme-of-work-to-develop-a-consensus-solution-to-the-tax-challenges-arising-from-the-digitalisation-of-the-economy.pdf