The second pillar identified in the Programme of Work will explore the design of a system to ensure that multinational enterprises – in the digital economy and beyond – pay a minimum level of tax. Jurisdictions are now increasingly turning their attention to the collection of VAT on imports of low-value goods, which has the potential to yield significant revenues for jurisdictions and importantly also address competitive distortions. This article was first published in EY´s Tax Policy and controversy briefing 17, Dr. Klaus von Brocke +49 89 14331 12287 klaus.von.brocke@de.ey.com, 3D printing may be subject to customs tax, Why the legal function must be reimagined for the digital age, OECD's digital tax proposals may signal new era of global reform. Implementation of the BEPS Action 1 VAT recommendations has been very encouraging. Subscribe to the Tax Insights newsletter for the latest thinking in tax. The second dimension addresses VAT measures. This has sparked global debates in many legal and regulatory realms and international tax is no different. (3) A correlative update to the OECD’s Transfer Pricing Guidelines. Those countries may adopt a different version of Article 5(4) as long as they include the new anti-fragmentation rule. (2) Modifying the definition of a PE to address artificial arrangements through certain “conclusion of contracts” arrangements. As with all complex concepts, a final point on implementation addresses what could be described as “outliers” — those countries adopting additional measures, such as novel withholding taxes or concepts of digital permanent establishment. The document, Addressing the Tax Challenges of the Digital Economy (the Digital Economy Report or Final Report), largely follows the initial Action 1 deliverable on the digital economy released by the OECD on 16 September 2014 (the 2014 Deliverable). The tax implications are wide-ranging affecting both direct and indirect taxation, broader tax policy issues, and tax administration. 0000042036 00000 n 0000002891 00000 n The Final Report provides the OECD’s conclusions regarding the digital economy and recommended next steps to address the tax challenges presented by its evolution. Key milestones accomplished so far in this work include: Concrete proposals for the two challenges facing the international income tax can be found in the Programme of Work (PoW): Pillar One – the Re-allocation of taxing rights, Pillar Two – Global anti-base erosion mechanism. The Final Report illustrates how planning strategies in a direct tax setting take advantage of those key features and how the digital economy places pressure on VAT systems. 0000016755 00000 n [6] See EY Global Tax Alert, EU Council adopts directive on exchange of information on tax rulings, agrees on other corporate tax issues, dated 10 December 2015. The Final Report states that attention should be devoted to the implications of this increased integration and the need for greater reliance on value chain analyses and transactional profit split methods. With all this uncertainty, one thing is clear: as enterprises move toward a digital supply chain, tax directors need to be cognizant of new legislation targeting perceived abuses of common tax operating models. 0000013140 00000 n Some countries, however, believe there is no need to modify Article 5(4) and that the list of exceptions in subparagraphs a) to d) of Article 5(4) should not be subject to the condition that the activities referred to in those subparagraphs be of a preparatory or auxiliary character. Background Chapter 3. In light of the interaction among all the focus areas in the BEPS Action Plan, the OECD’s work on the taxation issues within the digital economy will continue into 2015 and beyond. 0000024506 00000 n In the context of indirect taxation, the Final Report identifies as the main policy concerns the ability of private consumers to acquire goods, services and intangibles from remote suppliers, and the use of exemptions for imports of low value goods. The changes to the definition of PE in the OECD Model are included in the document Preventing the Artificial Avoidance of Permanent Establishment Status, Action 7: 2015 Final Report. The Digital Economy Report notes that the conclusions may evolve as the digital economy continues to develop, which means it will be important for countries to monitor developments in the digital economy and to review and analyze data that will become available over time. All members of the IF have dedicated significant resources and attached substantial political imperative to finding a timely resolution of the issues at stake. It notes that while all of the BEPS recommendations will tackle the challenges raised by the digital economy by restoring taxation on “stateless” income, the deliverables regarding CFC rules (Action 3); artificial avoidance of PE (Action 7); and transfer pricing (Actions 8 through 10) will be particularly relevant. xref Ireland also supports the BEPS initiative, but from a different angle. 0 0000008245 00000 n