On March 16, 2018, a few hours prior to the Tax Talks webcast, the OECD released an Interim Report on the Tax Challenges Arising from Digitalisation.
The report first provides an in-depth analysis of value creation across different digitalised business models, focusing on the main characteristics of digital markets and processes of value creation. The analysis is complemented by case studies with the aim of identifying the key factors that are prevalent in more highly digitalised businesses (Chapter 2 of the report). It then describes the current progress in the implementation of the BEPS package, with a focus on specific measures relevant to digitalisation and the resulting impact on the behaviour of highly digitalised businesses (Chapter 3 of the report). It also provides an overview of recent tax policy developments that are potentially relevant to digitalisation, with a focus on measures enacted by countries that seek to address aspects of the broader tax challenges identified in the 2015 Action 1 Report (Chapter 4 of the report).
The Report then offers a description of the challenges identified with respect to the continuing effectiveness of international tax standards in light of the issues raised by the digitalisation of the economy, drawing from the analysis set out in Chapter 2. It provides a sense of direction that reflects the commitment of the Inclusive Framework members to work towards a consensus-based, global solution on these matters (Chapter 5 of the report). The Report goes on to recognise that there is no consensus on the merits of, or need for, interim measures, and that a number of countries consider that an interim measure will give rise to risks and adverse consequences irrespective of any limits on the design of such a measure. Those countries that are in favour of the introduction of interim measures consider that there is a strong imperative to act pending a consensus on a global solution, and have identified a number of considerations which could limit the potential for divergence and mitigate the possible adverse effects of such measures (Chapter 6 of the report).
Finally, it looks beyond the impact of digitalisation on the international tax rules to consider how digitalisation is changing other parts of the tax system in important and sometimes dramatic ways, providing both new opportunities and new risks for policymakers and tax administrations (Chapter 7 of the report). Directions for the future work of the Inclusive Framework to address the tax challenges raised by digitalisation are set out in the final chapter of the report (Chapter 8 of the report).
This Interim Report outlines a number of areas where there are clear differences of view held by countries, including over the need for future reform of the international tax system. These differences are presented in order to identify the points of divergence and lay the groundwork for future work on the development of a consensus-based solution that bridges these different positions as part of the Inclusive Framework’s delivery of its 2020 Final Report.
Click here to be forwarded to the 2018 Interim Report on the Tax Challenges Arising from Digitalisation as released by the OECD on March 16, 2018.
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