OECD Inclusive Framework Makes Important Progress on Digital Taxation

Legal Area: Tax and Revenue Law
Industry: Technology

On 23-24 January, the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) met, bringing together 264 delegates from 95 member jurisdictions and 12 observer organisations. The jurisdictions agreed to step up efforts toward reaching a global solution on how to best tax multinational enterprises in a rapidly digitalising economy.

It was further agreed at the meeting that future discussions to reach a solution will be based around two pillars, identified in a new Policy Note released after the Inclusive Framework’s meeting. The first pillar will focus on how the existing rules that divide the right to tax the income of multinational enterprises among jurisdictions could be modified to take into account the changes that digitalisation has brought to the world economy. The second pillar aims to resolve remaining BEPS issues and will explore two sets of interlocking rules designed to give jurisdictions a remedy in cases where income is subject to no or only very low taxation.

Given the significance of the new proposals for the international tax system, the Inclusive Framework will issue a consultation document that describes the two pillars in more detail, and a public consultation will be held on 13 and 14 March 2019 in Paris as part of the meeting of the Task Force on the Digital Economy.

US Treasury Deputy Assistant Secretary for International Tax Affairs, Lafayette G. “Chip” Harter III, said of the developments “I was encouraged by the pragmatism that I was seeing around the room…There simply is no mechanism that offers the capabilities of the OECD to try to broker a new multilateral agreement on allocating taxing jurisdiction. I think there is some hope that we can push this through successfully.”

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