Last Friday, it was made public the Interim Report (IR) on the digital economy taxation mandated in March 2017 by G20 Finance Ministers, which has now been agreed by more than 110 members of the Inclusive Framework.
The IR provides once again an in-depth and thorough 218 pages analysis of the main features observed in certain highly digitalised business models and identifies three characteristics: scale without mass, heavy reliance on intangible assets, and the role of data and user participation, including network effects.
It explains however that countries have still different views on whether, and to what extent, these features represent a contribution to value creation by the enterprise.
3 types of countries positions about a long-term solution:
• No wide range action is needed.
• Imperative need for fast action to take into account user contributions.
• Any changes should apply to the economy more broadly.
Acknowledging these divergences, the key 2 points of the report are:
o That members agreed to undertake a coherent and concurrent review of the “nexus” and “profit allocation” rules and seek a consensus-based solution by 2020, as a formula to cover the long-term.
o A framework of design for short-term digital tax measures. There is also no consensus on the need for interim measures, with a number of countries opposing to such measures and others demanding specific ones, nor a recommendation towards, but the IR describes the framework of design considerations identified by countries in favor of introducing them in the form of an excise tax on the supply of certain e-services within their jurisdiction that would apply to the gross consideration paid for its supply.
On the value creation fundamental discussion, the papers brings 3 types of value creation processes from the non-tax literature to inform the analysis:
The Value Chain / The Value Network / The value shop.
The IR highlight progress made in the implementation of the BEPS package, which is curtailing opportunities for double non-taxation, making some multinationals changing their arrangements and strategies to better align with their business operations, but recognizing that some of the BEPS required treaties changes are not happening at a fast speed.
The OECD suggested indirect tax measures are already delivering increased revenues for governments, (over 3 billion euros EU alone as a result of the new International VAT/GST Guidelines).
Last, the IR identifies new areas of work that will be undertaken without delay:
o International cooperation among tax administrations to share the information on the users of online platforms as part of the gig and sharing economies and review the changing nature of work from tax angle.
o Tax consequences of crypto-currencies and blockchain DLT.
An update on ALL this work will be provided in 2019, towards a consensus-based solution by 2020.
In essence, despite the herculean work to coordinate more than 110 different country positions, a high level joint roadmap is defined but still deep difficult work is ahead for a consensus based solution path.
Considering the overall situation summarized at the November 17 UCLA public hearing closing, the international political scene pressure and the EU current determination, there is no doubt OECD will continue setting re-doubled maximum focus, printing an even faster speed to reach the 2020 required common decisions.
2019 will be a critical temperature-take year, as many of the related unilateral passed measures departing most from general Treaties framework come into force in different parts of the world, while the OECD updates on progress made on the above.