OECD Consultations on the Digital Economy: ‘Tax Base Reallocation’ and ‘I’ll Tax If You Don’t’?

Abstract

The OECD is holding public consultations on 13 and 14 March 2019 on the challenges facing countries’ corporate tax systems as a result of the ever-increasing digitalisation of the economy. As part of these consultations, a document listing the problems at stake and suggestions for possible solutions was published on the OECD website ‘without prejudice’. What is being consulted on is not merely a policy document aimed at generating ideas on special arrangements for taxing ‘tech giants’. Instead, the proposed reforms encroach on the essence of corporate tax systems as they currently stand and the scope available to countries to pursue their tax policies in this field.Tax jurisdiction establishment rules and transfer pricing rules would be significantly changed and countries would no longer be in a position to base their own international tax policies for taxpayers’ direct investments abroad on the universally accepted policy principle of import neutrality. This paper aims to help formulate views and to draw attention to the fact that the possible solutions outlined in the consultation document may potentially have a far wider impact than the framework in which they are being presented suggests.

Keywords: Corporate Taxation, Base Erosion Profit Shifting, Digital Economy, Global Anti Base Erosion

JEL Classification: K34, H20, H25, H26