Commentary on the 'OECD Secretariat Proposal for a 'Unified Approach' Under Pillar One, 9 October 2019-12 November 2019'

Abstract

The Pillar One proposals in the Unified Approach are the OECD’s most recent attempt to find international consensus on BEPS Action Item 1, “Taxing the Digital Economy.” Our assessment is that the proposals suffer from several defects, the most important of which is their apparent abandonment of the arm’s-length principle (ALP). The overarching goal behind the 15 BEPS Action Items issued in 2013 was to strengthen the international tax system by removing egregious tax loopholes and ensuring that profits were taxed where economic activities occurred and value was created. The Pillar One proposals, however, are not “BEPS 2”; they do not share the same agenda, do not build on international tax and transfer pricing principles, and will weaken not strengthen the current system. We believe that the current tax and transfer pricing rules, inclusive of BEPS 1 changes, can encompass the digital economy. We offer six policy recommendations designed to move the global economy onto the BEPS 2 path, a path appropriate for 21st century digital multinationals that will benefit both developed and developing countries.

Keywords: transfer pricing, digital economy, taxing the digital economy, OECD, arm's length principle, formulary apportionment, BEPS

JEL Classification: F23, H25, H26, K34, K420, K330, L11