Taxation of the digitalised economy remains a leading topic on the global tax agenda as policymakers seek to address the implications and opportunities presented by digitalisation. Political pressure is evident as governments around the world explore solutions to ensure that income generated from cross-border activities in the digital age is taxed appropriately.
France has taken the lead by introducing domestic digital taxation measures. Other countries have considered adopting similar measures, including Czech Republic, Italy, Spain and the United Kingdom. While countries have indicated that these measures will be repealed in the case of a multilateral consensus position at the Organisation for Economic Cooperation and Development (OECD) level, these measures have interim consequences, according to ICC. For example, the French domestic legislation has sparked a swift response from the United States (US). Based upon the perception that these measures unfairly target US companies, the US has ordered an enquiry into the digital taxation measures and threatened to impose retaliatory tariffs.
ICC advocates for a consistent global tax system, founded on the premise that stability, certainty and consistency are essential for business and will foster cross-border trade and investment. As digitalisation continues to be an important driver for global economic growth, policies related to taxation of the digitalised economy should seek to promote, and not hinder, economic growth and cross-border trade and investment.
“The digitalisation of the economy raises challenging issues,” said Christian Kaeser, Chair of the ICC Commission on Taxation and Global Head of Tax at Siemens. “ICC underlines the need for countries to collectively discuss and address the perceived tax challenges arising from digitalisation, through mutual consensus, and reiterates that any solutions should be long-term and have broad adoption by countries to allow for seamless application for business.”
“Unilateral disparate tax rules that introduce double or multiple standards could not only create compliance challenges for business, but essentially undermine the consistency of the international tax system and create the risk of double taxation,” he added. “Business fears the potential precedent, legal uncertainty and possible counter actions that could undermine global efforts to seek alignment at international level.”
ICC has welcomed the multilateral approach taken by the OECD, including the global engagement of 131 Inclusive Framework members, to build consensus and address the taxation of the digitalised economy. The OECD recently released its Programme of Work to Develop a Consensus Solution to the Tax Challenges Arising from the Digitalisation of the Economy, which was approved by the Inclusive Framework and later presented to the G20 Finance Ministers for endorsement.
The Programme focuses on two pillars. The first pillar examines the allocation of taxing rights and provides a coherent and concurrent review of the profit allocation and nexus rules. The second pillar focuses on the global anti-base erosion (GloBE) proposal, which seeks to address remaining Base Erosion and Profit Shifting (BEPS) issues by introducing a minimum tax for companies.
“It is essential for members of the Inclusive Framework to deliver a consensus-based solution to the G20 in 2020 to address the tax challenges of digitalisation,” said Raelene Martin, ICC Knowledge Solutions Manager. “In this respect, ICC commends the G20’s confirmation to redouble efforts to arrive at an agreement in developing a solution for the tax challenges of digitalisation.”
As many national governments and legislators are working on tax policies, ICC, representing 45 million companies in over 100 countries, echoes the view that tax reforms should be both practicable and effective in facilitating greater consistency globally. Further, any tax reform initiative must improve certainty for business.
ICC also calls for the avoidance of double taxation, which would discourage cross-border trade and investment, thus harming both countries and business. To eliminate double taxation disputes it is essential to put in place robust dispute prevention and resolution mechanisms.
ICC welcomes views expressed in the G7 Finance Ministers’ Statement released last Thursday which states: “New rules should be administrable and simple… in order to avoid double taxation and ensure the stability of the international tax system, robust and effective tax dispute resolution through mandatory arbitration must be a component of this global solution.” The statement also indicated support for “further progress in the context of the G20 and a global agreement on the outlines of the architecture by January 2020 at the level of the Inclusive Framework on BEPS.”
Read more about ICC’s work relating to taxation.