4 tax policy issues in the age of digitalisation

  • 5 July 2019

The International Chamber of Commerce (ICC), Business at OECD (BIAC), and BusinessEurope, co-hosted an international tax conference to discuss the proposed approaches for addressing the challenges posed by digitalisation.

Under the theme “Towards a New World Tax Order?”, the International Tax Conference (ITC Munich 2019) gathered business leaders and policymakers from around the world to discuss tax policy issues arising from the international discussion around the challenges of digitalisation. The proposals outlined in the OECD Programme of Work to “Develop a Consensus Solution to the Tax Challenges Arising from the Digitalisation of the Economy”, presented to G20 Finance Ministers last month, formed the basis of discussions at the conference, namely:  reallocation of taxing rights, significant economic presence, minimum taxation and dispute resolution.

In his opening remarks, Russell Mills, Secretary General, BIAC, emphasised the importance of collaboration and cooperation in the formulation of inclusive international tax regimes. “Co-operation is imperative at the international level to develop a consensus based solution by 2020 to address the tax challenges of digitalisation,” he said.
Here are four areas that were addressed during the conference:

  1. Reallocation of taxing rightsICC International Tax Conference 2019 One

Following Mr Mills’ opening statement, the first session of the day considered the reallocation of taxing rights among countries. As part of the session, Krister Andersson, Chairman for Tax Policy, BusinessEurope interviewed Valere Moutarlier, Tax Director, European Commission on the Pillar One proposals which would modify international rules on profit allocation and nexus based on the concept of user contribution or marketing intangibles. Mr Andersson reiterated the importance of a principles-based approach in reforming the international tax rules to address these issues. Mr Moutarlier responded saying: “The EU should implement the tax reform in such a way that it creates tax certainty for businesses and increase the EU’s attractiveness for investment”.

In the face of growing populist movements across Europe, Mr Moutarlier views the EU Single Market as a source of tax certainty for business and citizens alike. “[This] initiative has a lot to deliver in terms of responding to the populistic manifestation in the Single Market which means securing growth and jobs on the one hand but also selling tax fairness,” he said. “This is an outcome of global governance … that would bridge the reputational gap between the business community and wider citizens.” 

  1. Significant economic presence and transfer pricing
ICC International Tax Conference 2019 Two

After a morning coffee break, the conference continued with a session on “Significant Economic Presence and Transfer Pricing,” which examined tax policies for enterprises that maintain a taxable presence in a country through sustained economic participation via technology and other automated means. Duringt the session, Christian Kaeser, Chair of the ICC Commission on Taxation and Global Head of Tax at Siemens, interviewed Michael Lennard, Chief, International Tax Cooperation, Financing for Development Office at the United Nations. On the emerging topic of significant economic presence, both Mr Kaeser and Mr Lennard reaffirmed the importance of establishing consistent and clear rules for business leaders and policymakers.

Mr Kaeser said: “Consistency of rules and implementation are essential for providing certainty as a driver for investment. A good starting point would be to draw elements from what is available in existing reporting systems into a formula that is easy to understand.”

  1. Minimum Taxation
ICC International Tax Conference 2019 Three

In the afternoon sessions, panellists examined other tax issues in the age of digitalisation, including minimum taxation, dispute avoidance and dispute resolution. On the proposals for a minimum tax, Martin Kreienbaum, Director General of International Taxation, German Ministry of Finance and Chair of the Committee on Fiscal Affairs (CFA), OECD, explained: “The minimum tax proposal is intended to be an instrument to react to low tax situations and avoid a race to the bottom in terms of tax rates.” The panel also considered how the introduction of minimum tax rules would materially increase the global effective tax rates of enterprises as well as implications related to investment decisions and economic trade-offs.

  1. Dispute Resolution
ICC International Tax Conference 2019 Five

As part of the final session of the day, delegates exchanged ideas and strategies on how to improve dispute prevention and dispute resolution mechanisms. Will Morris, Chair of BIAC’s Tax Commission, interviewed Pascal Saint-Amans, OECD Director for Centre of Tax Policy, on the importance of embedding measures against double taxation and ensuring that robust dispute prevention and dispute resolution procedures are in place when addressing tax issues related to digitalisation. While discussing dispute resolution instruments, Mr Saint-Amans said: “If there is a deal in the coming months to address the tax challenges of digitalisation, the deal will include the dimension to securing tax certainty, which is about effective dispute resolution.”

Read the entire ICC taxation policy for the digitalised economy.