The proposal stretches far beyond just impacting tech companies, and focuses more broadly on multinational consumer-facing businesses, seeking to grant new taxing rights to jurisdictions in which consumers are located. With this comes the potential for these proposals to represent a significant shift in the taxation of multinational companies, including where they are subject to tax.
The CBI’s submission set out the following key points:
- The CBI supports the need for reform to the international tax system, in particular to address the political momentum for governments to adopt unilateral measures in response to the impacts of digitalisation. Any reform to the international tax system should come with a commitment by countries to repeal (and not introduce new) unilateral tax measures which seek to increase their tax base (such as Digital Services Taxes and Diverted Profits Taxes) and lead to increased risks of double taxation.
- Given the multilateral nature of the proposal, it brings with it further opportunities for disputes to arise, it is critical that incorporated within this proposal is a requirement for all jurisdictions to sign up to enhanced dispute prevention and resolution mechanisms. These should include mandatory binding arbitration, alongside a move towards the centralisation of dispute resolution processes (for example through a One Stop Shop) to speed up the resolution of disputes which are expected to span multiple countries.
- The need for centralised administration to ensure that there is multilateral agreement on the amount of profit to be reallocated and not just on where that profit is reallocated to but also where it is reallocated from and that these are agreed at the same time – otherwise double taxation will likely arise.
- How a One Stop Shop (which enables the proposals to be administered by one tax authority) alongside the proposal can address a number of issues stemming from the creation of a new taxable presence (nexus) in market jurisdictions - which has the potential to be accompanied by a significant additional compliance burden for business if it requires additional local tax filings, payment of tax etc in new jurisdictions.