The OECD’s consultation on addressing the tax challenges of the digitalisation of the economy saw a shift in the international debate - from how to tax digital companies, to how to deal with the tax challenges that arise from the digitalisation of the economy.
The proposals presented new and complex concepts with the potential to fundamentally reform the international tax landscape and how multinationals are taxed globally.
The timeline for comment was short (with little over two weeks to input) and the CBI stressed that in order to ensure that any long-term reform to the international tax system is effective and sustainable, the proposals should be developed in partnership between members of the Inclusive Framework, business and other relevant stakeholders. To achieve this, it is necessary to provide all businesses with the opportunities and time in which to evaluate the proposals and provide full comments, especially those not traditionally viewed as “digital” businesses, for which these proposals saw a step-change in the debate.
The CBI held two member workshops across two weeks to build evidence on the impact of each of the proposals being considered.
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. These uncoordinated unilateral measures create economic distortions, reduce investment and growth and significantly increase the risk of double taxation and uncertainty for business
- It is of fundamental importance for all our members in the design of any change to the international business tax framework that it must equate to a tax on profits, not revenues, and must only subject those profits to tax once. For every £1 of profit that is allocated to a market country, there must be an equal and opposite adjustment by another country to relinquish taxing rights over the same profits. It also follows that all business expenses are deductible in arriving at the calculation of profit. This is critical to ensuring there is not double (or multiple layer) taxation
- Effective dispute prevention and resolution mechanisms will be vital in reducing the risks of double (or multiple layer) taxation. The current mechanisms are unlikely to be sufficient for these proposals and incorporation of enhanced mechanisms are needed to ensure the sustainability of these new proposals
- To ensure simplification of the international tax framework rather than adding another layer of complexity, there are a number of areas which need consideration in the development of the proposals, including transitional issues, the treatment of losses and the interaction with other taxes.
As part of the CBI’s campaign to secure an international tax framework that is truly fit for our future, we will continue to ensure our members’ views and experiences play a part in forming this new framework and preventing uncoordinated measures that only add to complexity.