Tax & Accounting Blog

BEPs and borders: How to tax the digital economy?

Blog, Business Tax, Corporations, International Reporting & Compliance, ONESOURCE, Organisations, Tax, Technology September 1, 2017

BEPS implementation is now well underway. The cbC December deadline looms and the ATO steps up its scrutiny of the corporate world. It would seem that global tax reform is unstoppable.

Yet one of the international community’s biggest taxation concerns –  the digital economy – remains unresolved.

At the IFA Congress in Rio de Janeiro this week, OECD’s Pascal Saint-Amans and IFA President Porus Kaka both expressed disappointment that no consensus has been reached on BEPS Action 1, which was designed to close the taxation gap on this issue.

Existing international tax rules are inadequate when it comes to addressing the lack of tangible borders, which characterises the digital economy.  Currently, a company with no, or very little physical presence in the economy of another country, but with a significant digital presence, is not liable for taxation.

So why can’t the international community agree? Porus Kaka in his interview with Reuters editor at large, Axel Threlfall, revealed the problem is with our definitions. The digital economy business model has changed but the tax laws haven’t evolved to reflect this.

In the vacuum of a global agreement, countries, including Australia are developing their own methods to shore up their tax bases. Prompted by the surge in the growth of the online economy, our Government has re-evaluated the integrity of its tax revenue stream, specifically GST and introduced the Tax and Superannuation Laws Amendment (2016 Measures No. 1) Act 2016. The UK too has implemented a Diverted Profits Tax (DPT) and India introduced a new equalisation levy.

Given the nature of the digital economy and what constitutes a “presence” of a company in a country, it was always going to challenging for the international community to arrive at a wholesale agreement. But Saint-Amans, whilst acknowledging the difficulty, remains optimistic, stating that the OECD report on the digital economy, due in Spring 2018, will help propel a resolution on this major issue.

For full coverage of the IFA Congress, read Thomson Reuters, Senior Tax Writer, Terry Hayes’ article here and see our latest edition of Weekly Tax Bulletin for an in-depth analysis of the BEPS Action 1.

Looking for global tax solutions? Discover ONESOURCE, BEPS action manager.