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Andrew Cousins, Director in the Transfer Pricing practice at Duff & Phelps, spoke with fDi Intelligence on the OECD's push to overhaul fiscal principles to account for the increasing digitalization of the economy. In recent months, submitted proposals from various countries address not only the digitalization of the economy, but also incumbent BEPS issues. The OECD expects to issue a refined set of proposals in late 2019, which may provide clarity on these issues.
“The EU has been unable to agree on a unified approach to a digital services tax”, says Cousins. “The original proposal for a 3% tax on digital services revenues was watered down to a proposal by Germany and France to tax just digital advertising revenues, but even this failed to be carried.”
“As the global economy becomes increasingly digitized, more and more companies are likely to fall into the net of digital taxes. If anything, this will make the new rules that much harder to swallow. Already, just by their general nature, the revenue taxes are bound to be unpopular with multinational companies as the level of the tax paid is not tied to the company’s profitability. A group can be loss-making and still be liable for taxes on revenues. In addition, revenue taxes are not covered by double-tax treaties, in contrast to a corporation tax”, he continues.
“More than likely, companies will change their behavior as they adapt to the new tax regime – a change that will also affect site selection decisions. The global minimum tax rate proposal, for instance, has the potential to change behavior as there will be less incentive to put profit or operations into low-tax jurisdictions, and all of the proposals mark a move away from the arm’s length principle, which is a standard that companies and tax administrations have used for a long time”, he adds.
The full article is available on the fDi Intelligence website.