International solution to update taxation rules fit for the 21st century sought by the OECD

Wed, 03/20/2019 - 15:36
The OECD requested comments for their Consultation Document “Addressing the Tax Challenges of the Digitalisation of the Economy” by 6 March 2019. A public hearing was held on the 13-14 March.

Technology Industries of Finland acknowledges that an international solution is needed. The now proposed models are divided into two pillars. 1st pillar can be capsulized to a question “Where do you pay taxes?” and pillar 2 to “Do you pay enough taxes somewhere?”

Pillar 1 proposals (nexus rules and profit allocation):

  • The digital economy should not and cannot be ring-fenced. The whole economy is being digitalised. All companies should be taxed according to similar set of rules designed along commonly agreed principles. Therefore, Technology Industries of Finland does not support the user participation proposal or the significant economic presence proposal.
  • The marketing intangible proposal is problematic for similar reasons as the user participation proposal. Public Consultation Document lacks thorough reasoning on how allocating more taxation rights to user or market jurisdictions updates the taxation system to address the tax challenges of the digitalisation of the economy. Technology Industries of Finland does not support the marketing intangible proposal.

Pillar 2 proposals (continuing work on base erosion and profit shifting (BEPS) questions):

  • Minimum tax proposals would in principle target the whole economy, being more sustainable and less discriminating. Also fighting against harmful tax practises is a valuable aim. The income inclusion rule seems to have advantages and is a potential model to be further discussed. Technology Industries of Finland supports the discussions to take the current CFC rules as a starting point to draft common CFC rules globally. However, before proceeding with the minimum tax proposal, an impact analysis should be made on the necessity of further BEPS measures. 

Alternatives to be considered:

  • Technology Industries of Finland supports digitalisation and automation as well as harmonisation of taxation procedures, and real time economy. Some long-term harmonisation to the calculation of tax bases might be supportable. Limiting the variation of different tax systems could reduce the administrative burden of companies and enhance digitalisation and automation of taxation procedures. 

Taxation should support, not hinder digitalisation.

Comments on the OECD’s Consultation Document “Addressing the Tax Challenges of the Digitalisation of the Economy