One of the most challenging areas of regulating the new digital economy is in the area of tax.
Digital economy firms are some of the most adept at paying virtually nothing in tax to anybody.
Surprisingly this didn't get a mention in the 'innovation policy' statement that was commented on earlier in this blog.
OECD criticises tech firms over tax
Technology companies need to stop "extremely aggressive" tax planning, the man charged with reforming global tax rules has told the BBC.
He says these "push the boundaries of what is legal".
Pascal Saint-Amans, who runs the OECD's Centre for Tax Policy, said that new standards would require companies to pay more tax in the countries where they sold goods or created revenues.
He also said companies should not use tax havens to shelter their profits.
Mr Saint-Amans' intervention comes after years of complicated negotiations and endless summits on reforming the toxic issue of where large multi-national companies pay their taxes.
He revealed that there should be international agreement on new tax laws ready for the G20 summit of global leaders in November. The implementation phase should then mean the rules are in place "well before" 2020. And, according to Mr Saint-Amans, that should mean technology companies such as Facebook, Apple and Google paying more tax to the UK Treasury. They will also be required to pay more tax in a number of other countries and publish, country-by-country, how much they pay.
The OECD is doing great work at coordinating new tax rules, but I don't envy their task.
of the Digital Economy there are lots of interesting comments.
[base erosion and profit shifting (BEPS)]
Because the digital economy is increasingly becoming the economy itself, it would be difficult, if not impossible, to ring-fence the digital economy from the rest of the economy for tax purposes. Attempting to isolate the digital economy as a separate sector would inevitably require arbitrary lines to be drawn between what is digital and what is not. As a result, the tax challenges and BEPS concerns raised by the digital economy are better identified and addressed by analysing existing structures adopted by multinational enterprises (MNEs) together with new business models and by focusing on the key features of the digital economy and determining which of those features raise or exacerbate tax challenges or BEPS concerns. Although many digital economy business models have parallels in traditional business, modern advances in ICT have made it possible to conduct many types of business at substantially greater scale and over longer distances than was previously possible. These include several varieties of e-commerce,
online payment services, app stores, online advertising, cloud computing, participative networked platforms, and high-speed trading.
Work on the actions of the BEPS Action Plan will take these issues into account to ensure that the proposed solutions fully address BEPS in the digital economy. These include:
- Ensuring that core activities cannot inappropriately benefit from the exception from permanent establishment (PE) status, and that artificial arrangements relating to sales of goods and services cannot be used to avoid PE status
- The importance of intangibles, the use of data, and the spread of global value chains, and their impact on transfer pricing
- The possible need to adapt CFC rules to the digital economy: Although CFC rules vary significantly from jurisdiction to jurisdiction, income from digital products and services provided remotely is frequently not subject to current taxation under CFC rules
- Addressing opportunities for tax planning by businesses engaged in VAT-exempt activities
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This is a complex subject but the report is perhaps more informative about the complexities of the digital economy that the usual stuff that gets written about from an innovation perspective.
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More info is available in here but it is 'a bit' technical.
(PREVENT THE ARTIFICIAL AVOIDANCE OF PE STATUS)
http://www.oecd.org/tax/treaties/revised-discussion-draft-beps-action-7-pe-status.pdf
Tax challenges of the digital economy
http://www.oecd-ilibrary.org/taxation/addressing-the-tax-challenges-of-the-digital-economy_9789264218789-en
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