TEI Comments on OECD Request Regarding the Digitalization of the Economy.

• Author: Parsons, Giles
• Position: Tax Executives Institute, Organisation for Economic Co-operation and Development

On October 12,2017, TEI submitted comments to the OECD regarding their reguest for input on the tax challenges of the digitalization of the economy under BEPS Action 1. The Institute's comments questioned the need for any specialized tax or tax system to address the impact digitalization has on international taxation. TEI noted that noted that the issues presented by digitalization are not new, but instead make certain aspects of business and business models cheaper and easier to implement. TEI's comments were prepared under the aegis of the European Direct Tax Committee, whose chair is Giles Parsons. Ben Shreck, TEI tax counsel, coordinated the preparation of the Institute's comments.

The Organisation for Economic Co-Operation and Development (OECD) published final reports pursuant to its base erosion and profit shifting (BEPS) project on October 5, 2015. The reports were the culmination of the OECD's Action Plan on Base Erosion and Profit Shifting (hereinafter the Plan) published in 2013. The Plan set forth 15 actions the OECD would undertake to address a series of issues that contribute to the perception of tax bases being eroded or profits shifted improperly. Included in the October 2015 final reports was the report under Action 1 of the Plan, Addressing the Tax Challenges of the Digital Economy (the Final Report).

On September 22, 2017, the OECD released a request for input from interested stakeholders regarding the OECD's work on the tax challenges of the digitalization of the economy (the Request), including the development of an interim report to be presented to the G20 Finance Ministers at their upcoming meeting. I am pleased to respond to the OECD's request for input on behalf of Tax Executives Institute, Inc. (TEI).

TEI Background

TEI was founded in 1944 to serve the needs of business tax professionals. Today, the organization has 56 chapters in Europe, North and South America, and Asia. As the preeminent association of in-house tax professionals worldwide, TEI has a significant interest in promoting tax policy, as well as the fair and efficient administration of the tax laws, at all levels of government. Our nearly 7,000 individual members represent over 2,800 of the leading companies in the world. (1)

TEI Comments

General Comments

TEI commends the OECD for providing stakeholders the opportunity to comment on the important and often misunderstood area of the impact of digitalization and high technology on various business models and multi-national enterprises. As an initial matter, TEI agrees with the Final Report, which found that "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." (2) We also agree with the Final Report that "The collection of VAT/GST on cross-border transactions, particularly those between businesses and consumers, is an important issue. Countries are thus recommended to apply the principles of the International VAT/GST Guidelines and consider the introduction of the collection mechanisms included therein." (3)

Before answering the specific questions posed in the Request, however, as a threshold matter, it is unclear to TEI what underlying fundamental tax issue or problem the OECD is addressing in the Request's various proposed approaches to international taxation with respect to the digitalization of the economy. Is the issue that income from the changes wrought by...