TEI Submits Comments to the Australian Treasury Regarding Digital Economy Discussion Paper.

• Position: Tax Executives Institute

On 2 October 2018, the Corporate and International Tax Division of The Treasury's Revenue Group published a discussion paper entitled "The digital economy and Australia's corporate tax system" (the Discussion Paper). The Discussion Paper explores options to address the perceived challenges to tax systems arising from digitalisation and the digitalised economy. The Treasury has requested stakeholder input on the options and specific questions set forth in the Discussion Paper. On behalf of Tax Executives Institute, Inc. (TEI), I am pleased to respond to The Treasury's request for input.

TEI Background

TEI was founded in 1944 to serve the needs of in-house tax professionals. Today, the organisation spans the globe with 57 chapters, including membership in Australia. As the preeminent association of in-house tax professionals worldwide, TEI has a significant interest in promoting fair tax policy at all levels of government. Our nearly 7,000 members represent 2,800 of the largest companies in Asia, Europe, and North and South America. TEI's members work for companies operating across all industries and thus we believe our perspective brings a balanced view of how the options set forth in the Discussion Paper may impact companies operating both inside and outside the "digital economy."

TEI Comments

TEI commends The Treasury for the analysis set forth in the Discussion Paper regarding the various challenges digitalisation presents to corporate taxation and the options presented to address such challenges. Achieving consensus in this area of international taxation is difficult and a real risk of double arises from uncoordinated, unilateral actions by individual countries; thus, we appreciate The Treasury's invitation for stakeholder input. In particular, the opportunity for interested parties to provide comment on the design of any interim tax measures aimed at digitalisation should help ensure that any such measures are appropriate. In TEI's view, the Discussion Paper provides a well-structured overview of the proposed updates to the international tax rules that may apply to the digitalised economy. Set forth below are a few general comments on the Discussion Paper, followed by our answers to the specific questions posed.

General Comments

The Discussion Paper poses thirteen specific questions for stakeholder input regarding the possible introduction of an interim tax on digital services in Australia. In TEI's view, however, Question 10 is the most important and influences the answers to all the other questions.

Question 10 queries, "Should Australia pursue interim options ahead of an OECD-led, consensus-based solution to address the impacts of the digitalisation of the economy on the international tax system?"

While we understand the political pressure to take unilateral action, TEI strongly recommends Australia fully participate in the OECD Task Force on the Digital Economy (TFDE) and act based on the consensus that the TFDE hopes to achieve by 2020. Unilateral actions inevitably lead to double taxation, additional administrative difficulty, uncertainty for multinational enterprises (MNEs), and may result in detrimental effects on foreign direct investment and international trade.

Answers to Specific Questions

Question 1. Is user participation appropriately recognised by the current international corporate tax system? If not, how should value created by users be quantified and how should it be taxed?

The corporate income tax is a tax on the corporate enterprise's profits, which includes many different inputs, costs, revenue streams, and expenses. In TEI's view, an attempt to separate any individual activity that may contribute to an enterprise's profit is inconsistent with the current international tax consensus, OECD guidance, and bilateral income tax treaties. Thus, attributing a "value created" to user participation is...