On Monday the OECD announced that its efforts to develop a consensus international framework when it comes to taxing the digital economy has been delayed.
Noting in a statement that while digital transformation “spurs innovation, generates efficiencies, and improves service while boosting more inclusive and sustainable growth,” the pace of change currently threatens to bring about unilateral digital tax measures by various countries, which can lead to tax and trade disputes and “undermine tax certainty and investment.” In a worst case scenario, the OECD even fears a global trade war.
Speaking both about the need for a common framework and such fears, OECD Secretary-General Angel Gurria stated, “It is clear that new rules are urgently needed to ensure fairness and equity in our tax systems, and to adapt the international tax architecture to new and changing business models. Without a global, consensus-based solution, the risk of further uncoordinated, unilateral measures is real, and growing by the day.” She also stated that, “failure would risk tax wars turning into trade wars at a time when the global economy is already suffering enormously.”
The danger of countries and regions acting unilaterally is in fact ever-present with the U.K., France and Spain anticipated to begin collecting national digital taxes early next year and the European Commission stating that it would look for an EU-wide digital tax if the OECD failed to complete an agreement by the end of 2020.
Although the new target for an agreement is in mid-2021, the OECD did report some progress, stating that during its October 8-9 meeting, OECD/G20 Inclusive Framework on BEPS participants agreed that the developed ‘two-pillar’ approach provided a “solid foundation for a future agreement.”
The U.S. pulled out of talks earlier this year in June.