01 April, 2020
ETNO – GSMA joint response to the OECD Update Statement
ETNO and the GSMA provide their comments below in response to the ‘Statement by the OECD/G20 Inclusive Framework on BEPS on the Two-Pillar Approach to Address the Tax Challenges Arising from the Digitalisation of the Economy’.
We consider it appropriate for the Digital Economy to be taxed in a fair and transparent way with profits taxed where value is created. Whilst we applaud the speed at which OECD is acting we should re-focus on the main objective and scope of this reform and avoid double taxation of industries already heavily regulated and taxed.
The following comments focus specifically on the Scope of ‘The New Taxing Right (Amount A)’, which is central to the revised architecture outlined by the OECD for a Unified Approach to Pillar One, and have focused on the key relevant points identified by our members.
The OECD Pillar One Approach – Scope and Specific considerations
- We observe that the OECD has commented that due to globalisation and the digitalisation of the economy, there are businesses that can develop an active and sustained engagement in a market jurisdiction, beyond the mere conclusion of sales, without necessarily investing in local infrastructure and operations.
- The OECD has identified two categories of businesses that will fall within scope of the new taxing right under Amount A – Automated digital services and Consumer-facing businesses. We note that Consumer-facing businesses would bring into scope businesses that generate revenue from the sale of goods and services commonly sold to consumers (paragraph 24), and revenues from licensing rights over trademarked consumer products/businesses that generate revenue through licensing a consumer brand (paragraph 27).
- We further observe that certain industries will not be within the consumer-facing businesses definition. For extractive industries this is on the basis that taxes paid on associated profits can be considered to be part of the price paid by the exploiting company for those national assets (and are paid to the resource owner) (paragraph 30). The financial services sector will be out of scope either because they interact with commercial customers or given the impact of regulation and licensing requirements that ensures “residual profits are largely realized in local customer markets and therefore justifies that these activities should be excluded from scope” (paragraph 31).
- We further observe that “it is also expected that any consensus-based agreement must include a commitment by members of the Inclusive Framework to implement this agreement and at the same time to withdraw relevant unilateral actions, and not adopt such unilateral actions in the future” (paragraph 89).
Read the full response at the link below.