OECD floats options for taxing internet multinationals

Thursday, 27 March 2014
The Organisation for Economic Development & Cooperation (OECD) has published suggestions to force multinational firms that conduct their business over the internet to pay their corporate taxes in the appropriate jurisdictions.

At the moment, some such companies minimise taxation in their end user markets by avoiding a taxable presence ('permanent establishment'), or by shifting profits through structures that maximise deductions in higher-tax jurisdictions. They avoid taxation in their 'home' country by operating through subsidiaries based in low-tax jurisdictions or countries that offer special tax incentives.

Last year, the OECD set up a project, the Base Erosion and Profit Shifting Action Plan, to address this type of cross-border tax planning by large corporate entities. The proposals released this week aim to ensure that both the jurisdiction where the customer resides and the jurisdiction of the ultimate parent company will have the right to tax the operating company's corporate revenues. The OECD paper suggests new taxation criteria based on 'significant digital presence', and a new concept of 'virtual' rather than purely physical permanent establishment.

These could be accompanied by modifications to provisions in standard OECD tax treaties that exempt business premises from permanent establishment status if they merely store, display or deliver goods, or collect information for the enterprise.

Withholding taxes could also be imposed on digital transactions, says the OECD paper. There is a strict 14 April deadline for public comments, which have to be submitted in Microsoft proprietary format. There will be a public consultation meeting at the OECD's Paris headquarters on 23 April. A final report is due in September.


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