Taxation of digital multinational enterprises: where are we now?

The taxation of multinational enterprises carrying on digital businesses is still a hot topic. In our international newsletter last September (see here), we set out the background to this thorny issue.

Although the debate has moved on over the past six months, it is not surprising that, given the complexity of the issues involved, there is still much work to be done to reach an international agreement on how to tackle the issue. However, it does seem that, for the most part, countries are moving towards a globally-driven, comprehensive solution following on from the OECD work, perhaps encouraged in part by the vocal opposition of the US towards any unilateral action by individual countries.

In February 2019, the OECD published its public consultation document “Addressing the Tax Challenges of the Digitalisation of the Economy”, following its interim report in March 2018. The consultation sets out the OECD's proposals to take forward discussions on two parallel ‘pillars’: one pillar that focusses on the allocation of taxing rights; and a second pillar that addresses remaining BEPS issues. The outcome from the public consultation will form the basis of an update this summer, with the OECD's final report due to be published in 2020.

The European Commission proposals, which comprised a long-term solution (of a digital permanent establishment) and an interim solution (of a digital services tax), have stalled and its proposals for a long-term solution have been folded into the OECD debate. Some may say this was predictable given that any EU directive would have required unanimity of the Member States, many of whom had voiced their strong opposition to the proposals. Indeed, in failing to reach an agreement on a compromised version of the directive in its latest ECOFIN Council meeting (in March), the EU said it would conduct work on its position in international discussions on digital tax in view of the OECD's report on the issue.

Although it seems, therefore, that there is appetite to wait for a global solution rather than an EU-wide one, some countries have continued to press for their own interim domestic solution until a global solution is found:

• Italy has introduced a digital services tax (DST), which is expected to come into force very soon following the issue of an implementing decree;
• France and Spain have proposed bills (neither of which have yet been passed) to introduce a DST;
• New Zealand has announced that it is considering a DST (to be implemented in 2020); and
• The UK has issued a consultation on a DST which is intended to apply from April 2020 to social media platforms, search engines and online marketplaces.

It seems likely, however, that despite a desire for a global solution, more countries will look at introducing unilateral measures if no consensus is achieved at OECD level in 2020. We await with interest the OECD's update on its progress on this mammoth task this summer.