On 13 February 2019, the OECD published a consultation document outlining four proposals to address the tax challenges of the digitalisation of the economy: three proposals related to a revision of international rules on transfer pricing and permanent establishment status and one proposal to insert a new global right to tax back undertaxed foreign entities.
TUAC submitted the attached contribution, highlighting that the reform of international tax rule should follow the four following objectives:
- Unitary taxation of multinational enterprises. The international tax framework should treat multinationals for what they are: unitary entities. The current transfer pricing rules and its related arm’s length principle are based on the fiction that subsidiaries are independent from each other. International tax rules must move more clearly towards “unitary taxation”, whereby profits at global level are divided between countries.
- Simple and standardized rules. The efforts should be on keeping the rules simple and, as far as possible, the same for everyone. The more complex the rules, and their exemptions, the bigger the risk for regulatory arbitrage and accounting manipulation.
- Fairness. To be sustainable and recognized world-wide, the system should promote progressive taxation, ensuring long term funding of public administration, social rights and public services, especially in emerging countries which are comparatively more dependent on corporate tax.
- The tax race to the bottom must be stopped. In an attempt to attract multinationals, jurisdictions have been engaging in a tax competition that impoverishes the general public, and fosters an environment that is conducive to corporate tax avoidance.
TUAC full response is available in the attached document.