March 14, 2020 - Douglas Myser

Digital tax will boost states revenues. The OECD has presented economic analysis on the potential impact of what it has proposed on international tax reform to address the digitalization of the economy. The OECD has said that the changes would have a significant positive impact on global tax revenues, by boosting corporate income tax revenues globally by about four percent. The OECD anticipates that the changes would increase IRS  tax payments by consumer facing, digital economy businesses by about USD 100 Billion annually. Importantly, in terms of achieving a global consensus on the new rules, the OECD believes that the benefits will be relatively equal for high, middle, and low income economies. Digital tax will boost states revenues.

The Inclusive Framework, agreed a Program of Work for Addressing the Tax Challenges of the Digitalization of the Economy. The Program of Work is divided into two pillars: Pillar One addresses the allocation of taxing rights, and Pillar Two calls for the development of a co-ordinated set of rules to address ongoing risks from structures that allow MNE's to shift profit to jurisdictions where they are subject to no or very low taxation.

The OECD's Globe proposal is designed to give jurisdictions a remedy in cases where income is subject to no or only very low taxation. The proposal looks to minimize tax base erosion and profit sharing by ensuring that income is not inappropriately shifted to territories that levy no or low tax rates, by ensuring that income is subject to at least a minimum level of tax, wherever that may be. This would involve the introduction of a new effective tax rate test, which would also enable stakeholders to better determine in a harmonized way how much tax multinationals pay internationally, the OECD has proposed. The OECD intends that the Globe proposal will operate as a top up an agreed fixed rate. The actual rate of tax to be applied under the Globe proposal will be discussed once other key design elements of the proposal are fully developed.

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