Members of the OECD task force charged with crafting rules to address the tax challenges of the digital economy still disagree on fundamental issues associated with the project.
Speaking April 23, Edourad Marcus, co-chair of the task force, said members are still debating whether they should recommended modifications to the corporate income tax through expanded permanent establishment (PE) definitions, modifications to VAT rules, adoption of withholding taxes, or special tax measures. Marcas spoke in Paris at a consultation on the task force’s discussion draft on the tax challenges of the digital economy, released March 24.
U.S. tax official, Robert Stack, argued against expanding PE definitions, stating that figuring out how to allocate deductions among the PEs would be too difficult. Stack, who co-chairs the task force with Marcas, also said that the OECD can address the perception that some companies are paying less corporate tax than they should in other BEPS work and that modified VAT rules could complement those efforts.
A French tax official, however, expressed support for expanded PE concepts for digital business. A VAT would draw in minor transactions and more small and medium sized entities, but an expanded corporate tax through PE modifications would give government more leeway to determine who should bear the tax and who should not, the official argued. A corporate tax is the best tool to consider, as it is levied against profit, he said.
Carol Doran Klein, on behalf of BIAC, said that the corporate tax is intended to be a backstop to the personal income tax, imposing an immediate tax when earnings are not distributed to shareholders. Klein said that it is the sovereign decision of the country of a shareholder’s residence to decide to impose corporate tax or not, and as such, it may be inappropriate for market jurisdictions to increase their share of digital business’s corporate income tax. Klein said that if the OECD decides to modify these fundamental tax principles, the principles should be revisited for all industries. VAT is more appropriate as a revenue raiser for market countries, she argued.
