|David Bradbury and Giorgia Maffini
Tax Policy and Statistics Division at the OECD
David Bradbury and Giorgia Maffini have been at the centre
of the OECD's work on digital tax. The next step of the BEPS
project is to tackle the growing gap between international tax
norms and the technological shift in the global economy.
The rise of new, internet-based business models has created
challenges for tax policy. Tech companies like Google, Amazon
and Facebook, and increasingly companies in other industries,
too, don't need a physical presence to operate in a country and
the source of the value can arguably come down to the click of
According to one theory, the adverts on a social media
platform only have value if they have an audience and a captive
audience can be incredibly valuable. The algorithms only work
to target users who have already entered their data. This
theory is the subject of intense debate.
As Adam Cohen, head of economic, EMEA at Google, told the
European Parliament in late November: "There continues to be a
debate about where corporate income tax should be apportioned
differently, including whether tax payments should shift from
countries where value is created to those where goods and
services are consumed."
"Hopefully, any changes will be based on broad international
consensus," he added.
Highly digitalised businesses may mean old ideas of presence
are inadequate. Likewise, the role of user participation and
data collection in value creation raises questions about what
kind of threshold such a tax may require.
"The real point of difference in the debate seems to rest
around data and user contribution and on that front there were
divergent views," Bradbury told the audience at
International Tax Review's 2018 Summit on the Taxation
of the Digital Economy in London.
"If it's not completely new, then it's certainly happening
with a greater degree of intensity than we've seen in
traditional business models in the economy," he said.
"This is something that is not new at all… but we
think it's the scale of reliance on intangible assets that is
completely new," Maffini said. "We will have to think about how
to allocate profit to user participation."
Resolving the dilemma of digital tax may come down to how to
apply old concepts like nexus and profit allocation when the
global economy has completely changed from when the foundations
of international tax were first laid down.
"These are the rules that determine whether or not
jurisdiction has a taxing right in respect of non-resident
enterprises," Bradbury said.
Tech companies are concerned about the lack of international
coordination and the possibility of multiple countries waging
competing claims to tax the same income.
"We have a system that allocates the majority of taxing
rights to where products are created, rather than where they're
consumed," Cohen said. "It's perfectly legitimate to shift that
shift, but it has to be done in concert with global
governments… [or] there will be conflict in the
international tax system."
One possibility is that if the users are the source of value
to an online platform, then the state should levy the tax on
the number of users. The OECD has been careful not to take a
strong position on this question, given the lack of a consensus
on the issue.
This has left behind the space for others to make their own
plans and the threat of unilateral action remains very real.
The European Commission (EC) has taken the bold step of drawing
up its own plan for taxing the digital economy.
Tax policymakers have to keep up with the pace of
innovation, or they have to find reliable, long-term solutions.
But this might not be the only choice to make.
Michael Lennard, the UN's chief of international tax
cooperation, pointed out that the aim of perfect agreement
around the world might not even serve the best aims of tax
"I doubt you'll get a complete consensus on the long-term
issues, but a consensus might not even be the right result if
it means one set of rules for a range of different countries,"
"If we need different rules for different countries to
achieve the right outcomes, that might be for the best," he
If this is right, the world may be about to see greater
fragmentation as different countries and regions pursue their
own way of addressing the problem of digital tax. So the race
between the OECD and the EU may just be the starting shot of a
much longer track.