International Tax Review is part of the Delinian Group, Delinian Limited, 8 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2023

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

No. 1: David Bradbury & Giorgia Maffini

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.

David Bradbury and Giorgia Maffini

David Bradbury and Giorgia Maffini

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 a mouse.

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 policy for 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 during a press conference. "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 a 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 reformers.

"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," Lennard said.

"If we need different rules for different countries to achieve the right outcomes, that might be for the best," he stressed.

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.

Update: Giorgia Maffini left the OECD in June 2018 and joined PwC in August.

more across site & bottom lb ros

More from across our site

Premier League football clubs are accused of avoiding paying up to £470 million in UK tax, while Malta is poised to overhaul its unique corporate tax system.
Bartosz Doroszuk of MDDP offers insights on Poland’s new tax legislation on shifted profits, as the implementation deadline looms nearer.
Four tax specialists preview the UK’s transfer pricing requirements, which come into effect on April 1.
The rise of the QDMTT will likely change how countries compete on tax and transfer pricing policy, but it may not reverse decades of falling corporate tax rates.
ITR’s latest quarterly PDF is going live today, leading on the EU’s BEFIT initiative and wider tax reforms in the bloc.
COVID-19 and an overworked HMRC may have created the ‘perfect storm’ for reduced prosecutions, according to tax professionals.
Participants in the consultation on the UN secretary-general’s report into international tax cooperation are divided – some believe UN-led structures are the way forward, while others want to improve existing ones. Ralph Cunningham reports.
The German government unveils plans to implement pillar two, while EY is reportedly still divided over ‘Project Everest’.
With the M&A market booming, ITR has partnered with correspondents from firms around the globe to provide a guide to the deal structures being employed and tax authorities' responses.
Xing Hu, partner at Hui Ye Law Firm in Shanghai, looks at the implications of the US Uyghur Forced Labor Protection Act for TP comparability analysis of China.