Taxing multinationals: BEPS outputs and the ‘digital economy’

“We aim to solve this problem in the next two years,” OECD tax director Pascal Saint-Amans said in 2013, a month before presenting to G20 ministers an action plan to tackle  “base erosion and profit shifting” (BEPS).

Very little has been said in mainstream media about the impact of the BEPS project’s “final reports”, published last October. The rules governing taxation of multinationals will change, but they cannot be changed in a hurry, nor retrospectively. Campaigners have said for a long time that only fundamental reform will do.

Sol Picciotto noted last week that the OECD’s task force on the digital economy had “recognised that digitalisation means that [multinationals] have come ‘closer to the economist’s conception of a single firm operating in a co-ordinated fashion to maximise opportunities in a global economy’”. He added:

“[The task force] also accepted that this entails a ‘substantial rewrite of the rules for attribution of profits’. The report canvassed several possibilities … However, it could not agree even to recommend any of these, and left it to states to decide. Meantime, the task force will continue, aiming to produce a report in 2020. Plainly, we cannot wait that long.”

The OECD report Addressing the tax challenges of the digital economy said that work will continue following “completion of the other follow-up work on the BEPS project”, and the future work will be based on a mandate to be “developed during 2016”. It added that “a report reflecting the outcome of the continued work in relation to the digital economy should be produced by 2020”.

So the UK’s Treasury committee inquiry into tax policy and the “shrinking” corporate tax base is welcome. We can expect some more clarity than we have seen in some of the recent press reports, and some useful analysis of the possibilities for reform. The problem is even more urgent than it was in 2013, but the solution has to be the right one.