March 20, 2020

O.E.C.D. to Use Hybrid Model to Develop Digital Economy Nexus and Profit Attribution Rules

March 20, 2020/ Ruchelman P.L.L.C.

The O.E.C.D. announced on January 31, 2020, that its policy development efforts under Pillar One, related to the taxation of the digital economy, will move forward using the non-consensus “Unified Approach” as a working model. The O.E.C.D.’s deadline for obtaining a consensus outcome is highly ambitious. Michael Peggs provides his views. Despite what people may think about when this effort should have begun, it is crucially important that it has begun at last and in an organized way.

January 24, 2020

O.E.C.D. Unified Approach Garners Less Unified Comments from Europe’s Tech Producers and Users

January 24, 2020/ Ruchelman P.L.L.C.

How does a group of experts comment on the indescribable in order to arrive at a consensus? Inconsistently is the answer. As the O.E.C.D. continues its work on the taxation of the digital economy, the O.E.C.D. Centre for Tax Policy and Administration received comments in advance of a public consultation in late November 2019. The public consultation heard input from interested parties on the policy development aspects of a "Unified Approach" to the determination of tax nexus and profit allocation rules relevant to customer-facing corporate participants in the digital economy. From the consultation, a "great divide" appears to exist on the Unified Approach. The policy interests are clearly inconsistent when looking at (i) tech haves v. have-nots and (ii) consumers v. producers. The broadly North-South partition that caused the demise of the E.U. Commission’s significant digital presence and D.S.T. directives continues to be argued in the larger forum of the O.E.C.D. Tech haves and producers appear to share a common view with U.S. tech firms. Michael Peggs explains the divide in quantitative terms and suggests that, with the exception of the U.K., the adage that looks to see "whose ox is being gored" is a useful tool in identifying those jurisdictions that support digital taxes and others that are opposed.

November 20, 2019

How Soon Is Now? The O.E.C.D. Starts Work on a Substitute for Unilateral Digital Economy Fixes

November 20, 2019/ Ruchelman P.L.L.C.

As of November 2019, the arm’s length principle continues to operate among the O.E.C.D. Member States. In a little more than a year, this may be different. The O.E.C.D.’s workplan for urgent policy development will investigate a new nexus standard that departs from the arm’s length principle applied for decades. In his article, Michael Peggs explains the current debate between tax administrations concerning the attribution of profit to digital or non-physical P.E.’s and the three popular approaches that have been proposed. The mood in the O.E.C.D. is that markets matter most under each of the suggested approaches. Brainpower and manufacturing prowess are less important.