Corporate Tax and the Digital Economy
The BMG has made a submission to the UK Treasury consultation on Corporate Tax and the Digital Economy
Despite the reforms recommended by the G20/OECD project on base erosion and profit shifting (BEPS), as well as the unilateral measures taken by the UK, the measures taken so far have only patched up existing rules. In our view fundamental reforms are needed. Digitalisation affects the whole economy, and many firms use multi-channel models, so there should not be a special regime for digital businesses.
Reforms of international tax rules should be based on the following principles:
(i) neutrality between business models, both digital and non-digital, but also regardless of the extent or form of digitalisation, including multi-channel models;
(ii) ending the advantages enjoyed by multinationals of amassing large untaxed earnings which can be used to fund their growth and so reinforce their dominant monopoly positions;
(iii) adopting a new approach to taxation of MNEs which would treat them in accordance with the business reality that they operate as global firms, and applying clear, simple, and preferably standardized criteria for allocating their worldwide profits to countries where they have a real business presence and away from countries where few or no activities take place.
The UK should work for multilateral solutions on as wide a basis as possible. Suitably designed short-term measures may be appropriate until such wide reforms are in scope, provided they are:
(i) in line with the principle stated in the G20 Declaration on International Tax in 2013 of taxing multinationals ‘where economic activities occur and value is created’;
(ii) do not damage developing countries and emerging economies; and
(iii) where possible taken in concert with other countries.