Addressing the Tax Challenges of Digitalisation of the Economy

The BMG has made a submission to the public consultation for the Inclusive Framework on BEPS on this subject, available here.


We propose a combination of principles and pragmatism that will provide (i) results that are fair to both taxpayers and tax authorities, and (ii) true simplicity of application.

·         First, a single enterprise principle should be adopted, to replace the inappropriate fiction that affiliates of a multinational corporate group are independent of each other.

·         Secondly, the aim should be to allocate income and taxes according to the fundamental factors that generate profits: labour, capital and sales. This would provide a balance between operational factors (employees and physical assets) and sales to third-parties (without which profits cannot be realised).

·         Thirdly, based on closer analysis of different industries/sectors and their commonly-used business models, the Inclusive Framework, along with other relevant organisations, would develop detailed definitions of these broad factors and their quantification and appropriate weightings. This work would pragmatically develop standardised allocation keys and weightings that would mandatorily apply to taxpayers using these industry/sector common business models. A rebuttable presumption would apply for appropriate flexibility.

·         Lastly and importantly, the quantification (i.e. the allocation keys) must be objectively measurable and location-specific, using only physical factors reflecting the actual assets, activities, and sales in the countries concerned.