OECD/G20 Base Erosion and Profit Shifting Project

English
ISSN: 
2313-2612 (online)
ISSN: 
2313-2604 (print)
DOI: 
10.1787/23132612
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Addressing base erosion and profit shifting is a key priority of governments around the globe. In 2013, OECD and G20 countries, working together on an equal footing, adopted a 15-point Action Plan to address BEPS. Beyond securing revenues by realigning taxation with economic activities and value creation, the OECD/G20 BEPS Project aims to create a single set of consensus-based international tax rules to address BEPS, and hence to protect tax bases while offering increased certainty and predictability to taxpayers. A key focus of this work is to eliminate double non-taxation. However in doing so, new rules should not result in double taxation, unwarranted compliance burdens or restrictions to legitimate cross-border activity.

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Addressing the Tax Challenges of the Digital Economy

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English
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Author(s):
OECD
16 Sep 2014
Pages
200
ISBN
9789264218789 (PDF) ;9789264218772(print)
DOI: 
10.1787/9789264218789-en

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The spread of the digital economy poses challenges for international taxation. This report sets out an analysis of these tax challenges. It notes that because the digital economy is increasingly becoming the economy itself, it would not be feasible to ring-fence the digital economy from the rest of the economy for tax purposes. The report notes, however, that certain business models and key features of the digital economy may exacerbate BEPS risks. These BEPS risks will be addressed by the work on the other Actions in the BEPS Action Plan, which will take the relevant features of the digital economy into account. The report also analyses a number of broader tax challenges raised by the digital economy, and discusses potential options to address them, noting the need for further work during 2015 to evaluate these broader challenges and potential options.

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  • Foreword

    Addressing base erosion and profit shifting (BEPS) is a key priority of governments around the globe. In 2013, OECD and G20 countries, working together on an equal footing, adopted a 15-point Action Plan to address BEPS. The Action Plan aims to ensure that profits are taxed where economic activities generating the profits are performed and where value is created. It was agreed that addressing BEPS is critical for countries and must be done in a timely manner, not least to prevent the existing consensusbased international tax framework from unravelling, which would increase uncertainty for businesses at a time when cross-border investments are more necessary than ever. As a result, the Action Plan provides for 15 actions to be delivered by 2015, with a number of actions to be delivered in 2014.

  • Abbreviations and acronyms
  • Executive summary

    Action 1 of the base erosion and profit shifting (BEPS) Action Plan deals with the tax challenges of the Digital Economy. Political leaders, media outlets, and civil society around the world have expressed growing concern about tax planning by multinational enterprises that makes use of gaps in the interaction of different tax systems to artificially reduce taxable income or shift profits to low-tax jurisdictions in which little or no economic activity is performed. In response to this concern, and at the request of the G20, the Organisation for Economic Co-operation and Development (OECD) published an Action Plan on Base Erosion and Profit Shifting (BEPS Action Plan, OECD, 2013) in July 2013.

  • Introduction to tax challenges of the digital economy

    This chapter discusses the background leading to the adoption of the BEPS Action Plan, including the work to address the tax challenges of the digital economy. It then summarises the work of the Task Force on the Digital Economy leading to the production of the report. Finally, it provides an overview of the contents of the report.

  • Fundamental principles of taxation

    This chapter discusses the overarching principles of tax policy that have traditionally guided the development of tax systems. It then provides an overview of the principles underlying corporate income tax, focusing primarily on the taxation of cross-border income both under domestic laws and in the context of tax treaties. Finally, it provides an overview of the design features of value-added tax (VAT) systems.

  • Information and communication technology and its impact on the economy

    This chapter examines the evolution over time of information and communication technology (ICT), including emerging and possible future developments. It then provides a conceptual overview, highlighting interactions between various layers of information and communication technology.

  • The digital economy, new business models and key features

    This chapter discusses the spread of information and communication technology (ICT) across the economy, provides examples of business models that have emerged as a consequence of the advances in ICT, and provides an overview of the key features of the digital economy that are illustrated by those business models.

  • Identifying opportunities for BEPS in the digital economy

    This chapter provides a general discussion of the common features of tax planning structures that raise base erosion and profit shifting (BEPS) concerns. It then provides a detailed description of the core elements of BEPS strategies with respect to both direct and indirect taxation.

  • Tackling BEPS in the digital economy

    This chapter discusses how work on the actions of the base erosion and profit shifting (BEPS) Action Plan and in the area of indirect taxation will address BEPS issues arising in the digital economy. It also highlights the particular characteristics of the digital economy that must be taken into account to ensure that the measures developed effectively address BEPS in the digital economy.

  • Broader tax challenges raised by the digital economy

    This chapter discusses the challenges that the digital economy raises for direct taxation, with respect to nexus, the tax treatment of data, and characterisation of payments made under new business models. It also discusses the indirect tax challenges raised by the digital economy with respect to exemptions for imports of low-valued goods, and remote digital supplies to consumers. Finally, it lists certain administrative challenges faced by tax administrations in applying the current rules.

  • Potential options to address the broader tax challenges raised by the digital economy

    This chapter provides an overview of potential options that have been discussed by the Task Force. It then provides a brief framework for evaluating options to address the broader tax challenges raised by the digital economy. Finally, it provides an initial evaluation of the options discussed, along with a description of some of the issues that will need to be addressed in developing and evaluating those options.

  • Conclusions

    The digital economy is the result of a transformative process brought by information and communication technology (ICT).

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  • Expand / Collapse Hide / Show all Abstracts Annexes

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    • Prior work on the digital economy

      This annex summarises the content and output of the previous work on electronic commerce. Specifically, it presents the work that led to the 1998 Ministerial Conference on Electronic Commerce in Ottawa (Ottawa Conference) and its main outcomes. It then describes the follow-up work carried out in relation to tax treaty issues and to consumption tax issues.

    • Typical tax planning structures in integrated business models

      The simplified examples below are based on what a number of tax administrations have observed. They are intended to provide an illustration of ways in which the implementation of business models through legal and tax structures may place pressure on the existing international tax framework. They are not exhaustive, and do not pretend to reflect the full scope of structures that may be used to achieve base erosion and profit shifting (BEPS).

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