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Tax Challenges Arising from Digitalisation – Economic Impact Assessment

Inclusive Framework on BEPS

image of Tax Challenges Arising from Digitalisation – Economic Impact Assessment

The OECD/G20 Base Erosion and Profit Shifting (BEPS) Project laid the foundations of the project to address the tax challenges arising from the digitalisation of the economy with the release of the BEPS Action 1 Report. Since then, the OECD/G20 Inclusive Framework on BEPS has been working on the issue, delivering an interim report in March 2018, at the request of the G20.

In May 2019, the Inclusive Framework adopted a Programme of Work, which was endorsed by the G20 Finance Ministers and G20 Leaders in June 2019. The Programme of Work outlined proposals in two pillars that could form the basis for a multilateral consensus-based solution. It also provided that the OECD Secretariat would undertake an economic impact assessment of the proposals to ensure that all members of the Inclusive Framework could be kept fully informed of the economic and tax revenue impact of key decisions relating to the proposals.

This report presents an ex ante analysis of the economic and tax revenue implications of the Pillar One and Pillar Two proposals under discussion by the Inclusive Framework as part of its work to address the tax challenges arising from the digitalisation of the economy.

English Also available in: French

Overview of main findings

The international corporate tax system faces growing challenges. While the OECD/G20 Base Erosion and Profit Shifting (BEPS) project represented an unprecedented multilateral effort to tackle profit shifting, many questions over the allocation of taxing rights remain unresolved. Digitalisation and globalisation have highlighted certain vulnerabilities in the existing framework, which allocates taxing rights principally on the basis of physical presence. In addition to this, some BEPS issues remain. In this context, an increasing number of jurisdictions are taking uncoordinated and unilateral actions, contributing to an increase in tax and trade disputes and growing tax uncertainty. The COVID-19 crisis is exacerbating these tensions by accelerating the digitalisation of the economy and increasing pressures on public finances. The fact that many firms have benefitted from direct or indirect government support during the crisis is also likely to intensify public dissatisfaction with tax avoidance by multinational enterprises (MNEs).

English Also available in: French

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