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For 80 years, the global tax system has been based on individual accounting within different countries. But discussants at the OECD consultation appeared to be inching towards accepting a need for that system to be changed.

MNEs accept higher tax burden is inevitable at OECD digital tax consultation
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The OECD held a public consultation at its Paris headquarters this week, where companies, organisations, and academics came together to discuss the consultation document that proposes two pillars aimed at dealing with the tax challenges of digitalisation.

Consumer businesses clash over OECD digital tax proposals
Wednesday, June 19, 2019

Global community agrees a way forward for dealing with the digitalisation of the economy

OECD members approve process to reach a new global agreement for taxing multinational companies

The Organisation for Economic Co-operation and Development (OCED) has obtained the agreement of the 129 members of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) to a framework that sets out the process for reaching a new global agreement for taxing multinational companies. This Programme of Work was then put to G20 Finance Ministers for endorsement during their June meeting in Fukuoka, Japan.

The Programme will explore the technical issues to be resolved through two main pillars:

  1. Potential solutions for determining where tax should be paid and on what basis (‘nexus’)
  2. The portion of profits that could or should be taxed in the jurisdictions where clients or users are located (‘profit allocation’)

The second pillar will explore the design of a system to ensure that multinational enterprises pay a minimum level of tax. This would help jurisdictions to protect their tax base from profit shifting to low/no-tax jurisdictions and should address the remaining issues identified by the OECD/G20 BEPS initiative. BEPS continues to be a huge issue, with the OECD estimating in 2015 that up to US$240bn of revenue was lost to BEPS, equivalent to 10% of global corporate tax revenues.

The aim of the project is to reach a long-term solution on which a consensus can be reached by the end of 2020.

If you would like to discuss any of the areas raised in this article, contact our international tax team

This article is a summary of the article ‘OECD to consider worldwide fractional apportionment’ published on www.internationaltaxreview.com on 31 May 2019.

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