Taxation in the digitalised economy - KPMG · Mar 2017 . G20 Mandate . BEPS Inclusive Framework to prepare a report/Task Force on the Digital Economy . Mar 2018 - OECD Interim report

Taxation in the digitalised economy

Insights on the OECD''s public consultation document

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25 February 2019

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Document Classification: KPMG Public

© 2019 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved.

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Taxation in the digitalised economy

Agenda

1 Introduction

2 Recap on the OECD’s timeline

3 The OECD’s Public Consultation Document

4 Where do we go from here?

5 Questions

© 2019 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( “KPMG International ”), a Swiss entity. All rights reserved.


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Speakers Melissa Geiger Partner, Head of International Tax

M: +44 7786 688719 E: [email protected]

Matthew Herrington Partner, International Tax Solicitor

M: +44 (0)7810 527497 E: [email protected]

Kara Boatman Partner, Transfer Pricing


Robert Van Der Jagt Partner, KPMG’s EU Tax Centre

T: +31 (0)8890 91356 E: [email protected]

Kirsty Rockall Partner, Transfer Pricing and International Tax


Jennifer Cooper Director, International Tax

M: +44 (0)20 7311 2497 E: [email protected]

© 2019 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.


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mailto:[email protected]






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“ ” © 2019 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( “KPMG International ”), a Swiss entity. All rights reserved.


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Introduction

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Recap on the OECD’s timeline



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OECD timeline

Mar 2017

G20 Mandate BEPS Inclusive Framework to prepare a report/Task Force on the Digital Economy

Mar 2018

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OECD Interim report In-depth analysis of value creation across business models and identification of tax challenges

Jan 2019



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OECD Policy noteIdentification of two pillars and four approaches to be explored on a ‘without prejudice basis’ ’

Feb 2019

Mar 2019

Consultation paper Issued on 13 February 2019

Public consultationTo be held in Paris on 13--14 March

Jun 2019

Update to the G20 Inclusive Framework to agree on a detailed work program in May, with a view to reporting progress to G20 Finance Ministers in Japan

2020

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Final report Report on a long-term solution agreed by consensus, including recommendations

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The OECD’s Public consultation document



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OECD Public consultation document – four proposals

OECD Consultation

Marketing intangibles Market countries entitled to tax marketing profits regardless of where marketing IP is owned

Substantial economic presence Economic nexus with simplified profit attribution

Minimum tax Mechanism for residence and market countries to ‘tax back’ low-taxed profits



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User participation Economic nexus for businesses with significant user participation and profit attribution based on user engagement



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Pillar 1: User participation

Users create value that is currently not subject to tax in the user’s jurisdiction

Sees sustained engagement and active user participation as critical components for some highly digitalised businesses

Deviation from arm’s length principle in respect of allocation of non-routine profits from business models reliant upon active user participation

Business models consistent with UK DST consultation paper

A ‘ring-fenced’ solution that partially accepts formulary apportionment principles





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Pillar 1: Marketing intangibles

Allocate a portion of marketing profit to market countries regardless of ownership of marketing IP

Sees marketing-based intangibles as critical components in modern business models

Major change from existing transfer pricing principles is linking marketing intangibles with market jurisdictions

Primarily targeted at resolving the issue of economic scale with limited local mass, a long-standing issue with both traditional and modern distribution models

Unlike User Participation proposal, not ‘ring-fenced’ to digital business models





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Pillar 1: Substantial economic presence

Economic nexus with simplified profit attribution

Taxable presence arises where non-resident enterprise has a ‘significant economic presence’ in a jurisdiction

Key factors can include: — existence of a user base and associated data input — volume of digital content derived from the jurisdiction — maintenance of a website in a local language





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Pillar 2: Minimum tax

Income Inclusion Rules

Supplement existing CFC rules

Operate as a minimum tax

Would apply in the context of overseas subsidiaries and overseas permanent establishments

Draws on aspects of new US tax regime for taxing ‘Global Intangible Low-Taxed Income’ (“GILTI”)





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Pillar 2: Minimum tax

Tax on base eroding payments

Tackles so-called ‘undertaxed payments’

Denies deductions for certain payments (to be determined), where the recipient is not subject to a minimum effective tax rate in its jurisdiction.

Disallows treaty benefits where undertaxed payments would otherwise be eligible for double tax treaty relief.

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Where do we go from here?



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US Government perspective

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I highlight again our strong concern with countries’ consideration of a unilateral and unfair gross sales tax that targets our technology and internet companies. A tax should be based on income, not sales, and should not single out a specific industry for taxation under a different standard. We urge our partners to finish the OECD process with us rather than taking unilateral action in this area.

Treasury Secretary, Steven Mnuchin



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©© 2019 K2019 KPPMMGG LLPLLP,, a Ua UKK l liimmiitted ed lliiababiilliittyy ppararttnernersshihipp and a mand a mememberber ffiirrmm ofof t the he KKPPMMGG net netwwororkk ofof i indepndependentendent mmememberber f fiirrmmss af afffiilliiaatteded wwiitth h KKPPMMGG I Intnterernatnatiionalonal C Coopoopereratatiivve e ((““KKPPMMGG I Intnterernatnatiionalonal””)),, a S a Swwiissss ententiittyy.. AAllll r riigghthtss r reseserervved.ed.

Unanimity in tax matters: Looking ahead

“Moving to qualified majority voting would allow us to make progress on important proposals in the field of tax policy in Europe.”

Pierre Moscovici

01European

Commission intention to

move to qualified majority voting

for tax initiatives

02However, strong

negative opinions from for example the Netherlands

and Ireland

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Next steps

— Are we any closer to achieving multilateral consensus?

— Is multilateral consensus the only way forward?

— Where do businesses go from here?



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KPMG’s involvement



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— KPMG International, on behalf of its member firms, to submit a response to the OECD on the Consultation Document

— KPMG representatives attending the O ECD Public Consultation on 13-14 M arch 2 019 in Paris

Any questions?


kpmg.com/uk

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Documents

Taxation in the digitalised economy - KPMG · Mar 2017 . G20 Mandate . BEPS Inclusive Framework to prepare a report/Task Force on the Digital Economy . Mar 2018 - OECD Interim report