Taxing the digital economy

By Bob Nihen

On January 19, faced with the threat of retaliatory U.S. tariffs on its exports, France announced it would delay until December 2020 the estimated payment obligations associated with the digital services tax imposed on certain large U.S. digital companies. In exchange, the U.S. agreed to delay the imposition of tariffs to give both countries more time to resolve the conflict. The next day, at the World Economic Forum in Davos, U.S. Treasury Secretary Steven Mnuchin warned that Italy and Britain could face U.S. tariffs if they proceeded with plans for new digital taxes.

These and other recent developments underscore what may be at stake as the Organisation for Economic Co-operation and Development (OECD) tries to forge a  comprehensive consensus on global digital tax rules by the end of 2020.

“Top tax executives at multinationals across a range of industries are paying close attention to the debate over taxing the digital economy,” says Manal Corwin, principal in charge of KPMG LLP’s Washington National Tax practice. “They understand that, just as the digitization of the economy is reshaping entire markets and industries, it could also be the catalyst for rethinking longstanding international tax rules and standards.”

Corwin outlines a number of steps companies can take now to prepare for what may come, including:

• Track international tax proposals under discussion at the OECD and in individual countries.
• Model the potential impact of different proposals on your company’s tax profile and business under different scenarios.
• Keep senior executives and audit committees well informed about evolving developments and the potential implications of proposed changes.
• Engage in constructive conversations and consultations with the OECD and individual country governments about proposed measures and their potential impact.
• Consider how your company might be impacted if the OECD fails to reach consensus and unilateral measures proliferate. In particular, consider how you will manage the higher compliance burden, the costs of unrelieved double taxation and the potential increase in tax controversies across multiple jurisdictions.

Many questions remain about whether the OECD can forge a multilateral agreement on digital taxation and what it might look like.  

But one thing appears certain, Corwin notes. “Given the extent to which digital technologies have transformed the way so many different companies operate, the global debate over taxing the digital economy will continue and likely affect multinationals across a broad range of industries.”

For more information, or to arrange an interview with Manal Corwin, please contact Bob Nihen

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