Simon Webber in Bloomberg Tax – Issues and Proposals in the Digitalizing Economy Tax Debate

Simon Webber, Managing Director in Duff & Phelps Transfer Pricing practice, authored a recent article in Bloomberg Tax titled, “Considering Some of the Issues and Proposals in the Digitalizing Economy Tax Debate”. The debate in the OECD/G20 and Inclusive Framework on Base Erosion and Profit Shifting (BEPS) on the taxation of the digitalizing economy (BEPS Action 1) has always been politicized. The compelling, pervasive and disruptive march of the fundamental changes that countries and companies are seeing as a result of the digital transformation of the world’s economies makes this an emotive issue for the voting public. It also poses challenges across a number of important public policy areas, not least the sharing of tax revenues that result from the allocation of tax rights provided by the international tax system. There is natural resistance to change because of the enormous effort and difficulty in reaching international consensus to change something that has worked effectively for well-established economies for many decades.

Within this politically charged backdrop, BEPS Action 1 policy-makers, as well as companies and advisors in the international tax community, are now squarely contemplating the future of the international tax system. In this article, we take a look at some of the proposals emerging under each of the approaches, contemplate some refinements that should be considered as part of good policy development in the area, and draw attention to a residual profit split approach (RPA) that has many desirable attributes. The RPA approach seems to be able to embrace the goals of the initiative, be capable of simplification, smooth a transition, reconcile with the past and address many of the issues that might undermine the longevity of a solution. It is also an approach already in the public domain; specifically, we reference the IRS APMA Functional Cost Diagnostic (FCD) Model.

Read the full article here.