Digital tax reforms for a fair and enlightened global economy
The digitalisation of the global economy has brought enormous benefits in terms of efficiency and connectivity, but it has also raised considerable challenges for the international tax system. In this contribution, we will discuss the OECD report “Addressing the Tax Challenges of the Digitalisation of the Economy”, which proposes pragmatic solutions to address these challenges, looking also at reports and analyses by the IMF, the Tax Foundation, CASE, The Brookings Institution and PIIE.
The OECD report is based on an in-depth analysis of economic and fiscal trends, as well as a wide range of data and facts. It focuses on two main pillars: the distribution of taxing rights and the introduction of a global minimum tax. Additional sources, such as the IMF and the Tax Foundation, confirm that these two pillars are essential to address the tax challenges associated with the digitalisation of the global economy.
The first pillar aims to modernise the rules for allocating taxing rights between countries to take account of the increasing digitalisation of the economy. The proposals in this pillar would allow a greater share of profits to be allocated to markets where companies have significant operations, even without a physical presence. This approach is not only fair, but also addresses the concerns of different stakeholders, including governments, business and civil society. Case studies of CASE and PIIE show that similar reforms have been successfully implemented in some countries, reinforcing the credibility of this approach.
According to the OECD report and IMF analysis, the profits of digital multinational enterprises are often registered in low-tax jurisdictions, reducing tax revenues for the countries where these enterprises carry out real economic activities. The first pillar proposals rely on key indicators such as sales, active users and the value of data generated in each country to determine a fair distribution of taxing rights.
The second pillar focuses on the establishment of a global minimum tax system. The aim is to ensure that multinational companies pay a minimum level of tax, regardless of the country in which they operate. This would help combat tax avoidance and harmful tax competition, while providing a viable solution to international tax challenges. Reports from the Tax Foundation and The Brookings Institution support this proposal, highlighting the importance of a global minimum tax to ensure a fair tax system.
A key indicator to support this proposal is the minimum effective tax rate (METR), which is currently being negotiated among OECD member countries. This rate would ensure that multinational companies pay their fair share of taxes, thereby reducing incentives to relocate profits to low-tax jurisdictions.
It is essential to stress the importance of international co-operation in implementing these proposals. The OECD has developed this programme of work in collaboration with G20 countries and other jurisdictions to ensure a fair and effective international tax system for all countries and taxpayers concerned. Co-operation is also highlighted in reports by the IMF and The Brookings Institution, which stress the importance of a co-ordinated effort to tackle tax base erosion and profit shifting.
In addressing potential criticisms or concerns about the OECD’s proposed reforms, it is important to note that some stakeholders feel that the proposals may not go far enough to address systemic problems in international taxation. Others fear that implementation of the reforms will be complex and difficult to co-ordinate across countries. Nevertheless, past successes in international tax cooperation, such as automatic exchange of tax information, show that progress can be made when countries work closely together.
In conclusion, the tax reforms proposed in the OECD report are a pragmatic and balanced response to the challenges created by the digitalisation of the global economy. The additional sources reviewed, including reports from the IMF, Tax Foundation, CASE, The Brookings Institution and PIIE, add to the validity and credibility of the proposals. The proposals on the allocation of taxing rights and the introduction of a global minimum tax, supported by key indicators, have the potential to address the concerns of different stakeholders, while promoting international cooperation on taxation.
While the challenges we face are complex, it is crucial that we continue to work together, in a collaborative and inclusive approach, to ensure a tax system that adapts to changing economic realities and benefits all. We must also take into account the constructive criticism and concerns raised to ensure a successful and balanced implementation of international tax reforms.
1. “Addressing the Tax Challenges of the Digitalisation of the Economy”Link