Although these challenges had been so identified, the 2015 Report contained no recommendation to the OECD member countries to take any substantial action in order to address the digitization challenge.
After years of monitoring the impact the digital economy is having on the international tax system, in 2018 the OECD published the OECD Interim Report on the “Tax Challenges arising from digitalization” which contains insightful information on the progress made on the implementation of the BEPS Package with particular regard to the digital economy.
According to the 2018 Interim Report, the impact that the ongoing implementation of the BEPS Package is having on the taxation of the value created by the digital economy is two-fold:
– on the one hand, the ongoing signature and enforcement of the Multilateral Instrument (MLI) provided for by Action 15 of the BEPS Package, which is aimed at implementing anti-avoidance, anti-treaty-abuse and other treaty-related BEPS Package actions, is likely to bring about an in-depth restructure of the international tax framework that will help governments tackle the challenges arising from taxing fairly the “digital value”;
– on the other hand, the measures of the BEPS Package taken to tackle tax avoidance like preventing the artificial avoidance of Permanent Establishments status (BEPS Package Action 7), ensuring that Transfer Pricing outcomes are in line with value creation (BEPS Package Actions 8-10), strengthening Controlled Foreign Companies (CFC) rules (BEPS Package Action 3) , among others, is having a great impact on countries’ domestic tax legislation as well as on digital businesses’ (like Amazon, eBay and Facebook) tax strategies, which are taking action in order to ensure that their business models and corporate structures are compliant with the ongoing implementation of the BEPS Package provisions.
Although among the countries there is no consensus over the interim measures that should be taken in order to tax the “digital value”, it seems reasonable to believe that the implementation of the BEPS Package over time will effectively help tackle the problem with taxing highly-digitalized business. Indeed, distortions might be eliminated by allowing countries to restore both source and residence taxation in many cases where cross-boarder income would otherwise go untaxed or taxed at very low rate as well as help countries tax domestic and multinational enterprises’ profits similarly.