OECD publishes proposal on a “unified approach” to tax the digital economy

On 9 October 2019, the OECD published a proposal for a “unified approach” to the nexus and profit allocation challenges arising from the digital economy.

Background

The proposal combines elements of three competing proposals from several OECD member countries and reflects, according to the OECD, the common ground between these proposals. The OECD aims to reach consensus by 2020 for the “challenges arising from digitalization of the economy”; this to avoid the risk that more countries will take unilateral steps to tax digital companies. This would increase the risks of double taxation and might have negative consequences for the global tax system.

The unified approach aims to complement the arm’s-length principle with a formula-based solution for market jurisdictions and leave the existing transfer pricing rules in place. This would mean the proposal would be a second layer on top of the existing transfer pricing regime.

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