Many taxpayers that operate in traditional, supply-chain-based business models rightfully tuned out of the OECD’s earliest discussions of digital tax, thinking it was exclusively for “digital-born” taxpayers. However, the scope defining the net of digital tax captured by the “new nexus” has broadened beyond highly digitalized companies to potentially include what we would consider “non-digital-born” organizations that are either directly or indirectly consumer facing. Therefore, in anticipation of an accelerated digital tax implementation as soon as FYE 2021/2022, the time to act is now. We encourage tax departments to conduct as soon as possible a “new taxing right readiness review” and to discuss the potential scope of the new taxing right as it applies to their business flows and the inherent need that will follow for detailed segmented financial data with their CFO and CTOs, respectively.
We are on the front lines of the digital tax issue, having participated in the various OECD public hearings in Paris, submitted public comments to the Secretariat proposal on the Unified Approach under Pillar One, and published an article for TEI with practical recommendations. We are tracking the digital tax evolution closely to ensure that our clients are not caught by surprise from an OECD solution that may have an accelerated, and burdensome, mandate for taxpayers.
The OECD framework is intended for companies with a multi-sided platform, both digital-born and non digital-born, and is comprised of five building blocks, representing the theoretical challenges as well as practical implementation hurdles. We have created the following framework to better understand the five building blocks namely: scope, nexus, profit allocation, elimination of double taxation, and dispute prevention and resolution.