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The digital economy, base erosion and profit shifting: what might change

The digital economy, base erosion and profit shifting: what might change

First published in Global Banking & Finance Review, 19 June 2014

The UK seems to be at the epicentre of the tax debate and discussion as many of the UK politicians seem to have made it their priority. The UK’s Public Accounts Committee (PAC) has made a name for itself grilling big businesses such as Amazon, Google and Starbucks more than once about their tax affairs.

This has created the climate of where everyone has their two pence worth to bring to the table on tax.

It is certainly on the agenda, rightly, in boardrooms across the UK and the world. Research this year by Taxand showed that 70% of respondents saw corporate tax on board agendas, with the year ahead promising to see the same.

Tax has become entwined in the business management strategy of company with more at stake, including reputation and public profile, even CSR. A business whose chief financial officer or finance director does not have tax in their repertoire could be missing a major trick. 

On 24th March 2014 the OECD published a public discussion document. It ran through the story of the digital economy and then the situation in the here and now.

A significant part of the paper tries to dissect and see if the digital economy can be compartmentalised so that it can be treated differently for tax purposes. One of the biggest problems is how do you actually monetarise some, let alone all, of this activity. Especially as some parts of the digital economy use its own currency in the form of bitcoins or by selling you hardware which incorporates software marketing systems on board.

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Taxand's Take

The debate which lead to the Organisation for European Co-operation and Development (OECD) base erosion and profit shifting (BEPS) project work was kicked off by a letter to the Financial Times (FT) by the UK, German and French Finance Ministers, who promised to take the lead in bringing global tax rules in to the 21st Century for companies and tax jurisdictions.The OECD took forward the work programme, publishing its 15 point plan, beginning with how to address the tax challenges of the digital economy.

Taxand's Take Author