Abstract

Currently with the OECD and EU at the center, a number of discussions are underway to prevent multinational companies from engaging in tax revenue erosion, including a plan to introduce a new concept of permanent establishment suitable for the digital economy. In March 2018, the OECD and the EU released a provisional report on the taxation plan in the digital economy in the short－term and long－term way, which discussed corporate taxes based on a new concept of permanent establishment such as ‘significant digital presence’ as a long－term measure and discussed the introduction plan of ‘digital service tax’ as a short－term measure. Short－term measures by each country include the UK’s DPT, ORIP and DST, and Australia’s MAAL and DPT. The business eroding tax revenue of UK in a roundabout way is taxable in the UK’s DPT. ORIP imposes income taxes on the income of intangible assets of low tax－rate countries’ offshore companies involved in sales of goods or services in the UK. DST is taxing digital services that generate revenue from user participation in the UK. Australia’s bypass profit tax was introduced sequentially after separating two taxable types by each taxonomy by benchmarking UK’s DPT. Short－term national measures under the digital economy, such as DPT, can be seen as “TAARs” that target specific cases. There are also concerns about the possibility of conflict with tax treaties and of tax disputes with other countries as to new types of taxation under short－term measures. As a result of its implementation, DPT has become a measure to strengthen transfer price taxation among related businesses in a way that is advantageous to taxation authorities in terms of its purpose and effect. Considering each country’s proposals for long－term measures, it is pointed out that the UK’s proposals are likely to violate tax neutrality by applying the taxation nexus and profit split method to the digital business area only, and that the US’ proposals have a disadvantage in unclear aspects of the concept of marketing intangible property. The German and French proposals are expected to be difficult to reach an agreement due to different standards and preferences from country to country in relation to the judgment of related companies, and the lack of specifics on major principles in their proposals is also pointed out as a problem. Also questions are raised about whether the measure is appropriate as a long－term measure for the digital economy, given that it is a general BEPS measure. The proposals in G24 are considered the most reasonable proposal in terms of approaches. What our taxation authorities should focus on in the future is to identify domestic and foreign taxation rights to be adjusted according to the taxation agreement on the digital economy and to analyze the impact on domestic companies that will be directly or indirectly affected, and to prepare effective countermeasures to protect local businesses and secure domestic taxation rights.

Keywords

• digital economy
• BEPS
• permanent establishment
• DPT
• ORIP
• DST
• 2 pillar approach

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