While the digital economy cannot be separated out from the rest of the economy, it is equally clear that some specific features of the digital economy may exacerbate the risks of base erosion and profit shifting for tax purposes–namely mobility (e.g. intangibles, business functions), reliance on data (and other forms of user input), network effects, and the spread of multi-sided business models.
If there is a silver lining to the 2008 financial crisis, it is that it was a catalyst for the unprecedented progress we have made in building robust international tax standards for the interconnected global economy of the 21st century.
Conventional wisdom holds that countries with lower taxes attract higher levels of foreign direct investment (FDI). At first glance, this intuitive assumption seems to be supported by the evidence but is this true?. Pierre Poret, Deputy Director of the OECD Financial and Enterprise Affairs Directorate takes a closer look.
Meeting budgetary targets is hard enough in any country, but for developing countries struggling to lift their economies, it can seem a near impossible task. However, governments and local authorities everywhere in the world have a duty to provide public and social services for their citizens, and infrastructure that will attract investors. Tax revenues are therefore vital for meeting public demands as well as development aspirations.
Governments are working together in order to try to address a lot of issues that need to be addressed. There is a real and coordinated effort in order to obtain a better level of transparency. Its objectives are quite ambitious. Greater transparency can be a move in a positive direction.
In September the OECD presented its first package of recommendations to the G20 for an international approach to stopping artificial tax base erosion and profit shifting. Seven recommendations were proposed as part of the 15-point BEPS Action Plan.
“Life is full of alternatives but no choice.” G20 leaders at the summit in Brisbane, Australia, in November should reflect on these words by Australian writer Patrick White, a Nobel Laureate, as they prepare their economic strategies for the years to come.
Article about OECD work with international partners to eradicate tax evasion and tax avoidance, published in G7 Brussels Summit magazine, June 2014
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Tax for development: why better public services matter
Following the financial crisis in 2008, millions of citizens faced hardship as they set about repairing the damage done to their economies and to public finances. For most people, the necessary sacrifice was bearable as long as it was shared fairly by everyone in society. Unfortunately, the evidence shows that this was not the case when it came to some large global companies.