Global digital tax developments
For me, nothing quite illustrates the implications of emerging digital economy taxation quite like talking to the global tax director of a major multinational company. Our interview here with Paul Morton, Head of Group Tax for the global publisher RELX Group, is no exception (see page 4). Spoiler alert: try not to blanch at the scenarios he describes with words like “administrative nightmare” and “insurmountably difficult.”
Actually, the strongest theme running through the interview with Paul is digital confidence. Think of digital confidence as a company’s enterprise-wide grasp of current and future digital business catalysts, along with sustaining a deep understanding of their tax, legal and policy implications. It is the kind of confidence companies must have to act with agility in today’s hypercompetitive global market.
Then consider Paul’s active engagement in tax policy arenas, his path-breaking participation in a quadrilateral advancepricing agreement and, yes, even his description of an incredibly complex chain of transaction that makes up the electronic publishing process. All tax executives need to be thinking ahead and approaching taxation with the same agility that their companies bring to conducting business, both traditional and digital. Companies’ global business strategies and operations are increasingly taxsensitive. That’s what makes tax so key to digital confidence.
And yet, this edition of EY’s Global digital tax developments review also underscores the tax challenges that can sap digital confidence. Our “Short guide to Action 1” speaks, of course, about the Digital Economy Report finalized last October by the Organisation for Economic Cooperation and Development’s Base Erosion and Profit Shifting project (OECD BEPS project, see page 12). In the BEPS project’s wake, businesses still lack the visibility they require to perform solid business planning. Still to come are clarifications of the 2015 guidelines , a detailed mandate for further work to be issued in 2016 and yet another set of digital tax guidelines to be published in 2020.
That’s just at the global level. Regional and national developments like those we describe in this edition can be just as challenging — from a new Japanese ruling on e-commerce warehousing (see page 31) to a European Union judgment on a more “horizon” technology: virtual currencies (see page 6).
I find at least three important takeaways in this edition: for one thing, it should be clear by now that tax directors must take an active role in their company’s strategic planning around digital as a matter of course. At stake is business innovation, growth and profitability.
Furthermore, engagement with tax authorities could be more important than ever in 2016. That’s because implementation of BEPS recommendations will be a complex process, with countries choosing between different options, alternative approaches and subjective interpretations, even as the OECD monitors current BEPS outcomes in order to set the agenda for future work, and as tax authorities worldwide try to come to grips with even more (and possibly even more disruptive) digital business innovation.
Finally, there will likely be potential “outliers” among countries. Some jurisdictions have already co-opted, reinterpreted and even digressed from the tax guidelines in the Digital Economy Report. Keep an eye out for additional surprise measures — novel withholding taxes or concepts of digital permanent establishment. Tax directors need to expect the unexpected as they continue to actively monitor digital tax developments worldwide.
We hope this quarterly review can help in all three regards. I would be eager to hear your experiences and perspectives, as well as to hear about topics that you would like us to focus on in future issues.