The Complexification of International Taxation
And all of a sudden, digitisation took over the tax scene, the digital economy has itself become an econom and problems began to arise.
The European Union has tried, through two failed Directives, to first impose a maximum rate of 3% on certain digital businesses and then a revision of the territorial (i.e permanent establishment) and profit allocation rules. The way forward was, as will probably have to be one way or another, by finding an effective way to tax businesses that do not require a physical presence in a given territory.
Failed by the European Union's attempt, the OECD has taken, or is trying to take, the reins of the matter. To try to please everyone, it has come up with a complex methodology for revising the territorial nexus and the rules for allocating income (the so-called Pillar 1), and a plan of rules for income inclusion and minimum taxation of non-subject or subject income. at reduced rates (called Pillar 2). Since the United States, home to many of the big companies operating in the digital space, objected to the new taxation model reaching only these companies, the OECD had no choice but to move forward with a broader program that could spill over. digital businesses and entering the so-called traditional economy which, better or worse, and by virtue of the stabilized territorial nexus in combination with transfer pricing rules, eventually learns what lines are concerned with dividing their taxable profits by different jurisdictions where it does have a physical presence.
It would be said, especially as regards the income allocation rules under Pillar 1, that the OECD has come up with a maximalist solution, probably asking a lot from the outset to achieve what is fair or possible in the end, implying a abrupt break with traditional taxation models in a short time. The reactions did not take long. The Swiss tax administration has clarified that it is in favor of changes to the current international corporate taxation model and transfer pricing rules to achieve the fairest possible taxation model. But it immediately expressed its disagreement over the imposition of minimum tax rates on multinational companies and tax systems that do not encourage innovation and undermine free competition. The Spanish tax administration has announced the creation of an “elite corps” to deal with multinational corporations using advanced digital tools such as Big Data and Artificial Intelligence.
And several countries continue to unilaterally introduce taxes on digital businesses. Thus, a troubled phase in the world of international taxation is anticipated: either countries agree to reshape the current taxation model of multinational corporations from top to bottom, or we will have a proliferation of not always uniform rates that will further make the global tax system even more complex and contentious.
