OECD PROPOSES TAXATION OF INTERNATIONAL DIGITAL BUSINESS

The OECD recently proposed ways in which to make internet multinationals pay corporate taxes in jurisdictions where the sales take place.

Based on current legislation, internet companies may legally avoid paying taxes by using corporate structures for shifting profits to low-tax jurisdictions.

In the published proposals of the OECD, measures for improving taxation of digital business, include:

• New taxation criteria based on ‘significant digital presence’, and a new concept of ‘virtual’ rather than purely physical permanent establishment;
• Changes to model tax agreements that exempt business premises from permanent establishment status if they merely store, display or deliver goods for the enterprise;
• Introduction of withholding taxes for digital transactions.

The final report on this matter is expected to be released in September 2014.