1. Digital tax updates - Global and India perspective

2. OECD Initiatives – Digital Economy

3. Recent OECD initiatives
Digital
BEPS Action 1 (2015)
No consensus on the taxation of the digital economy
OECD and EU
Seeking consensus on fundamental questions of how value should be defined and taxed
Separate work streams but mutual recognition
Separate proposals/some have been implemented (France, UK, Spain, Italy, Austria)
Risk of double taxation, impeding growth and trade
Unilateral/ Uncoordinated measures
Interim report: Challenges and three main groups of views
BEPS actions already sufficient
Focus only on digital companies
A broader change is needed beyond just digital
No specific measures are proposed
March 2018 (OECD)
Policy Note – 2 main pillars of work
OECD (January 2019)
OECD (February 2019)
Consultation document – 2 main pillars of work

4. Recent OECD initiatives
Digital – November 2018 conference
OECD/Business at OECD/BDI tax conference on digital taxation (6 November): An overview on the direction of the work on taxation of the digital economy.
Main approaches considered
Reallocation of taxing rights
A “digital PE” – similar to the EU and the UK proposals (the UK is the lead proponent of this approach) - allocation of profits based on users and data
A return to market jurisdictions based on the value of marketing intangibles inherently tied to that market (the U.S. is the lead proponent of this approach).
Global minimum tax
A minimum tax approach (similar to US GILTI regime), coupled with a secondary approach - for companies parented in jurisdictions without a corporate income tax or who do not adopt the minimum tax (France and Germany are the lead proponents of this approach).
The marketing intangibles and the minimum tax approaches will apply to all businesses not just digital

5. OECD February 2019 update – Consultation Document
1st pillar: Allocation of taxing rights, nexus issues
2nd pillar: Remaining BEPS challenges
Marketing intangibles Apply to all businesses
User participation
Apply to highly digitalized businesses
Significant digital presence/significant economic presence – NEW Easier administration
Tax on base eroding payments
Source country to deny a deduction (or impose WHT) on under-taxed payments
Income inclusion rule
Coordination rule
Avoid double taxation/taxation in absence of economic profit
Certainty, dispute resolution/prevention
All Inclusive Framework countries need to agree
Consultation launch/public consultation – February/March 2019
Detailed programme of work to be agreed in May 2019
Progress report to G20 – June 2019
Solution to be delivered
While this is progress, the results may still be too distant to prevent unilateral measures given political pressure to act

6. Taxing the digital economy – India’s take

7. Taxing the digital economy – India’s take
Equalisation Levy
Special levy introduced on online advertisements from June 1, 2016
Applies at the rate of 6% on gross consideration for any ‘specified service’
Levy not applicable if non resident service provider has a PE in India and the ‘specified service’ is effectively connected with such PE
Revenue collected by India from June 2016 to March INR 3.4 billion (Source: OECD Interim report on Tax Challenges Arising from Digital Economy)

8. Taxing the digital economy – India’s take
Significant Economic Presence (‘SEP’)
A new concept introduced with effect from April 1, 2018 which expands the ambit of ‘business connection’ in India
SEP is defined to mean:
any transaction in respect of any goods, services or property carried out by a non-resident in India including provision of download of data or software in India if the aggregate payments exceed the amount as may be prescribed; or
systematic and continuous soliciting of business activities or engaging in interaction with such number of users as may be prescribed, in India through digital means
Place of rendition of services/entering into agreement and Indian residence/place of business of non resident not considered relevant
Tax treaty protection available till treaties not amended
Thresholds for the above criteria yet to be prescribed

9. Australia’s – Multinational Anti-Avoidance Law

10. Australia’s – Multinational Anti-Avoidance Law
Multinational Anti-Avoidance Law (‘MAAL’)
MAAL is applicable to certain schemes on or after 1 January 2016 if:
a foreign entity supplies goods or services to an Australian customer
an Australian entity, that is an associate of or is commercially dependent on the foreign entity, undertakes activities directly in connection with the supply
some or all of the income derived by the foreign entity is not attributable to an Australian PE, and
the principal purpose, or one of the principal purposes of the scheme, is to obtain an Australian tax benefit or to obtain both an Australian and foreign tax benefit
MAAL only applies to Significant Global Entities (‘SGEs’) which can be defined as:
A global parent company whose annual global income is AUD 1 billion or more; or
a member of a group of entities consolidated (for accounting purposes) where the global parent entity has an annual global income of AUD 1 billion or more

11. Action Plan 7 – Preventing the Artificial Avoidance of Permanent Establishment Status

12. Action Plan 7 – Preventing the Artificial Avoidance of Permanent Establishment Status
Agency PE
The scope of agency PE is expanded to include a person who ‘habitually plays the principal role leading to the conclusion of contracts that are routinely concluded without material modification by the enterprise’
Narrowed the requirements for “independent agent,” – not to qualify for exemption if they act exclusively or almost exclusively for one or more enterprises to which it is closely related.”
Specific activity exemptions
The exception for preparatory and auxiliary activities will only apply if each activity meets the preparatory and auxiliary definition or, in the event of a combination of activities, they together can be seen to be preparatory and auxiliary in nature
Anti-fragmentation rule
This rule seeks to deny the preparatory and auxiliary exception if the foreign enterprise or a related enterprise carries on related activities in the same jurisdiction and those activities, taken as a whole, go beyond preparatory and auxiliary
Splitting-up of contracts
Aggregation of time that two related companies would spent when it is reasonable to conclude that the principal purpose was to obtain benefit PE article

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