The OECD’s Base Erosion and Profit Shifting (BEPS) project started in 2013 amid growing concern of tax planning used by multinational enterprises (MNEs) to artificially reduce taxable income / shift profits to low tax countries by benefitting from discrepancies between country specific tax rules.
OECD members and G20 countries defined an Action Plan of 15 items to address the key taxation challenges of today’s global economy. After two years of intensive work and consultation with different stakeholders all actions are now completed.
The final report on Action 1 of the BEPS project, which deals with the Tax challenges of the Digital Economy has recently been published. The report has already been endorsed by the G20 Finance Ministers who recommended a rapid, wide-spread and consistent implementation of the measures. Even though the majority of the recommendations the report focus on corporate tax and transfer pricing, there are also specific proposals in respect of indirect tax:
- the VAT/GST treatment B2C digital supplies;
- remote digital supplies to exempt businesses / remote digital supplies to multi-location enterprises; and
- VAT/GST on low value imports.
The main recommendations to deal with the above issues are as follows:
- The place of supply for B2C services should follow the destination principle, i.e. these should be subject to VAT/GST at the customers’ location. The report proposes a simplified VAT / GST registration and compliance system for non-resident suppliers, similar to the EU’s Mini One Stop Shop scheme.
- For B2B ‘remote digital’ supplies, the place of supply should be where the customer is established (or where a business is established in more than one country, the transaction should be taxable where the establishment using the service is located), with a requirement to apply a reverse charge.
We will keep you posted of the implementation process. We also recommend to follow PwC’s series of webcasts on the BEPS project – the next one will be held on 29 October with the title: “How will the BEPS reports impact multinationals”, register now.
The full OECD report on each Action Points is available here.