A U.S. proposal could answer the digital tax questions vexing policymakers worldwide, a Treasury Department official said.
The plan, which gives more tax revenue to the countries where companies do business, could “satisfy a political need and obviate the need to take unilateral measures,” such as the digital services taxes many countries are considering or have already enacted, said Brian Jenn, deputy international tax counsel at the Treasury Department. He was speaking Dec. 11 on a webcast hosted by PwC and the Tax Council Policy Institute.
The U.S. is proposing a global plan to let countries tax profits generated by a multinational company’s marketing activities, which would reallocate more taxable profits to countries where digital companies have a big user base.
The U.S. hopes this marketing-based intangibles approach “would answer all of these political questions and ultimately restore some degree of stability to the existing international tax system where consensus seems to be breaking down,” Jenn said.
Three Plans on the Table
The proposal is one of three now before the Organization for Economic Cooperation and Development’s Task Force on the Digital Economy, which Jenn co-chairs. The group is looking for a plan that addresses countries’ concerns about how the global tax system should adapt to the digitalization of the economy.
The task force working on a digital tax solution is considering at least three approaches: a U.K.-sponsored proposal to impose a digital tax based on user participation; a German-sponsored proposal to impose a global minimum tax that may partly resemble the U.S.’s new global intangible low-taxed income regime; and a U.S. proposal to allocate taxing rights based on marketing intangibles.
In addition to the marketing intangibles idea, the U.S. would also support the minimum tax plan because it would subject non-U.S. companies to a tax similar to the GILTI regime U.S. companies face, Jenn said.
More details on the OECD task force’s work could become public in January, Jenn said, and may be followed by a formal public consultation on the plans being considered by the task force. The Group of 20 finance ministers may then ask the task force for an update when they meet in June 2019, he said.
Meanwhile, pressure is mounting for the OECD to find a solution.
France and Germany on Dec. 4 announced a compromise version of a planned European Union digital tax, which would impose a 3 percent levy on the European revenue of the biggest companies that sell digital advertising, like Alphabet Inc.’s Google. The new plan would significantly narrow the scope of a previous proposal to tax digital services, an attempt to appease concerns of countries like Ireland that opposed it. The EU could drop its plan if the OECD reaches consensus on its own plan by January 2021.