The OECD’s programme of work on tax and digitalisation is energising debate about the future of international tax, reports Julian Feiner (Clifford Chance).
Public consultation on ‘pillar one’ is attracting worldwide interest. There have been more than 300 written contributions and 3,000 pages of comments.
In focus is the scope, design and economic impact of a plan that would require ‘consumer-facing businesses’ to apply a new ‘three-tiered’ approach to profit allocation based on sales. The consultation is intensive and many aspects of the proposal remain contentious.
UK industry bodies are understandably concerned by the proposal and have made significant contributions. I have set out below a summary of their positions in the public consultation:
The Chartered Institute of Taxation believes the proposal lacks a coherent underlying principle and will be inherently unstable. It calls for a clearer approach, even if this entails more technical complexity, to be informed by an economic impact assessment.
The Confederation of British Industry queries the scope of ‘consumer-facing businesses’ if, for example, products are sold in multiple markets to businesses, consumers and/or governments. It fears that compliance requirements will create unwelcome barriers to trade.
TheCityUK requests confirmation of a financial services exemption. It advocates an exemption for the banking, investment management and insurance sectors, due to their highly regulated, not highly digitalised and mostly non-consumer facing nature.
The Investment Association supports exemption of the investment management industry, on the basis investors are shareholders, not consumers, in effect. It wishes to avoid ‘cumbersome and disproportionate’ compliance burdens, resulting in over-taxation.
The Alternative Investment Management Association seeks confirmation that the exemption will extend to funds and fund structures, to ensure the neutrality of collective investment schemes.
The British Private Equity & Venture Capital Association similarly expects private equity and venture capital funds to be exempted. It believes funds are at risk of contest from countries on calculation and allocation of profits, which would create cost and uncertainty.
The Association of British Insurers pushes for an exemption of the insurance sector, given that insurance business models are premised on local physical presence, with high regulation and volatile income streams without misaligned profits.
The Betting and Gaming Council seeks an exemption for the gambling sector, based on its view that it is, like the financial services industry, highly regulated with broad consensus on tax treatment.
The British Retail Consortium wishes to exempt the retail of goods, noting that sales are already subject to value added and sales taxes, and that sales revenues contribute to taxable profits. It also wishes to see digital services taxes abandoned as a pre-condition to pillar one.
techUK advocates an exemption for the telecommunications industry, and it believes the financial services exemption ought to extend to fin-tech companies.
Not all UK contributors harbour concerns. One UK business contributor, Royalty Range, praises pillar one as ‘a single, trusted, incontestable method and system’ which ‘will not require significant financial investments from any of the participants’.
Time will tell if the appeals for exemption are upheld. The OECD is open to exploring a financial services exemption, but the exemption of gambling, retail and telecommunications is less certain and likely to be resisted.
Home >Articles > UK industry bodies respond to OECD's 'pillar one' proposal
UK industry bodies respond to OECD's 'pillar one' proposal
The OECD’s programme of work on tax and digitalisation is energising debate about the future of international tax, reports Julian Feiner (Clifford Chance).
Public consultation on ‘pillar one’ is attracting worldwide interest. There have been more than 300 written contributions and 3,000 pages of comments.
In focus is the scope, design and economic impact of a plan that would require ‘consumer-facing businesses’ to apply a new ‘three-tiered’ approach to profit allocation based on sales. The consultation is intensive and many aspects of the proposal remain contentious.
UK industry bodies are understandably concerned by the proposal and have made significant contributions. I have set out below a summary of their positions in the public consultation:
The Chartered Institute of Taxation believes the proposal lacks a coherent underlying principle and will be inherently unstable. It calls for a clearer approach, even if this entails more technical complexity, to be informed by an economic impact assessment.
The Confederation of British Industry queries the scope of ‘consumer-facing businesses’ if, for example, products are sold in multiple markets to businesses, consumers and/or governments. It fears that compliance requirements will create unwelcome barriers to trade.
TheCityUK requests confirmation of a financial services exemption. It advocates an exemption for the banking, investment management and insurance sectors, due to their highly regulated, not highly digitalised and mostly non-consumer facing nature.
The Investment Association supports exemption of the investment management industry, on the basis investors are shareholders, not consumers, in effect. It wishes to avoid ‘cumbersome and disproportionate’ compliance burdens, resulting in over-taxation.
The Alternative Investment Management Association seeks confirmation that the exemption will extend to funds and fund structures, to ensure the neutrality of collective investment schemes.
The British Private Equity & Venture Capital Association similarly expects private equity and venture capital funds to be exempted. It believes funds are at risk of contest from countries on calculation and allocation of profits, which would create cost and uncertainty.
The Association of British Insurers pushes for an exemption of the insurance sector, given that insurance business models are premised on local physical presence, with high regulation and volatile income streams without misaligned profits.
The Betting and Gaming Council seeks an exemption for the gambling sector, based on its view that it is, like the financial services industry, highly regulated with broad consensus on tax treatment.
The British Retail Consortium wishes to exempt the retail of goods, noting that sales are already subject to value added and sales taxes, and that sales revenues contribute to taxable profits. It also wishes to see digital services taxes abandoned as a pre-condition to pillar one.
techUK advocates an exemption for the telecommunications industry, and it believes the financial services exemption ought to extend to fin-tech companies.
Not all UK contributors harbour concerns. One UK business contributor, Royalty Range, praises pillar one as ‘a single, trusted, incontestable method and system’ which ‘will not require significant financial investments from any of the participants’.
Time will tell if the appeals for exemption are upheld. The OECD is open to exploring a financial services exemption, but the exemption of gambling, retail and telecommunications is less certain and likely to be resisted.
