On 22 September 2017 the OECD issued a request for input on work relating to the tax challenges of the digital economy. The OECD is requesting public comments on important issues relating to tax challenges raised by digitalization and potential options to address those challenges. Comments are requested by 13 October 2017 and there will be a public consultation on 1 November 2017.

As the digital economy is present in all aspects of the economy it cannot be ring-fenced for tax purposes. However the digital economy and the resulting business models have certain features that must be taken into consideration for tax purposes. The digital economy has an effect on mobility, reliance on data, network effects, an increase in multi-sided business models, and a tendency toward monopoly or oligopoly as well as an increase in volatility. It has accelerated the spread of global value chains that integrate the worldwide operations of multinational enterprises. Although there are no unique issues in relation to base erosion and profit shifting (BEPS) the digital economy increases the risk of BEPS.

There are challenges for policy makers relating to nexus, data and characterization of transactions for direct tax purposes. There are also problems for collection of VAT especially in relation to goods, services and intangibles supplied from abroad. These problems may require changes in relation to withholding tax and other collection mechanisms.

The report on BEPS Action 1 concluded that work should continue as the digital economy develops and future work would be carried out in consultation with a broad range of stakeholders. An inclusive post-BEPS monitoring process was required. A report on the outcome of the continued work would be produced by 2020.

The request for input is asking stakeholders to comment on issues they are experiencing with the current international tax framework. It asks for input on the implications of digitalized business models and their value chains on tax policy and implications for taxation of business profits. Stakeholders are asked to comment on how the BEPS measures have addressed the broader tax challenges of digitalization.

The request for input sets out the potential options to address tax challenges of digitalization, such as the tax nexus concept of “significant economic presence”, withholding tax on certain digital transactions or a digital equalization levy. It asks for comments on challenges in the application of these options and their advantages and disadvantages of these and other potential tax measures. It also invites input on other issues that should be considered in the ongoing work on tax and digitalization.