The OECD proposals aim to ensure that corporate profits are taxed where economic activities generating the profits are performed and where value is created.
Among the recommendations are changes to the practice of transfer pricing, particularly for intangibles such as software, patents and royalties, and changes to bilateral tax treaties to more closely match taxation with what the OECD calls “relevant substance”.
Moreover, the OECD proposes a standard country-by-country reporting form for multinationals, which will disclose the activity, employment level, profits and tax paid in each country in which the company does business. The information would only be disclosed to tax authorities, not to the general public.
The OECD has also concluded that it is possible to implement some key changes by way of a single international legal agreement that would change elements of all bilateral tax treaties in one go. It said there is no point in trying to establish a special tax regime to cover the digital economy, as it is difficult to separate the so-called digital economy from the non-digital economies. Notably, the OECD proposals do not call for any changes to the rate at which countries levy corporation tax.
