The OECD Borrows a Page from SCOTUS’ Tax Playbook

New international tax laws, a new global tax policy, and what it all means for sellers.

Global tax policy OECD

The U.S. Supreme Court (SCOTUS) had its Wayfair moment in June 2018. The Organization for Economic Cooperation and Development (OECD) followed suit last month.

Re-Alignment of Global Tax Policy & International Tax Rules

On Oct. 9, the OECD published a 21-page public consultation document that describes a tax reform proposal from the OECD Secretariat (the division that carries out the OECD’s policy work) for a “Unified Approach under Pillar One.” This document represents the latest chapter—a pivotal one, to be sure—in the sweeping revision and re-alignment of global tax policy and the operative international tax rules the OECD has been working on for some years. Together with its comprising Pillar Two, they constitute a global re-architecture of international tax rules, not seen since the early 20th century.

In its South Dakota v. Wayfair decision, SCOTUS abandoned the long-standing physical presence standard for determining nexus. The OECD, as its public consultation document makes clear, also envisions a new global tax framework in which remote sellers operating beyond state and country borders are taxed by the countries in which their customers live according to specific sales thresholds.

Nexus & "Digital" Presence

The proposal represents an expanded form of unitary taxation on a global scale, as both formulary apportionment and jurisdictional profit allocation methods are inevitably included. However, the taxable presence, or nexus, under the proposal is a “digital” presence instead of being strictly physical. This is an application of a virtual permanent establishment (PE) pretense based upon digital sales and commercial footprints, leading to jurisdictional economic and business activity. That said, the processes for making this momentous shift still need to be detailed and clarified.

The 2 Pillars of the Global Tax Policy Revision Effort

The OECD detailed the tax challenges of an increasingly digital economy as a primary focal point in its 2015 BEPS Action Plan. A subsequent document published by the G20 Finance Ministers (working in concert with the OECD) in March 2018, Tax Challenges Arising from Digitalization – Interim Report, examined this issue in more detail. And then a joint OECD/G20 Inclusive Framework earlier this year grouped the global tax policy revision effort into two categories: Pillar One, which includes user participation, marketing intangibles, and significant economic presence proposals; and Pillar Two, also referred to as the “Global Anti-Base Erosion” or “GloBE”, which focuses on other BEPS-related expanding issues, such as an “alternative” minimum global tax for multinational organizations.

As MNE founder and editor Julie Martin reports here, the OECD also released a consultation document concerning Pillar Two earlier this month. In another new MNE article, “The OECD’s ‘Unified Approach' to digital taxation,” I offer some additional observations and insights on the new Pillar One proposal—and just how “inclusive” the Inclusive Framework really is.

Explore more Resources from our Industry Influencers:

George L. Salis, Principal Economist and Tax Policy Advisor at Vertex Inc.  Vertex's Chief Tax Office (CTO) provides insight regarding the impact of tax regulations, policy, enforcement, and emerging technology trends on global tax department operations.

George L. Salis

Chief Economist and Senior Tax Policy Director

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George L. Salis is Chief Economist and Senior Tax Policy Director. He is an economist, lawyer, and tax professional with 29+ years’ experience in international taxation and trade compliance, tax planning and controversy, fiscal regulation, and tax economics consulting. He is responsible for analysis of economic, fiscal, legal, trade, and development issues in countries, as well as tracking and analyzing the rapid change in tax policies and regulations, and inter-governmental organizations, and tax administrations around the world.

George is the recipient of the Advanced Certificate in EU Law from the Academy of European Law, European University Institute in Florence, and the Executive Certificate in Economic Development from the Harvard Kennedy School of Government.

George received his BSc in economics and political science, an LLB (Honours), an MA in legal and ethical studies, and an LLM (Honours) in international tax law. He also holds the PhD in international law and economic policy, and the SJD in Taxation from The University of Florida, Levin College of Law. George is a Certified Business Economist (CBE- NABE).

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