OECD Calls for Principled Policies in the Digital Age: Tax High Among Priorities

Posted on 5th April 2019

Paris

The OECD’s two-year effort to create and study ideas for digital policies that also encourage inclusion culminated in a Paris summit last month, bringing together over 100 speakers to discuss the ‘Going Digital: Shaping Policies, Improving Lives’ project. Policy discussions involving digital technologies, the economy, and society too often transform into inquisitions of digital platforms, but the OECD revealed a mature forum, providing space for informed and constructive confrontations.

Tech giants were understandably still under the spotlight after the turbulent events of the past year, but what emerged from the two-day conference was a narrative championing principle- and evidence-based solutions instead of ad hoc and often biased policy-making.

The question of fiscal policy and taxing the digital sector stood out the most. In the first quarter of 2019 Spain, Italy and France introduced a tax on digital services applying to tech giants only, with others, including, Austria, Belgium, Germany, Poland, Slovakia and the UK ready to follow suit.

Unsurprisingly, attendees dubbed these moves narrow in scope and limited in scale. Panellists including Co-Chair of the US Department of Treasury International Tax Counsel, Brian Jenn, and the Director of the OECD Centre for Tax Policy and Administration, Pascal Saint-Amans, agreed that unilateral initiatives are corrective political measures rather than policies aiming for a long-term solution to international tax challenges.

By contrast, the OECD has been working with G20 countries on a wider initiative against Base Erosion and Profit Shifting (BEPS) since 2013, providing a multilateral framework to address an issue that by nature crosses borders and sectors. The aim is to rewrite international tax rules starting with analysis of how the system currently functions, rather than simply attempting to correct its outcomes. Now that the EU has abandoned attempts to introduce its own union-wide levy on digital services, focus has shifted entirely towards OECD negotiations as players know that their outcomes will be the most significant in the long term.

The importance of finding solutions based on clear frameworks was repeated throughout the summit. The European Commission’s Deputy-Director General for Antitrust Cecilio Madero, for example, remarked that tackling large firms just because they are big or because they benefit more from the digital transformation is, overall, a harmful way forward compared to applying fair rules consistently.

A desire for this emerged elsewhere too: speakers discussed the need to establish clear rules in spectrum auctions to bridge the urban-rural digital divide, to ensure that industrial policies create appropriate conditions for SMEs left behind by the digital transformation or to work out the right balance between privacy and prosperity in an increasingly data-reliant economy.

As national governments lose faith in multilateral action on tax, the OECD is setting out its stall for BEPS and other projects like it as the effective way to make policy rather than just the popular way. Certainly, the conference’s narrative followed an expectation that the BEPS initiative will capture all businesses, regardless of size or digital investment.

The ‘Going Digital’ project’s second phase, ‘Measuring the Digital Economy’, will soon kick-off with the aim of developing new tools for policymakers. Meanwhile, all the focus is on the OECD’s BEPS initiative which is due to produce conclusions on international tax rules by 2020. The upcoming OECD Ministerial Council meeting in May and the G20 in Japan at the beginning of June are crucial steps in regard and deserve close attention.

Author: Julian McNeill, Policy Analyst, Access Partnership

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