OECD tax proposals go beyond taxation of digital business models

The Organisation for Economic Co-operation and Development’s (OECD) efforts to address taxation challenges that result from digitalisation would lead to fundamental changes in the existing international tax system, according to Insurance Europe. It said the OECD’s initial proposals go far beyond the mere taxation of digital business models. Insurance Europe said it believes that any adaptations should focus on aggressive base erosion and profit shifting, rather than on challenging the existing international tax system, adding that the proposals are too vague at this stage and would result in significant legal uncertainty, increased administrative burdens for taxpayers and tax authorities, and double taxation. “The innumerable problems resulting from such a profound change to the international tax system have not adequately been considered yet and Insurance Europe believes that this should be done before any legislative action is taken. The consultation suggests it is possible that proposals under both Pillar 1 and Pillar 2 be introduced. Insurance Europe does not see how this could be achieved without it resulting in double taxation,” said Insurance Europe. On the Pillar 1 proposals, which relate to the revised profit allocation and nexus rules, Insurance Europe said: “Profits will not be measured on the same basis between different countries, as they will typically be based on the accounting standards applied in each territory. Whilst a common accounting basis may be used for a group’s consolidated results, different bases may be used for tax purposes. This will result in mismatches, which will then lead to double taxation. This issue is particularly important for the insurance business, which can be very long term.” It also pointed out that the ‘Marketing Intangibles or Significant Economic Presence’ proposals “could result in a large increase in taxable establishments of insurers, especially as wholesale insurers often underwrite risks where the policyholder is unable to find coverage in their home jurisdiction”, adding: “The impact would be a greater administrative burden and more multinational transfer pricing disputes between the relevant tax authorities, placing more pressure on tax authorities. The position of insurance brokers, who act as principals for other customers, would also need to be addressed.” On the Pillar 2 proposals, which relate to the global anti-base erosion proposal, Insurance Europe said the rules proposed by the OECD until now are too general and would apply to a much broader set of business models than the digital-driven ones. It said that because insurers are already subject to a large number of strict regulatory requirements in all jurisdictions, it may be necessary to carve out the insurance sector from any new measures introduced by the OECD’s work on digitalisation. “The large majority of insurers’ activities require a local presence for regulatory reasons. In this context, the OECD’s anti-base erosion proposals could override the arm’s-length principle and result in a conflict between the regulatory and taxation position of insurers. This is because the arm’s-length principle is implicit in the regulatory basis for insurance companies. Insurance Europe believes that dealing at arm’s length should not be abolished or replaced by other rules, as it currently functions well in the insurance business,” said Insurance Europe.

OECD tax proposals go beyond taxation of digital business models

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