The challenge of how to fairly tax the digital economy was identified in the OECD’s BEPS initiative as ‘Action 1: Addressing the Tax Challenges of the Digital Economy’. The standard rules in place today do not capture certain business models that make profits from digital services in a country without being physically present. This has created an imbalance, where bricks and mortar companies are taxed at a much higher rate in these countries than companies that don’t have a physical location.
Countries worldwide agree that a global solution is key to solving this challenge of physical nexus and profit sharing. As such, the OECD has been working on different proposals to find a long-term solution to address this issue. After months of preparation, the proposal was finally unveiled to the public for consultation in October 2020.
Source: SOVOS
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