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Spotlight on ...

AN UPDATE ON GLOBAL

DIGITAL TAXATION

Text: Alan Rhode and Joe Kirwin

The decade-long international journey to adapt corporate taxation to the digital economy
is entering the home stretch. But will the revolutionary plans ever cross the finish line and
become the rule of law around the world? Or will they become international treaties with
grand aspirations — climate change or the multilateral Doha Trade Round come to mind
— but that are stymied by political hurdles?

hat is certainly a question hovering over Formulary apportionment might sound like a very technical
the work of 138 countries participating term (and in many ways, it is). But, quite literally, the concept
Tin the special Organization for Economic has a bottom line: it’s how much tax revenue collected by one
Cooperation Development (OECD) Inclusive country where a multinational company is based has to share
Framework, which is an ad-hoc group set up to find with the government of another country where the same
a fairer revenue-sharing replacement to the century- company does digital electronic commerce. In the case of the
old brick-and-mortar, industrial economy tax CCCTB, it was about how much low-tax countries like Ireland
system. But finding consensus on revenue sharing is — the go-to headquarters for most large U.S. multinationals
the epitome of a Gordian knot exercise. doing business in Europe, as well as the Baltic countries or those
in Eastern Europe — would have to share with high-tax nations
Just ask the European Commission‘s tax experts, who spent such as France, Italy and Germany.
nearly two decades designing a Common Consolidated
Corporate Tax Base (CCCTB) for the 27-country EU single In many ways, it is the same reason why another arcane,
market. Negotiations hit one brick wall after another. The key highly technical concept known as “transfer pricing” has been
stumbling block: formulary apportionment. The same concept mired for decades in double taxation, double non-taxation
that is at the heart of the first pillar of the Two Pillar OECD and withholding tax disputes that have kept the European
digital tax plan. Court of Justice busy. At the end of the day, both formulary

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