Save article




US Treasury official’s remarks outline scope of US involvement and input into the OECD discussion on international taxation beyond digital

Executive summary

On 29 January 2019, the Organisation for Economic Co-operation and Development (OECD) released a policy note which sets out ambitious new plans1 that may impact any multinational company, including those with highly-digitalized business models and those relying heavily on intellectual property.

The OECD’s policy note was issued after the conclusion of a two-day meeting of the Inclusive Framework on Base Erosion and Profit Shifting (BEPS IF) in Paris, which brought together 264 delegates from 95 member jurisdictions2 and 12 observer organizations.

Also on 29 January, a US treasury official spoke at a meeting of the DC Bar, outlining the involvement of the United States (US) in discussions to date and setting out further views in regard to the US’ position on many of the issues under debate.

Detailed discussion


The OECD’s stated goal, as set out in its policy note, is to reach a new consensus-based, long-term solution in 2020 to the tax challenges brought by the digitization of the economy.

The policy note states that there is now agreement among the 127-jurisdiction strong BEPS IF to examine proposals involving two pillars which could form the basis for consensus. The first pillar addresses the broader challenges of the digitalized economy and focuses on the allocation of taxing rights among countries, including nexus issues. The second pillar would addresses remaining BEPS issues. The OECD believes that a two-pillar approach would be effective in recognizing that the digitalization of the economy is pervasive, raises broader issues, and is most evident in, but not limited to, highly digitalized businesses.

The two-pillar approach, says the policy note, raises questions regarding where tax should be paid and if so, in what amount in a world “where enterprises can effectively be heavily involved in the economic life of different jurisdictions without any significant physical presence and where new and often intangible value drivers more and more come to the fore.”

Drivers of change

The treasury official, speaking at the DC Bar on the day the OECD policy note was released, stated that the US is engaged in the OECD process “out of the very deep concern that the longstanding international consensus around the allocation of taxing jurisdiction is breaking down.” This is highlighted, he said, by the accelerating trend of unilateral actions by various countries over the past five years, including:

  • The diverted profits taxes some of which were enacted only weeks after the BEPS consensus was secured
  • Various advances by the European Commission in State aid cases
  • Section 59A (BEAT) of the US tax reform, which departs from the arm’s-length standard and denies deductions for very real payments and very real economic functions
  • Proposals around both European Union (EU)-wide and unilateral Digital Services Taxes (DST) that are levied on gross revenues, and which have the potential to create double taxation

The official noted that there is currently broad political dissatisfaction around the world with the tax planning outcomes that are possible under the existing international consensus and that the unilateral measures in response are highly politicized. As such, he said, the process is no longer a purely technical exercise. The US therefore hopes, he said, that with increased involvement, a broad political consensus can be built at the OECD level as to how taxing jurisdiction can be allocated between different countries with different taxation models.

Differing approaches

By way of background, the official stated that, post-BEPS, most of the activity at the OECD level has been focused on the work of the Task Force on the Digital Economy (TFDE), a subsidiary body of the OECD, and the discussion has been focused around a very narrow, case study business model involving a highly-digitalized company.

Resulting proposals by the United Kingdom and EU, the official noted, though, apply more narrowly, to search engines, intermediation platforms and social media platforms. These he described as “very targeted taxes that meet some political needs.” The targeted companies, he further noted, are overwhelmingly headquartered within the US, and, after recent US tax reform, such companies are subject to the Global Intangible Low Taxed Income (GILTI) measure at 10.5%, “which is higher than the statutory rate in some EU countries,” he said.

The US approach, as described by the official, has been to try and move the discussion away from taxation of such narrow business models, and recognize instead that political dissatisfaction with the current international tax framework is broader and that a broader solution is therefore necessary. He noted that the current dissatisfaction of many governments is not limited solely to the taxation of highly digitalized business models, but relates equally to other businesses that rely equally on intangible assets and intellectual property, resulting in situations where, under given circumstances, the arm’s-length standard of transfer pricing was not performing optimally. France and Germany, it was noted, have used these discussions to push forward one of their priorities, the broad adoption of a minimum tax.

The official stated that there is a common understanding and agreement among jurisdictions that they will have to be pragmatic in order to arrive at any kind of consensus. Additionally, he noted, developing countries have asked for measures that are administrable and reasonably simple, considering their lesser resources for tax administration. He further noted that all parties seem to have an honest intention to find a global solution.

According to the Treasury official (who attended the Paris meeting), in order to achieve consensus on the first pillar, it will be important to recognize the importance of marketing intangibles. Here, he suggested that a fairly simple and formulaic approach may be agreeable to many jurisdictions, in effect providing extra allocation of income to market jurisdictions. Another possible approach (on which it was not clear if it would work on a stand-alone basis or in combination with other measures) may be to give market jurisdictions the right to tax some defined small spread on revenues for distribution activities in their jurisdictions, adjusting this formulaic amount on the profitability of the worldwide business model.

Next steps

During the OECD Tax Talks webcast on 29 January 2019,3 Pascal Saint-Amans, Director of the OECD’s Centre for Tax Policy & Administration, outlined that there would be a call for public input during the month of February. This input would be further studied by the TFDE at its March meeting, where certain elements of the session may be made open to the public.

Work would then continue in the OECD’s working parties during the months of April and May, before the delivery of an interim report to the G20 Finance Minister’s meeting in June 2019.


The involvement of the US in the public discussion of the tax challenges brought by the digitization of the economy is significant. Collectively, the potential new measures and approaches set out in the OECD’s policy note and further described by the US official would, if implemented, represent fundamental and significant changes to the current system of cross-border taxation, and may take this debate far beyond digital. These changes are complicated and interlinked, and in many cases would be likely to require amendments to income tax treaties.

The lack of detail available thus far illustrates that the discussions are still at the early stages, and that the composition and final form of any measures are far from certain. However, with the involvement of the United States, as well as France, Germany, and the United Kingdom, among others, businesses are encouraged to monitor and remain involved in the discussion as the practical likelihood of the discussion moving forward has increased, with much activity scheduled to occur in the coming four to five months.


1. See EY Global Tax Alert, OECD’s new insights describe growing support on comprehensive changes to international tax policy, beyond digital, dated 29 January 2018.

2. The BEPS IF now numbers 127 jurisdictions in total.


EYG no. 000194-19Gbl

Download this Tax Alert as a PDF file.

Privacy  |  Cookies  |  BCR  |  Legal  |  Global Code of Conduct

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.



Font size

Tax topics >

No filter criteria selected.

Industries >

No filter criteria selected.

Countries >

No filter criteria selected.

 < Close


 < Close


 < Close

Tax topics

 < Close


 < Close


 < Close

0 articles have been saved