The OECD’s proposal seeks to re-allocate some profits, corresponding taxing rights to countries and jurisdictions where MNEs have their markets
The OECD’s proposal seeks to re-allocate some profits, corresponding taxing rights to countries and jurisdictions where MNEs have their markets

India’s proposal to tax global digital platforms gets a boost

  • OECD presents a proposal to advance international negotiations for taxing global digital platforms, digital services
  • The move to negotiate taxation rules for the e-commerce platforms came in the wake the growing tensions between the US, France following the introduction of digital services tax

Geneva: India and South Africa received a boost to their campaign at the World Trade Organization (WTO) against the current moratorium on customs duties on electronic transmissions, after a proposal to advance international negotiations for taxing global digital platforms and digital services was presented on Wednesday at the Paris-based Organisation for Economic Co-operation and Development (OECD).

OECD’s proposal seeks to “re-allocate some profits and corresponding taxing rights to countries and jurisdictions where MNEs (multinational enterprises) have their markets".

“We’re making real progress to address the tax challenges arising from digitalization of the economy, and to continue advancing toward a consensus-based solution to overhaul the rules-based international tax system by 2020," said Ángel Gurría, OECD’s secretary general.

The move by OECD, a rich country club for global economic policymaking and rules, follows growing tensions between the US and France over the introduction of digital services taxes more than two months ago.

For the past two years, India and South Africa have called for an end to a moratorium on customs duties on electronic transmissions at WTO, arguing that the ban denies developing countries more than $10 billion in revenues.

At an informal General Council meeting on 1 October, India and South Africa made a powerful case against the moratorium, saying it is “asymmetrical" for developing countries due to its negative fiscal consequences and digital industrialization.

In response to the arguments, the US, the European Union and several other industrialized countries resorted to stonewalling tactics by refusing to engage in a serious debate on it, said trade envoys who asked not to be identified.

The current moratorium, which came into existence in 1998, will end in December unless WTO members extend it for another two years.

At the meeting, India’s trade envoy J.S. Deepak called for convening a workshop to consider various studies, particularly studies by the United Nations Conference on Trade and Development, the European Centre for International Political Economy, and the Paris-based International Chamber of Commerce.

With the rapidly evolving e-commerce trade, particularly “the advent of industry 4.0 and 3D printing technologies, the moratorium will erode the existing GATT (General Agreement on Tariffs and Trade)-bound rates which are typically higher in developing countries," South Africa’s trade envoy Xolelwa Mlumbi-Peters told members at WTO.

According to Mlumbi-Peters, all the existing literature and research points “out that developing countries would be bearing the brunt of losses of revenue due to the moratorium".

The US, however, opposed India’s call for a workshop by the WTO secretariat saying there is no need to hold another workshop at this juncture, said a trade envoy who asked not to be named.

Further, the US along with other developed and several developing countries, who are all members of an informal plurilateral Joint Statement Initiative group, are privately lobbying for a permanent moratorium to be announced at the General Council meeting later this month, said a trade envoy, who asked not to be named.

It would be untenable to block the joint proposal from India and South Africa to reconsider the current moratorium, while allowing OECD to start negotiations on taxing the digital platforms by the same countries, said a trade envoy, who asked not to be quoted.

Close