Ms Olivia Buckley:

The breadth and pace of digitalisation is such that the world’s largest bodies, including the Organisation for Economic Co-operation and Development, OECD, the European Union, EU, the International Monetary Fund, IMF, and the World Economic Forum, are dedicated to understanding its impact and implications for policymakers. The World Economic Forum has said that "Digitalization is one of the most fundamental drivers of transformation ever". The OECD has acknowledged that it would be difficult, if not impossible, to ring-fence the digital economy from the rest of the economy for tax purposes because of the increasingly pervasive nature of digitalisation. It considers digitalisation as a transformative process affecting all sectors that is brought about by advances in information and communications technology, ICT. The IMF has also stated that the digital economy is sometimes defined narrowly. However, in a broad sense, all activities that use digitalised data are part of the digital economy. In modern economies, that is the entire economy.

The tax implications of digitalisation and the change and complexity that is brought about by that has been intensively worked on by the OECD and the EU. The OECD says that, in the context of tax matters, this means that policy development and implementation must be designed to allow for the changing environment, while being sufficiently clear to provide the certainty and clarity that facilitates sustainable, long-term growth. The European Union has also put forward policy proposals, both of a short and long-term nature, to which we will refer later.

There is an appreciation that much work has been done through base erosion and profit shifting, BEPS, to reform outdated global tax rules. The OECD says that it is already starting to see companies realign their business models to be BEPS compliant and that this is having an impact on where they pay tax. However, there is universal acceptance that the corporate tax framework, which taxes profits based on where value has been created, has not evolved to match the digitalisation of global businesses, as our senior tax policy manager, Ms Anne Gunnell, will now explain.