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Digital Tax the Focus at 2018 IFA Seoul Congress

Robert Sledz  

· 15 minute read

Robert Sledz  

· 15 minute read

On September 2-6, 2018, the International Fiscal Association (IFA) held its 72nd annual Congress in Seoul, South Korea.[1] IFA is a non-governmental entity based in the Netherlands that focuses on fiscal-related policy, including tax.[2] Various governmental and academic officials, as well as top international tax practitioners, attended the Seoul Congress.


Several panels at the Seoul Congress discussed recent international tax developments, including the 2017 U.S. tax reform (Tax Cuts and Jobs Act or TCJA),[3] OECD and European Union (EU) digital tax proposals, EU state aid decisions, and Base Erosion and Profit Shifting (BEPS) project implementation. However, the primary focus of several panels was on the multilateral work by the OECD and EU on digital tax proposals, which the OECD refers to as “digitalization of the economy.” The March 21, 2018, European Commission (EC) proposal for an interim digital services tax (DST) came up the most during several Seoul Congress panels.[4]

Tax issues related to the ongoing global trade disputes involving the U.S. were not discussed during the Seoul Congress.

Each IFA Congress selects two topics for its scientific panel seminars, and for the Seoul Congress they were on general anti-avoidance rules (GAARs) and withholding taxes. While GAARs have been addressed during several IFA Congresses, most recently in Rome in 2010, this was the first Congress to discuss withholding taxes.

The Chair of the withholding tax panel, Paul Morton, Tax Director of the U.K. HM Treasury Office of Tax Simplification, said during the panel and in his interview with Reuters[5] that use of withholding taxes to address digitalization of the economy is not referenced in the OECD’s March 2018 interim report on digital tax proposals[6], and in HM Treasury’s March 2018 updated report on taxing the digital economy[7].

The Seoul Congress panel on withholding taxes said that withholding taxes for cross-border transactions, relating to permanent establishment (PE) rules, are an important tool to protect a source country’s tax base. However, such withholding taxes are often regarded as undesirable hurdles against the free flow of income and capital. Withholding taxes based on gross revenue can be distorted economically compared with a net corporate income tax.

Digitalization of the Economy

As mentioned above, the March 2018 EC DST proposal came up the most during several Seoul Congress panels.  The EC proposes to establish a DST of 3% on revenues resulting from the supply of certain digital services by certain entities. Only certain entities would qualify as taxable persons for purposes of DST, regardless of whether they are established in an EU member state or in a non-EU jurisdiction.[8]

Valere Moutarlier, Director of Direct Taxation, Economic Analysis and Evaluation at the EC, said during a panel on withholding taxes that the timing of the EC’s March 2018 digital tax proposals coincided with the end of the current EU legislative calendar prior to EU parliamentary elections to be held in May 2019. He added that the EC’s interim DST is not meant to be paid by consumers, and would be a charge on gross revenues from certain e-services. A former OECD official (Marlies de Ruiter, EY’s Global International Tax Policy Leader) said during a separate panel on recent international tax developments that the EC’s interim DST will strengthen EU negotiating positions, paving the way for future permanent EU digital tax proposals.

The June 21, 2018, U.S. Supreme Court (SCOTUS) decision in South Dakota v. Wayfair, Inc., et al.,[9] came up during several panels at the Seoul Congress, but was not discussed by any panelist in detail. The SCOTUS held in Wayfair that the previous retail sales “nexus” requirement of having a physical presence to be subject to state sales tax collection requirements is no longer required under the Commerce Clause of the U.S. Constitution; instead, an “economic presence” may suffice, subject to certain thresholds.

Whereas several U.S. officials (e.g., Phil West and Bob Stack, both former International Tax Counsels at the U.S. Treasury) said that the Wayfair decision should not inform the OECD and EU digital tax negotiations as it was issued in the retail sales, not corporate income, tax context, several OECD and EU panelists said that Wayfair is further evidence of the growing shift away from requiring a physical presence in a country to be subject to corporate income tax. During his interview with Reuters at the Congress, Mr. Stack said that the Wayfair decision does not relate to corporate income tax principles at all.  Mr. West said during a panel on IFA and EU developments that now may be the time for multilateral discussions at the OECD on whether to shift transfer pricing rules to a formulary apportionment-type system, instead of pushing forward with the EU DST.

Several OECD officials, including Pascal Saint-Amans, Director of the Tax Policy Centre, and David Bradbury, Head of the Tax Policy and Statistics Division, spoke about the complexity of the ongoing OECD-led multilateral discussions on digital tax proposals during the panel on IFA and OECD developments. Mr. Saint-Amans feels that the work on digital taxes will fix the defects of the BEPS Action 7 final report on profit attribution rules, before shifting to defining tax nexus. In his interview with Reuters, Murray Clayson, President of IFA, said that the multilateral discussions on digital tax agenda are reigniting the debate between “source”- and “residence”-based taxation.

Mr. Bradbury said during the panel on IFA and OECD developments that the OECD released its 2018 interim report on digital tax a month earlier than it had planned originally in March 2018, based on requests from G20 members. He added that the OECD is making progress on reaching its 2020 goal of multilateral consensus on digital tax measures, due mainly to the U.S. government’s shift to be involved in the multilateral discussions.

India has been among several countries to enact unilateral digital tax measures (i.e., the equilisation levy in 2016[10], and the “significant economic presence” (SEP) rules in 2018[11]) before multilateral consensus by members of the OECD’s Inclusive Framework on BEPS. Akhilesh Ranjan, a senior Indian tax official, spoke on the issue, as a panelist at the Seoul Congress, and during an interview with Reuters. Mr. Ranjan said that India has indicated its preference to the OECD of reaching multilateral consensus on digital taxation, despite India being an early adopter of unilateral measures. In his Reuters interview, he said that India hopes to build on its SEP rules, including by incorporating them in its income tax treaties over time.

The Seoul Congress panel on withholding taxes presented several examples of ways to tax cross-border digital services, including by withholding taxes on cloud-based services. Gary Sprague, Partner at Baker McKenzie, said that current blockchain technology would allow for tracking of multiple layers of withholding tax on cross-border e-services.  Bill Sample of Microsoft said that withholding tax should not be levied on cloud-based services because these services tend to be routine without any technical support behind the scenes. Mr. Sample also said that cloud-based services tend to be provided at very low cost to consumers.

Several Seoul Congress panels asked audience members to vote electronically on several questions relating to digitalization of the economy. Participants during one of the panels voted 100 to 60 in favor of taxing digital companies in countries where they have no physical presence. In a different panel on IFA and EU developments, two-thirds of the participants said that current international tax rules are insufficient to tax the digital economy effectively, and approximately 71% of those participants said that the EU should not proceed with its digital tax proposals prior to a multilateral agreement being reached at the OECD level.

Along the foregoing voting results, Christian Kaeser, Global Head of Taxes at Siemens AG, said during a Reuters interview at the Congress that the OECD should lead the digital tax discussions to ensure better consistency in global standards and limit unilateral country measures. Thomson Eisengruber, Head of International Tax at the German Bavarian Ministry of Finance, said in his Reuters interview that the EU DST is not the right way to go forward on digital tax measures as it is far too complicated and will be challenging for EU member states to implement, and that the OECD digital PE approach will also be challenging for countries to implement.


While several panelists at the Seoul Congress covered the following international tax measures that the TCJA introduced, nothing new was discussed about the measures: base erosion and anti-abuse tax (BEAT) under Section 59A of the U.S. Internal Revenue Code (Code); global intangible low-taxed income (GILTI) under Section 951A; and foreign derived intangible income (FDII) under Section 250(b). In his interview with Reuters, Mr. Stack said that developing countries may implement BEAT-type rules to protect their tax base, but are less likely to implement GILTI-type rules, the latter of which are better for residence jurisdictions, like the U.S.

Pam Olson of PwC and Josh Odintz of Baker McKenzie were the primary panelists at the Seoul Congress to cover the new U.S. international tax rules. They said that confusion remains on several aspects of the TCJA rules, until the U.S. Treasury issues proposed regulations on them in the coming months. Ms. Olson said that following enactment of the TCJA, only five countries (Chile, Ireland, Israel, Mexico, and South Korea) still have a worldwide corporate international tax system. She also walked through a high-level calculation of the GILTI and BEAT rules. She said that the BEAT rules are broad in their application, and can also pick up intercompany payments covered by advanced pricing agreements (APAs).

Mr. Odintz said during a panel on recent international tax developments that the U.S. GILTI rules cover more than just intangible income. Also, the GILTI rules flip application of the U.S. Subpart F rules on their head, because application of the Subpart F rules now seems beneficial for many taxpayers. With respect to the new BEAT rules, Mr. Odintz said that confusion remains about the treatment of transactions with respect to the services cost transfer pricing method. He said that the BEAT is painful for taxpayers since it is a gross-based tax that will affect companies with large international operations, and will also affect the planning of domestic transactions.

One of the Seoul Congress panels discussed the interaction of the U.S. BEAT rules with the non-discrimination provisions in Article 24 of the 2016 U.S. Model Tax Treaty ( “2016 Model”),[12] along with possible World Trade Organization (WTO) issues resulting from application of the BEAT and FDII rules. For example, the BEAT rules may violate Article 24(5) of the 2016 Model, “because it applies to a payment by a U.S. corporate to a non-U.S. related party, but not to a U.S. corporation’s payment to a U.S. related party.”[13]

Interestingly, Mr. Saint-Amans said that the U.S. BEAT rules represent an “earthquake” in the global transfer pricing arena, as they signal U.S. dissatisfaction with traditional transfer pricing standards (i.e., the arm’s-length principle).

Mr. Kaeser said during his interview with Reuters that the BEAT rules are the biggest issue from the TCJA for his company, and others with inbound investments into the U.S. His company is looking forward to proposed Treasury regulations on the rules.

With respect to intangibles, Mr. Ranjan said during both a panel and his Reuters interview that the BEPS Action 8 final report did not go far enough in defining which intangibles are covered for transfer pricing purposes, but  that the TCJA comes closer to a broader definition. Also, the U.S. BEAT rules are likely to cause a tax hit for Indian multinationals with U.S. operations.

BEPS Project

Not much new information was covered during the Seoul Congress on BEPS project implementation and new guidance, other than the following.

Mr. Kaeser said during his interview with Reuters that BEPS implementation is not generally affecting holding company structures for his company and those of other EU-based multinationals, as they tend to already be conservative in their tax planning. Most base erosion was not caused primarily by EU-based multinationals.

Mr. Saint-Amans said during a panel on IFA and OECD developments that the OECD is working on developing a template for the BEPS Action 6 country peer reviews on preventing treaty abuse, which should be released by January 2019.

Regarding exchanges of country-by-country (CbC) report information that began in June 2018, Mr. Saint-Amans said that the OECD does not yet have feedback from tax authorities on the initial CbC exchanges, and that the International Compliance Assurance Program (ICAP) on CbC reporting is still in the pilot phase, set to be completed by mid-2019. However, the ICAP may be rolled out soon to include additional participating multinationals.

The ICAP is a voluntary program open for multinationals to have cooperative multilateral transfer pricing engagements with tax administrations.[14] The ICAP provides a multilateral risk assessment of transfer pricing and permanent establishment (PE) risks, to provide increased certainty for both multinationals and tax administrations.

Mr. Saint-Amans also touched on the 2015 OECD multilateral agreement to keep CbC report information confidential,[15] considering the ongoing EU push to make the information, or at least some of it, public. He said that there are positive and negative reasons for maintaining confidentiality, but did not say what the OECD’s current position is. The chair of the panel on recent international tax developments, Chloe Burnett, Barrister at Sixth Floor Selborne Wentworth Chambers in Sydney, said that since EU discussions on possible implementation of public CbC reporting seem to have been delayed, the issue will likely be discussed at the 73rd IFA Congress in London in 2019.

With respect to dispute resolution mechanisms under BEPS Action 14, Mr. Saint-Amans Pascal said that the OECD is not considering mechanisms that would be just short of tax arbitration, such as mediation.

While Mr. Saint-Amans brought up implementation of the OECD BEPS multilateral instrument (MLI) during a panel, he did not discuss MLI developments in any detail, other than listing the 28 jurisdictions that have opted in so far to implement the arbitration measures of the MLI in their covered tax agreements (CTAs).[16]

The day-four panel on recent international tax developments said that among the recent multilateral convergence has been a cultural change on tax transparency, and a cultural change in taxpayer behavior resulting from the BEPS project. However, certain tax issues remain, where countries implement the BEPS project minimum standards, as well as recommendations on the digital economy and intellectual property (IP), into their domestic rules.

[1] See panel agendas at (last visited on Sept. 13, 2018).

[2] History of IFA, (last visited on Sept. 13, 2018).

[3] P.L. 115-97 (Dec. 22, 2017), (last visited on Sept. 13, 2018).

[4] European Commission Fair Taxation of the Digital Economy, (last visited on Sept. 13, 2018).

[5] See Reuters interviews during the Seoul Congress at (last visited on Sept. 13, 2018).

[6] OECD Tax Challenges Arising from Digitalisation – Interim Report 2018, (last visited on Sept. 13, 2018).

[7] (last visited on Sept. 13, 2018).

[8] EC proposal for a Council Directive on the common system of a digital services tax on revenues resulting from the provision of certain digital services, (last visited on Sept. 13, 2018).

[9] Docket No. 17-494, (last visited on Sept. 13, 2018).

[10] India Finance Act 2016, Chapter 8 (sections 163-180).

[11] India Finance Act 2018, Clause 4.

[12] (last visited on Sept. 13, 2018).

[13] Slide page 55 of PowerPoint deck for Sept. 5, 2018, Seoul Congress panel on IFA and OECD developments.

[14] See also (last visited on Sept. 13, 2018).

[15] OECD BEPS Action 13 final report (released on Oct. 5, 2015).

[16] Final offer (“baseball” style) arbitration adopters: Australia, Austria, Barbados, Belgium, Canada, Curacao, Fiji, Finland, France, Germany, Ireland, Italy, Liechtenstein, Luxembourg, Mauritius, the Netherlands, New Zealand, Singapore, Spain, Switzerland, and U.K. Independent opinion arbitration adopters: Andorra, Greece, Japan, Malta, Portugal, Slovenia, and Sweden.

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