In February 2019 the OECD released a public consultation document draft titled “Addressing the Tax Challenges of the Digitalisation of the Economy”. The draft notes that back in 2015 the 2015 BEPS Action 1 Report on Addressing the Tax Challenges of the Digital Economy initially cited the challenges for international taxation which stemmed from the digital economy and that much of this consultation draft was to address these issues. It is in the February 2019 document in which the two pillar approach for addressing the digital economy was first introduced.
Pillar One focuses on the allocation of taxing rights and considers profit allocation and nexus rules. At this time three proposals for Pillar One were discussed:
1. User participation proposal: The proposal would modify current profit allocation rules to allocate profit based on where businesses’ active and participatory user bases are located, irrespective of whether those businesses have a local physical presence. The proposal notes that user participation is highly relevant for social media platforms, search engines and online marketplaces.
2. Marketing Intangible Proposal: This proposal would segment profit based on marketing intangibles in market jurisdictions. Marketing intangibles are defined as intangibles that aid in the commercial exploitation of a product or service and/or have an important promotional value for the product concerned. Some marketing intangibles it lists are brand, trade name, customer data, customer relationships and customer lists.