Amazon underlines guiding principles on digital economy taxation

Any proposed tax must be levied on profits and not revenue, Amazon’s Vice President (Global Tax), Kurt Lamp, said.

Any long-term reform solution to digital economy taxation should be consistent with core guiding principles, according to e-commerce giant Amazon.

In a November 11 statement to OECD, Amazon’s Vice President (Global Tax), Kurt Lamp, said that any solution to the direct tax challenges posed by the digital economy should work for all countries and be able to be implemented in a practical way for both taxpayers and tax authorities.

The OECD last month published for stakeholders’ comments a proposal to advance international negotiations to ensure that multinational enterprises (MNEs), including digital companies, pay tax wherever they have significant consumer-facing activities and where they generate profits.

The proposal – Secretariat Proposal for a Unified Approach – would re-allocate some profits and corresponding taxing rights to countries and jurisdictions where MNEs have their markets.

It would ensure that MNEs conducting significant business in places where they do not have a physical presence, be taxed in such jurisdictions, through the creation of new rules stating: where tax should be paid (“nexus” rules); and on what portion of profits they should be taxed (“profit allocation” rules).

Responding to the proposal, Lamp said that the tax must be levied on profits and not revenue, to which VAT/GST applies. Lamp said that the tax must apply in an “economically principled way to both loss-making and profit-making businesses.”

Lamp stated that the reform solution must be “proportionate, neutral, equitable, and enforceable so that, on an overall basis, it is applicable to all types of businesses such that the new tax rules do not ring-fence the digital economy, do not result in different tax rates for foreign and domestic taxpayers, and do not create market distortions.”

The reform solution, according to Lamp, must create “clear and simple rules to comply with and provide collaboration on transition relief.”

Finally, Lamp recommended that the solution must include mandatory mechanisms for effective dispute resolution.

Lamp said: “The new framework must not undermine the existing tax treaty network and should provide pathways for effective dispute resolution. The treaty network is important in supporting global trade. Disturbing the existing tax treaty network would create unwanted knock-on consequences including multi-layer taxation and disputes.”

The author is Alex Hunter, Editor, TP News. He oversees and updates the publication and also  regularly writes news stories about transfer pricing and international tax law. Alex is reachable at editor@transferpricingnews.com