Re: Public Consultation Document: Addressing the Tax Challenges of the Digitalisation of the Economy (13 February-6 March, 2019)

The need for a global response to the challenges presented by the digitalisation of the economy has been magnified due to various unilateral "interim" measures that countries have begun to adopt. This is because these unilateral measures could fall outside the scope of tax treaties, and result in harmful double taxation. The OECD's public consultation document proposes to design such a global response by amending the existing nexus and profit allocation rules. The terms “nexus rules” and “profit allocation” can be viewed from two perspectives: a. tax claims made by countries under their internal tax laws; and b. restrictions imposed on these claims by tax treaties. It is generally acknowledged that countries, in the exercise of their sovereignty, are free to claim taxing rights in any manner as they may deem fit, although their ability to enforce them may be limited in the case of cross-border scenarios. Given the abundance of ways in which countries may seek to tax their residents and non-residents’ income (whether it emanates from their participation in the digital economy or otherwise), the ends of harmonisation and certainty seem best served through the medium of income tax treaties. This contribution reviews the proposals made in the public consultation document from the perspective of tax treaties.