There is a widespread - but not yet universal - view that the international tax system needs reform in order to address the digitalisation of the global economy.

2018 and 2019 have seen both the OECD and the EU publish papers on this subject and the OECD has now released its proposals on allocating profit to different countries in which an international company makes sales or derives value.

OECD “Unified Approach”:

• Pillar One: Taxation of the digital economy a ‘Unified Approach’

The Unified Approach would give countries the right to tax profits of international businesses (regardless of whether they have a base in the country or not).

This moves away from the long established principle of “profit where the business has physical presence” which has been the cornerstone of the international framework, and represents arguably the most significant change in the international tax architecture in 100 years.

• Pillar Two: Global Anti-Base Erosion (GloBE) Proposals

The Pillar Two proposals are designed to counter profit-shifting. This is particularly an issue with intangibles but is also seen more broadly in entities that generate profits from intra-group financing.