Could a digi-cliff follow the pharma one?

OECD draft report observes pace of change has been such that there is no reality to introducing special rules

Thu, Mar 27, 2014, 10:32

The draft report issued this week by the Organisation for Economic Co-operation and Development (OECD) on the subject of taxing the digital economy will be read closely in the Department of Finance, the Revenue Commissioners and elsewhere.

Of the various issues being targeted by the Paris-based institution in the project aimed at preventing multinationals from eroding the corporation tax base, the digital economy one is the biggie for Ireland Inc.

Interestingly, the draft report observes that the pace of change has been such that there is no reality to introducing special rules for the digital economy.

“Because the digital economy is increasingly becoming the economy itself, it would be difficult, if not impossible, to ring-fence the digital economy from the rest of the economy.”

The figures in the report placing Ireland second in the globe for ICT services exports, just after India, are striking.

Ireland’s exports in the area are given a value of $12.7 billion for 2012, as against India’s $13.5 billion. Not only that, but the report shows that the level of Irish exports in this area has grown roughly ninefold in the period 2000 to 2012. India’s have grown by a slightly greater rate, while those of the US, which is third in the global ranks ($8 billion), have almost trebled.

One of the scene-changers that could emerge from the OECD exercise over the next few years is a change to how much value companies can attach to their intellectual property.

As well as devaluing the controversial Starbucks paper cup, this could have an effect on how global technology companies slice and dice the value aspect of what it is they do.

As matters stand, billions flow in here from sales around Europe and further afield, with the Irish-based subsidiaries involved then making enormous licence and royalty payments to IP holders based in far-flung tax havens.

Changes to the tax and royalty landscape might well change how these technology companies organise their global flows.

Room for a digi-cliff to follow the pharma one?

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