Potential Implications of the BEPS Project on the International Tax Systems • Defining the scope of digitisation: should digital enterprises be taxed differently? • Transfer pricing aspects of the BEPS action plan: expected developments for the digital economy • Minimising uncertainty in interpretation and application of transfer pricing rules • Considering indirect taxation consequences of the proposed BEPS transfer pricing requirements Andrew Hewitt, Head of Tax, ASOS.com

1. Potential Implications of the BEPS Project
On International Tax Systems
3 June 2014
Andy Hewitt
Head of Tax
ASOS.com

2. Should Digital Enterprises be
Taxed Differently?

3. Should Digital Enterprises be
Taxed Differently?
• BEPS – ACTION 1 – Addressing the Tax Challenges of the Digital
Economy
– What is the Digital Economy?
– Is it a problem?
– What can’t the tax system cope with?

4. What is the Digital Economy?
• No authoritative definition
• No real empirical research on the Economics of Digitisation
• Most definitions expansion on the term ‘Internet Economy’
• In last 10 years internet penetration has grown by 566%
• Europe has more than 500 million Internet users, Asia more than a
billion
• Three basic tools of digitisation; the PC; the mobile phone and the
internet
• BUT has it really changed the basic economics of a transaction?

5. What’s the problem with the
Digital Economy?
• “Aggressive tax planning by some digital businesses has given them
an unfair advantage over their competitors” George Osborne
• Who could he mean? And are they all digital?
– Google
– Amazon
– Starbucks
• Perception vs Reality

6. What can’t the tax system
cope with?
• New methods and speed of communication meaning
increased Globalisation
• Tax competition caused by Government policy
• Digital Economy does not cause BEPS, but it does make
BEPS easier
So
• Should Digital Enterprises be taxed differently?
– Still No! But
• Will Digital Enterprises be taxed differently?

7. Proposed Solutions
• Creation of a permanent establishment for fully dematerialised digital
activities based on a ‘significant digital presence’ even where there are no
people activities
• ‘Virtual permanent establishment’ concept, e.g. based on maintenance of a
website or technological conclusion of contracts, or through on-site services
at the customer’s location
• A withholding tax on payments made for digital services or goods
• Modifications to exemptions from PE status, e.g. warehousing (see Action 7
– Prevent Artificial Avoidance of PE Status)
• A ‘Bandwidth’ Tax
• Lowering the threshold for low value imports and requiring vendors to
register and account for VAT in the jurisdiction of importation
• Requiring non-resident suppliers of remote digital business to register and
account for VAT in the jurisdiction of the consumer

8. Transfer Pricing Aspects of
BEPS
• Intangibles
– Importance of ‘significant people functions’
– Not tied to legal definition
• Documentation
– Master and Country File
• Country-by-Country Reporting
– Confidentiality

9. Minimising Uncertainty
– Top 6 Tips
• Documentation! Documentation! Documentation
• Choose your battlegrounds
• Robust Implementation
• Always know where the exit is
• The UK’s OK
• Think about your supply chain

10. Indirect Tax
• What does the OECD say?
• VAT/Sales Tax developments
– Overseas Registrations
– MOSS
– US Sales Tax
• Custom’s duty developments
– Russia
– Australia
– ASEAN