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ACTION1
ADDRESS THE TAX CHALLENGES
OF THE DIGITAL ECONOMY.
Identify the main difficulties that the digital econ-
omy poses for the application of existing interna-
tional tax rules and develop detailed options to
address these difficulties, taking a holistic ap-
proach and considering both direct and indirect
taxation. Issues to be examined include, but are
not limited to, the ability of a company to have
a significant digital presence in the economy of
another country without being liable to taxation
due to the lack of nexus under current internation-
al rules, the attribution of value created from the
generation of marketable location-relevant data
through the use of digital products and services,
the characterisation of income derived from new
business models, the application of related source
rules, and how to ensure the effective collection of
VAT/GST with respect to the cross-border supply of
digital goods and services. Such work will require
a thorough analysis of the various business models
in this sector.
ACTION2
NEUTRALISE THE EFFECTS OF
HYBRID MISMATCH ARRANGE-
MENTS.
Develop model treaty provisions and recommen-
dations regarding the design of domestic rules to
neutralise the effect (e.g., double non-taxation,
double deduction, long-term deferral) of hybrid
instruments and entities. This may include: (i)
changes to the OECD Model Tax Convention to en-
sure that hybrid instruments and entities (as well
as dual resident entities) are not used to obtain
the benefits of treaties unduly; (ii) domestic law
provisions that prevent exemption or non-recogni-
tion for payments that are deductible by the payor;
(iii) domestic law provisions that deny a deduction
for a payment that is not includible in income by
the recipient (and is not subject to taxation under
controlled foreign company (CFC) or similar rules);
(iv) domestic law provisions that deny a deduction
for a payment that is also deductible in another
jurisdiction; and (v) where necessary, guidance
on co-ordination or tie-breaker rules if more than
one country seeks to apply such rules to a trans-
action or structure. Special attention should be
given to the interaction between possible changes
to domestic law and the provisions of the OECD
Model Tax Convention. This work will be co-ordi-
nated with the work on interest expense deduction
limitations, the work on CFC rules, and the work on
treaty shopping.
ACTION3
STRENGTHEN CFC RULES.
Develop recommendations regarding the design of
controlled foreign corporation rules. This work will
be co-ordinated with other work as necessary.
ANNEXE 3