Future taxation of company profits: What to do with intangibles?

According to recently released documents, the OECD is considering several options to reform global corporate tax systems, one of which is to introduce a new formula for allocating the corporate tax base based on marketing intangibles. In essence, it will create a new concept of “residual corporate income” which consists, essentially, of what is deemed as non-routine returns on business assets – i.e. returns that exceed a certain “normal” return. This tax base will then be allocated to the countries in which the company is selling, based on the allocation of the company’s marketing intangibles.

The main conclusions of our study are:

• Small, open countries with high-intensity R&D in exporting sectors will lose net revenues, e.g. the Nordics and Germany
• A large share of the current corporate income tax base is at stake for these countries
• The proposal will also impact the effective tax rates of individual businesses depending on profitability
• The proposal suffers from multiple drawbacks, including lack of national incentives to support innovation, key parameters having no solid empirical foundation and high compliance costs and requirement for unrealistic levels of international co-operation.

The study also discusses alternative paths for future international tax reform.

The study is commissioned by Svenskt Näringsliv (Confederation of Swedish Enterprise).

On 19 February 2019, Business Europe hosted the event: “Taxation of the digitalised economy: analysing the OECD approach”. At the event, Partner Sigurd Næss-Schmidt recapped the key messages from the study.

Download the presentation from the event here