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POLAND: OECD's New Proposal for Digital Tax

The OECD has published its new proposal for the introduction of taxation to the digital economy. The OECD has recognised that the digitisation of the economy in conjunction with current tax rules has caused significant tensions. The organisation proposed to alter the existing rule in which taxation is dependent on the location of a business – a permanent location of a business creates a tax obligation. Under the OECD’s proposal, a so-called non-resident company would be taxed if it passes a certain revenue threshold – specific to a given economy. This would indicate whether, in fact, a company has sustainable and significant involvement in that jurisdiction. If this is determined, the country would be allowed to tax the business for a proportion of its profits as well as distribution activities. The new rule would be applicable to large consumer-facing businesses – defined by the organisation, as those that generate revenue from supplying consumer products or providing digital services that have a consumer-facing element. The OECD hopes to reach a consensual agreement by the end of 2020.

Representatives of member states have commented that the proposals of the OECD are promising. Similarly, the digital industry deemed it a good step forward. Rumours of such a tax have been circulating for some time, however little progress was made. The European Union is also considering steps in this matter. Brussels argues that since the companies are generating significant profits in the EU, they should also pay taxes within the Union, irrelevant of where their headquarters are. Last year, the Polish government spoke in favour of such a tax. However, Warsaw opted to support collective efforts rather than pursue this issue domestically. This was later confirmed during the recent visit of US Vice President Mike Pence who thanked Poland for this decision. It now remains to be seen how further works on this proposal will develop over the coming months. It is, however, becoming apparent that the issue of taxing digital giants is becoming increasingly important. Though Poland has decided not to pursue this tax on its own, the government is likely to welcome the opportunity and aim to be actively involved in works surrounding such proposals.