The "marketing intangibles" proposal has emerged from the OECD's public consultation discussions as the most likely of the OECD's proposals to achieve a consensus from the (now 129) countries that are committed to finding a global solution to the challenges arising from the digitalisation of the economy. 

The marketing intangibles proposal would change the current tax allocation rules so that the market jurisdiction (the place where the users/customers of a business are located) would be entitled to tax some or all of the "non-routine" income properly associated with such intangibles, while "routine" income would continue to be allocated among members of the multi-national group based on existing transfer pricing principles. Marketing intangibles include brand, trade name, customer data, customer relationships and customer lists.

Two reasons why this proposal is proving popular are: it applies broadly (there is no ring-fencing of digital businesses unlike with the user participation proposal) and it is arguably consistent with the principle that profits should be allocated where they are created (again, unlike the user participation proposal). The fundamental issue with the marketing intangibles proposal, however, is how to determine the value of the marketing intangibles so you know how much profit should be allocated to the market jurisdiction. Several participants in the consultation emphasised the need for simplicity and global consistency of the valuation method and tax administration. An effective dispute resolution process will be essential both for preventing and resolving cross-jurisdictional disputes and avoiding double taxation.

Another issue is whether losses should also be allocated to the market jurisdiction, or just profits. Should countries be entitled to the upside risk if they are unwilling to accept the downside risk? And what about innovative start-ups which may be loss-making for the first few years, should they be entitled to carry forward losses to set against profits allocated to the market jurisdiction in later years?

Before we get too carried away with the details of a solution, the point was well made at the OECD discussion by Will Morris, on behalf of BIAC, that in order for any change in the global rules to be successful, there needs to be a broad and deep agreement based on principled reasons for making the change. The economic, legal and political principles need to be carefully worked out and articulated so everyone is clear on the direction of travel. Any change to the allocation of taxing rights will necessarily create winners and losers and unless the latter fully understand and accept why their profit allocation will decrease, any pragmatic solution to problem will not survive.