OECD takes aim at tech giants with global tax plan

Clay Curtis
October 11, 2019

The Organisation for Economic Cooperation and Development (OECD) has proposed a plan to overhaul the way multinationals - particularly tech giants - are taxed to make sure they pay their fair share in countries where they do significant business.

The Liberals said Wednesday that their plan, anchored by a 3-per-cent tax on big digital companies' revenue, would be a stopgap until participating countries reached a consensus.

The OECD proposals will outline rules like how much business a company must do in a country to be taxable there and how much profit can be taxed.

The proposal comes at a critical time as countries look to impose their own taxes on digital companies in the interim.

Governments will get more power to tax big multinationals like Google, Apple and Facebook doing business in their countries under a proposed overhaul of decades-old rules. Wednesday's release brought an 18-page framework plan that officials hope will form the basis of an worldwide agreement on digital taxation as early as next year.

OECD Secretary-General Angel Gurría said: "We're making real progress to address the tax challenges arising from digitalisation of the economy, and to continue advancing toward a consensus-based solution to overhaul the rules-based worldwide tax system by 2020".

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Surprisingly, tech companies aren't necessarily opposed to the looming changes.

Google, like several other big American tech companies, has its European headquarters in Ireland, where the government has set the corporate tax rate at just 12.5 percent in a bid to attract big companies. "In a digital age, the allocation of taxing rights can no longer be exclusively circumscribed by reference to physical presence", the framework states. It will apply to companies with annual revenues worth at least €750 million euros and digital services exceeding €5.5 million. Advancing the negotiating process is a win for large multinationals, even though a final deal could put them on the hook to pay more in taxes, because the alternative appears to be a series of country-by-country digital taxes that could be expensive to comply with.

Since the passing of the French tax laws, the countries have agreed on a compromise whereby the tax will continue to be applied to tech giants, but France has promised to scrap the tax - and any taxed amounts paid by U.S. companies would be deducted - once the OECD creates an global tax framework.

In a statement, ICRICT chair Jose Antonio Ocampo said that the progress the proposal represents is limited, and that it would mostly benefit the 36 member countries of the OECD, forcing developing countries to work within a system designed for other markets.

The OECD's proposal will be presented to finance ministers of the G-20 in Washington next week.

He also added that failure to reach an agreement by 2020 would greatly increase the risk that countries will act unilaterally, with negative consequences on an already fragile global economy. "We must not allow that to happen".

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