Global tax laws that govern how corporations are taxed across international borders are to be rewritten to take into account firms now operate in the digital age.
The existing laws, which have been in place for decades, are now to be reworked after nearly 140 governments agreed to launch a rewrite of cross-border tax rules for the digital age over the coming months.
This is what the Organisation for Economic Cooperation and Development (OECD) said on Friday, after talks this week in Paris.
Last week the OECD Secretary-General had urged the United Kingdom to hold off on its plans to introduce a digital tax in April.
It should be noted that the UK had long planned to push ahead with its own national digital tax, ever since the budget of October 2018.
And then in July 2019, Boris Johnson (before he became Prime Minister) had backed the digital tax. In December last year Johnson (now the Prime Minister) pledged to press ahead with the implementation of a tech or digital tax on large Internet firms, despite US opposition.
But the OECD has been developing global reforms over where multinational firms should be taxed for a number of years now.
This is because tech companies have long been criticised by governments and regulators for their tax practices that sees them reducing their tax bills by booking profits in low-tax countries (such as Ireland) regardless of the location of the end customer.
Efforts to develop wide ranging tax reforms have floundered, until now it seems.
But on Friday, the OECD announced that 140 governments agreed to continue working toward an agreement by the end of 2020 on the matter.
“The Inclusive Framework on BEPS, which groups 137 countries and jurisdictions on an equal footing for multilateral negotiation of international tax rules, decided during its Jan. 29-30 meeting to move ahead with a two-pillar negotiation to address the tax challenges of digitalisation,” said the OECD.
“Endorsement of the Unified Approach is a significant step, as until now Inclusive Framework members have been considering three competing proposals to address the tax challenges of digitalisation,” stated the OECD.
“It is more urgent than ever that countries address the tax challenges arising from digitalisation of the economy, and the only effective way to do that is to continue advancing toward a consensus-based multilateral solution to overhaul the international tax system,” said OECD Secretary-General Angel Gurría.
“We welcome the Inclusive Framework’s decision to move forward in this arduous undertaking, but we also recognise that there are technical challenges to developing a workable solution as well as critical policy differences that need to be resolved in the coming months,” he stated.
“The OECD will do everything it can to facilitate consensus, because we are convinced that failure to reach agreement would greatly increase the risk that countries will act unilaterally, with negative consequences on an already fragile global economy,” Gurría said.
The next step will see the ongoing OECD work presented during the next meeting of G20 finance ministers and central bank governors in Riyadh, Saudi Arabia, on 22-23 February.
However, it remains to be seen whether this OECD progress will stop individual countries such as the UK as pressing ahead with their digital tax in the mean time.
Countries like France have already progressed their digital tax stance.
Macron and Trump reportedly agreed to hold off on a potential tariffs war until the end of 2020, and continue negotiations at the OECD on the digital tax during that period.
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