The Organisation for Economic Cooperation and Development (OECD) has published its draft proposals for one of the biggest shakeup of corporate taxation in a century.
The draft proposals would see multinational companies, including tech giants such as Amazon, Facebook and Google, pay more tax in the countries they do actually business in, and not just pay tax depending on which low taxation country their local headquarters are located in.
This arrangement has infuriated many governments for many years. In 2015 a leading OECD official, Pascal Saint-Amans, warned that technology companies were pushing “the boundaries of what is legal,” and they should stop using tax havens to shelter their profits.
The OECD is the France-based organisation made of 36 countries that aims to stimulate economic progress and world trade.
It was back in 2013 when the OECD was charged with drawing up plans designed to eliminate tax avoidance by big tech businesses.
Essentially, it was tasked with creating a new set of tax rules designed to stop companies that operate in G20 countries from shifting their profits to tax havens, such as Luxembourg, Bermuda, Jersey or Ireland.
Now the OECD has published its draft proposals for a global solution, after a growing number of other countries (including France), adopted plans for their own tax on digital companies in the absence of a global deal.
“Today the OECD Secretariat published a proposal to advance international negotiations to ensure large and highly profitable Multinational Enterprises (MNEs), including digital companies, pay tax wherever they have significant consumer-facing activities and generate their profits,” said the OECD.
It said that it had drafted its proposals on behalf of 134 countries, by bringing together “common elements of three competing proposals from member countries,” in an effort to make international tax rules “fit for purpose for the global economy of the 21st Century.”
Its draft proposal are now open to a public consultation process, and would see multinational firms re-allocate some profits and corresponding taxing rights to countries and jurisdictions where MNE’s have their markets.
“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 international tax system by 2020,” said OECD Secretary-General Angel Gurría.
“This plan brings together common elements of existing competing proposals, involving over 130 countries, with input from governments, business, civil society, academia and the general public,” said Gurría. “It brings us closer to our ultimate goal: ensuring all MNEs pay their fair share.”
”Failure to reach 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,” Gurría said.
The first test of these OECD proposals comes next week when finance ministers from the Group of 20 economic powers discuss them at a meeting in Washington.
In 2013, a US Senate committee accused Ireland of giving special tax treatment to Apple and others, with Senator Carl Levin, chairman of the subcommittee, dubbing the Apple structure “the Holy Grail of tax avoidance.”
But the US political landscape has shifted since that time, and in March this year the Trump administration called the French digital tax scheme on mostly US tech firms ‘ill conceived’, and highly discriminatory against American businesses.
If the proposals survive the G20, then broader talks will ensue with the aim to put an outline agreement to the 134 countries that have signed up for the reform in January 2020.
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