Digital giants set for heftier tax hit as governments push for global rule book
The overhaul will have the effect of a few percentage points of corporate income tax in many countries
Paris — Governments will get more power to tax big multinationals, such as Google, Apple and Facebook, doing business in their countries under a proposed overhaul of decades-old rules.
Big internet firms have pushed tax rules to the limit as they can book profit and park assets such as trademarks and patents in low-tax countries such as Ireland, wherever their customers are.
The drive for a global rule book has received new urgency as countries unilaterally adopt plans for a tax on digital companies in frustration with current rules.
In 2019, more than 130 countries and territories agreed that a rewriting of tax rules largely going back to the 1920s is overdue and tasked the Paris-based Organisation for Economic Co-operation and Development (OECD) to come up with proposals.
“The current system is under stress and will not survive if we don’t remove the tensions,” OECD head of tax policy Pascal Saint-Amans told journalists.
The OECD expects the first sign of whether there is broad political support behind their proposals next week when finance ministers from the G20 economic powers discuss them at a meeting in Washington.
The overhaul would have the effect of a few percentage points of corporate income tax in many countries with no big losers apart from big international investment hubs, Saint-Amans said.
While that means countries such as Ireland or offshore tax havens could suffer, countries with big consumer markets such as the US or France would benefit from the shake-up. France adopted its own national tax on digital companies in 2019, which sparked US threats of tariffs on French wine and added to global trade tensions.
Meanwhile, companies are facing growing uncertainty about their tax bills as countries challenge arrangements to pay tax in countries such as Ireland rather than where their markets are.
Apple is locked in an EU tax dispute over profits booked in Ireland which could cost the iPhone maker $14bn. Meanwhile, Google agreed in September to pay more than $1bn to settle a tax case in France.
Amazon, which the EU has told to pay about €250m in back taxes to Luxembourg, said the OECD proposals are an “important step forward”.
Shares in Apple, Alphabet, the parent company of Google, Facebook and Amazon opened higher on Wednesday as the latest media reports raised hopes of progress in trade talks between the US and China.
The OECD proposals set a scope for the companies that will be covered by the new rules, define how much business they must do in a country to be taxable there and determine how much profit can be taxed there.
The aim is to give the government where the user or client of a company’s product is located the right to tax a bigger share of the profit earned by a foreign company there. Companies affected will be big multinational firms operating across borders with the OECD suggesting they should have revenue of more than €750m.
They will also have to have a “sustained and significant” interaction with customers in a country’s market, regardless of whether they have a physical presence there or not.
Not only will big internet companies be covered, but also big consumer firms that sell retail products in a market through a distribution network, which they may or may not own.
Companies meeting those conditions will then be liable for taxes in a given country, according to a formula based on set percentages of profitability that remain to be negotiated.
A French finance ministry official said that the Washington meeting should give “the needed political steer in order to achieve an agreement on international taxation in 2020”.
After Washington, broader negotiations will get under way with the aim to put an outline agreement to the 134 countries that have signed up for the reform in January.
The proposals issued on Wednesday run in parallel to a second track of reform also steered by the OECD that aims to come up with an internationally agreed minimum corporate tax rate that companies cannot avoid.