Monday, 14 October, 2019

OECD proposes tax overhaul of digital businesses

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Steven Clarke | 11 October, 2019, 14:31

The Organisation for Economic Cooperation (OECD) on Wednesday unveiled its proposal to update tax rules applicable to multinational tech companies in order to address the challenges of a globalised, digitalised economy.

In addition, the proposals for global corporate tax reform are more broadly aimed at lowering and redistributing the amount of profits that is allocated to low-tax jurisdictions.

The government said past year that global digital companies have a large consumer base in India but don't pay enough taxes domestically. As it stands, the framework appears to be a victory for large, consumption-heavy countries like the United States, China and much of Western Europe, and a loss for so-called tax havens, like Ireland.

The revenue threshold would take into account certain activities, such as online advertising services, which are directed at non-paying users in locations that are different from those in which the relevant revenues are booked.

The drive for a global rule book has received new urgency as countries unilaterally adopt plans for a tax on digital companies over frustration with current rules.

The new rules would target "large consumer-facing businesses" that generate annual revenues from supplying consumer products or providing digital services, even if they do not have a permanent established business presence there.

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The companies that will be affected are defined as companies that operate across borders and have a total revenue of over $821 million.

A global economic body has proposed a new way of taxing tech giants and other multinationals, a topic that is gathering attention around the world and has become an election issue in Canada.

"It would enable France, for example, to tax an element of the sales of Google to French advertisers and the U.S.to have greater taxing rights over the profits attributable to the brands of the French luxury brand company LVMH related to the sales in America", The Financial Times said.

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 worldwide tax rules "fit for objective for the global economy of the 21st Century". The UK government's tax, nicknamed the Google Tax, was implemented in 2016 after the search engine giant was ordered to pay £130 million in back taxes. France has already faced threats from the United States after recently passing a 3-per-cent tax on digital companies, which the Liberals in Canada used as a model for their own campaign pledge.

The OECD will present details to next week's meeting of Group of 20 finance ministers and central-bank governors; the organization is warning that global standards need to be put in place to avoid a messy patchwork of unilateral measures and subsequent trade disputes.

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.

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