Some 110 countries have agreed to work toward forming an international consensus by 2020 on how to tax digital businesses across borders, according to the Organisation for Economic Co-operation and Development (OECD).
In a report commissioned by G20 powers, the OECD said the countries had agreed to review decades-old pillars of the international tax system that the digital economy has increasingly rendered out of date. The report acknowledges that there was a range of positions that would need bridging, with some countries considering that nothing needs to be changed.
At the heart of the issue are rules on what constitutes a sufficient presence of a company in a country for it to be taxed there, and how profits are allocated across borders in multinational groups. For years, big digital companies such as Google, Apple and Amazon could legally slash their tax bills in some countries, leaving other governments furious.
In the absence of an international solution, some countries like India, Australia and various European countries have set out on their own to close loopholes.
Pressed by France and Germany, the European Commission has proposed that large companies with significant digital revenues in the European Union face a 3% tax on their turnover in the 28-nation bloc.
After meeting with his German counterpart in Paris, French Finance Minister Bruno Le Maire, who has made a political priority to recover more tax from digital companies, described the OECD report as a “positive and important step.”
U.S. Treasury Secretary Steven T. Mnuchin stated, “The U.S. firmly opposes proposals by any country to single out digital companies. Some of these companies are among the greatest contributors to U.S. job creation and economic growth. Imposing new and redundant tax burdens would inhibit growth and ultimately harm workers and consumers.” He added, “I fully support international cooperation to address broader tax challenges arising from the modern economy and to put the international tax system on a more sustainable footing.”
For a no-obligation discussion on the possible impact and steps you should take now, contact Lien Le, the head of our International Tax practice.