The chances of securing a global agreement on a digital levy by the end of the year were revived on Friday after the countries involved agreed to park the most contentious issues and push ahead with negotiations on new ways to tax multinationals.
In a statement, the 137 countries that participated in the talks overseen by the Paris-based OECD, agreed to “affirm their commitment to reach an agreement on a consensus-based solution by the end of 2020”, on the basis of the proposals for a new way to tax companies and a minimum corporate tax rate outlined last autumn.
The OECD hailed the progress as the moment crystallising the choice between a compromise on a global system or unilateral measures that would lead to trade ructions worse than last year’s conflict between the US and China.
Pascal Saint-Amans, director of tax administration at the OECD, said the dispute over domestic digital taxes between the US and France as well as many other countries had concentrated minds and brought countries to the stage they would negotiate directly rather than just waiting for the OECD to make proposals with which they would disagree.
“I think we have progress — that’s something I’m paid to say, but I believe it,” Mr Saint-Amans said. “The agreement on scope wasn’t around three months ago . . . The prospect of trade wars triggered by tax disputes is clearly pushing countries to compromise”.
The talks aim to rip up a century of taxing companies on their profits based on the locations in which they have a physical presence to take account of the digitalisation of economies, that has enabled companies to make money in places without boots on the ground.
The main progress made in the negotiations in Paris this week was that all countries agreed on the scope of any new rules would include large multinational digital companies and any other large multinational group selling to consumers. This would mean the tech giants — Facebook, Apple, Amazon, Netflix and Google — would be covered as well as large luxury groups such as LVMH and the big automotive companies such as VW or Tesla.
Previously, European countries wanted only tech giants to be caught by the new rules while the US and China wanted a broader scope.
The OECD also praised the new rationale for corporate taxation it is proposing in which a proportion of profits of the richest international companies would be allocated to individual countries based on where they had customers. These could not move, he added, so it would greatly reduce the ease of tax avoidance.
But the officials did not seek to minimise the difficulties still remaining in finding compromise, especially the US proposal for a “safe harbour” regime, which others fear would enable the tech giants to avoid any new liabilities because the global rules would be voluntary.
The agreement was based on the US agreeing to park the notion until everything else was agreed. The hope is that later in the year, the US will see the benefits of signing up without the safe harbour rules or be willing to fudge the definition of the term so that it no longer implied voluntary taxation.
Without such an agreement, the OECD was pessimistic any deal would pass. If companies could choose not to implement any new global rules, Mr Saint-Amans said, “I think the chances of success will be very low, extremely low, or close to nil”.
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