Digital firms have exposed weak spots in international tax rules, letting them pay little or no taxes in some countries where they sell to consumers
Paris (AFP) - The world’s wealthiest nations were urged Wednesday to accept a “unified approach” to break the deadlock over taxing the global revenues of digital giants, a dispute that has stoked tensions between the US and several European nations.
The OECD group of wealthy democracies published its suggestions to bridge gaps between three competing plans to tax technology firms, which currently shift the bulk of their earnings to low-tax jurisdictions.
Public outrage has grown over the practice, which critics say deprives many nations of their fair share of tax revenue, since digital giants can often pay next to nothing in countries where they rake in huge earnings.
France in particular has railed against EU rules that let American heavyweights like Google, Apple, Facebook and Amazon declare their earnings from across the bloc in low-tax havens like Ireland or Luxembourg.
This year it imposed its own tax on digital giants, drawing the ire of US President Donald Trump even though Paris has vowed to scrub the levy once a global accord is in place.
The Paris-based Organisation for Economic Co-operation and Development is leading the negotiations to reach an accord next year.
But for months it has made little headway on reconciling the three competing plans – one backed by Britain, another by the US, and a third by developing countries.
While they all propose spreading taxing rights across countries where a firm does business, “there are nevertheless gaps between the proposals,” the OECD said.
“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,” the agency’s Secretary-General Angel Gurria said.
“This is a very good proposal,” French Finance Minister Bruno Le Maire said at a Eurogroup meeting of eurozone finance ministers in Luxembourg, adding that “I hope it will provide new momentum.”
- ‘Still require work’ -
OECD officials have said a broad agreement is needed by January if the digital tax is to be approved next year – in which case it would come into effect in 2021.
The UK proposal focuses mainly on digital groups, and says any country where a firm has users could impose tax. It largely echoes the Digital Services Tax that London plans to impose next year.
The American plan would cover a much broader group of consumer companies with marketing operations in a country – a World Bank analysis has cited Coca-Cola or General Motors as potentially impacted.
The third option would target all companies with a “sustained economic participation” via technology or other means, which could give a greater share of a firm’s global tax payment to smaller countries.
The OECD said its “unified approach” aimed to take elements from each plan, though it admits that “certain aspects still require further work”.
The suggestions will be formally presented at a meeting of G20 finance ministers and central bank governors in Washington on October 17 and 18.
Governments are under pressure to address widespread public outrage over tech multinationals exploiting global tax rules dating back to the 1920s to pay only cursory taxes on their profits.
In September, Google agreed a settlement totalling around $1 billion to end a tax dispute in France after similar settlements in Italy and Britain.
Google, like several other big American tech companies, has its European headquarters in Ireland, where the government has set the corporate tax rate at just 12.5 percent in a bid to attract big companies.
Amazon, whose European headquarters is in Luxembourg, another low-tax jurisdiction, called the OECD’s latest proposal “an important step forward”.
“Reaching broad international agreement on changes to fundamental international tax principles is critical to limit the risk of double taxation and distortive unilateral measures,” it said in a statement.
But the ICRICT tax reform advocacy group, which includes the economists Joseph Stiglitz and Thomas Piketty, were less enthusiastic.
It said Wednesday that the new proposal would result in “little reallocation of taxing rights, and adds additional complexity and tax uncertainty to the system.”