October 10, 2019 1 month 4 days ago

OECD proposal calls for digital companies to pay tax where they make money

PARIS – Saying it plans to lead multilateral efforts to address tax challenges from digitalization of the economy, the Organization for Economic Co-operation and Development today published a new proposal which would force multinational companies, including digital ones, to pay tax “wherever they have significant consumer-facing activities and generate their profits.”

The new OECD proposal, the group said today, “brings together common elements of three competing proposals from member countries, and is based on the work of the OECD/G20 Inclusive Framework on BEPS (base erosion and profit shifting), which groups 134 countries and jurisdictions on an equal footing, for multilateral negotiation of international tax rules, making them fit for purpose for the global economy of the 21st Century,” reads the announcement.

The proposal, which is now open for public consultation, would re-allocate some profits and corresponding taxing rights to countries and jurisdictions where multinational enterprises (MNEs) have their markets.

It would ensure MNEs conducting significant business in places where they do not have a physical presence (sort of like Netflix in Canada…), be taxed in such jurisdictions, through the creation of new rules stating where tax should be paid (“nexus” rules) and on what portion of profits they should be taxed (“profit allocation” rules).

“We’re making real progress to address the tax challenges arising from digitalization of the economy, and to continue advancing toward a consensus-based solution to overhaul the rules-based international tax system by 2020,” said OECD secretary-general Angel Gurría.

“This plan brings together common elements of existing competing proposals, involving over 130 countries, with input from governments, business, civil society, academia and the general public. It brings us closer to our ultimate goal: ensuring all MNEs pay their fair share.

“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,” he added.

The OECD proposal is part of efforts taking place globally which would restore stability and certainty in the international tax system, address possible overlaps with existing rules and lessen the risks of double taxation.

“Beyond the specific elements on reallocating taxing rights, a second pillar of the work aims to resolve remaining BEPS issues, ensuring a minimum corporate income tax on MNE profits,” reads the announcement.

The work will be presented in a new OECD Secretary-General Tax Report during the next meeting of G20 Finance Ministers and Central Bank Governors in Washington D.C., on October 17 and 18.