OECD digital tax talks to miss 2020 deadline

12 Oct 20

Global efforts to reform the way giant digital businesses are taxed will stretch into 2021, after political differences and Covid-19 slowed negotiations.

 

The talks, organised through the OECD and involving 137 countries, were set up to outline how multinational companies such as Facebook and Apple should pay taxes in the territories in which they operate, not just where their headquarters are held.

They were supposed to come up with an international standard by the end of 2020.

However, hopes for a consensus-based solution took a hit earlier this year when the US, where many of the largest digital businesses are based, dropped out of the process.

The remaining countries also still disagree over which companies should be included, with many believing a narrow group of mostly automated digital businesses (such as social media companies) should be the focus of the work, while others want to include those that sell products and services online.

There is also no consensus yet on how much profit should be taxed in the second (non-headquarters) territory, or on several details of the dispute process.

In a joint statement, the remaining countries said they aim to reach an agreement by mid-2021, adding that the process is of even greater importance following coronavirus and amid mounting public pressure to ensure businesses “pay their fair share”.

Some have called for countries to push ahead with their own taxes.

“The OECD’s announcement is bad news for multilateralism,” said José Antonio Ocampo, professor at Columbia University and chair of the Independent Commission for the Reform of International Corporate Taxation.

“It is time for powerful countries to consider global interest rather than protecting their own multinationals to deliver ambitious and comprehensive reforms. But if global reforms are hard to come by, it is time for countries to move unilaterally or at a regional level to introduce interim measures.”

The OECD has long said that unilateral moves would be disruptive to global trade if developed countries retaliate, which the US did by raising tariffs on imported Champagne, cheese and designer goods when France implemented its own digital services tax.

The US is currently investigating potential retaliatory action against Austria, Brazil, the Czech Republic, the EU, India, Indonesia, Italy, Spain, Turkey and the UK.

“Without a global, consensus-based solution, the risk of further uncoordinated, unilateral measures is real and growing by the day,” said OECD secretary-general Angel Gurría.

“It is imperative that we take this work across the finish line. Failure would risk tax wars turning into trade wars at a time when the global economy is already suffering enormously.”

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