OECD tax reform could increase inequality

Andrew Cummings
October 10, 2019

Big internet firms have pushed tax rules to the limit as they can book profit and park assets like trademarks and patents in low tax countries like Ireland wherever their customers are.

Silicon Valley firms would be forced to pay tax in any country where they "have significant consumer-facing activities and generate their profits" under plans drawn up by the Paris-based Organisation for Economic Co-operation and Development (OECD).

Pascal Saint-Amans, Director, OECD Centre for Tax Policy and Administration, said: "Developing countries make up the most of the Inclusive Framework".

France, backed by Britain, argues that the digital giants must pay taxes on revenues accrued in a country even if their physical headquarters is elsewhere.

Justin Trudeau's election platform commits to impose the tax on revenue generated by the sale of online advertising and users' personal data for companies with global revenues of at least $1 billion and Canadian revenues of at least $40 million.

Researchers found that the additional tax recovered from corporate tax havens would mainly benefit the richest countries.The findings indicate that while there will be a 5% fall in profits booked in tax havens, around 80% of the redistributed profits will go to high income countries. The EU has ordered Apple to pay Ireland nearly $15 billion in back taxes, for example, after finding that their tax deal was unfair because it was better than what other regular companies could expect. Amazon called the OECD proposals an "important step forward", Reuters reports.

While they all propose spreading taxing rights across countries where a firm does business, "there are nevertheless gaps between the proposals", the OECD said.

The OECD proposals set a scope for the companies that would be covered by the new rules, define how much business they must do in a country to be taxable there and determine how much profit can be taxed there. The measures would apply to companies with revenues of more than US$821 million that operate across global borders and have a "sustained and significant involvement in the economy".

A French Finance Ministry official said that the Washington meeting should give "the needed political steer in order to achieve an agreement on worldwide taxation in 2020".

The suggestions will be formally presented at a meeting of G20 finance ministers and central bank governors in Washington on October 17 and 18.

After Washington, broader negotiations will get under way with the aim to put an outline agreement to the 134 countries that have signed up for the reform in January.

Other reports by iNewsToday