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A new proposal from the Organisation for Economic Co-operation and Development (OECD) aims to advance international negotiations to address challenges around tax for the digital economy and get an agreement on the matter by 2020.
The OECD put forward a proposal that brings together common elements of three frameworks from member countries to achieve multilateral negotiation for international digital services tax rules, which would then apply to large and highly profitable online firms such as Amazon, Google and Microsoft.
The proposal aims to reallocate some profits and corresponding taxing rights to countries and jurisdictions where multinational enterprises have their markets and ensure that companies conducting “significant business” in places where they don’t have a physical presence are taxed in these jurisdictions.
“Failure to reach agreement [on digital taxation] by 2020 would greatly increase the risk that countries will act unilaterally, with negative consequences on an already fragile global economy,” said OECD secretary-general, Angel Gurría. “We must not allow that to happen.”
The OECD’s proposal for an international digital tax framework is open to public consultation. The ongoing work will be presented in the next meeting of G20 Finance Ministers and Central Bank Governors in Washington DC, on 17-18 October 2019.
Concerns about the taxation of multinationals can only be resolved through international action, according to Antony Walker, deputy CEO at techUK. The trade body welcomed the proposals, adding that current global tax rules are “clearly not fit for purpose”.
“The proposals put forward [by the OECD] would finally bring these tax rules into the 21st century,” he said. “Multilateral agreement through the OECD would negate the need for national or regional solutions that would complicate rather than simplify global tax compliance by multinational companies.”
Addressing the international taxation issues is vital to ensure “a level playing field” that allows the technology sector to continue to flourish – creating jobs and opportunities as it does, according to Walker, who argued that devising a national solution for digital services tax is not the way to go.
“We urge the UK government to focus on the OECD process of tax reform rather than be distracted by a UK-only Digital Services Tax that could be dead on arrival if a multilateral solution is emerging,” he added.