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Tech giants could face hefty tax bill under new OECD proposal

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Deanna Wagner | 11 October, 2019, 14:30

The Organization for Economic Cooperation and Development, which sets worldwide tax standards, has proposed an overhaul of cross-border tax rules that would give governments more power to tax major multinationals doing business in their countries. It merges competing proposals that had divided countries, with some wanting to single out digital companies and others aiming at a broader target. According to the proposal, a company would be taxed by a country if its sales exceeded a certain threshold in the market, with the specific amount yet to be finalised.

The proposal, unveiled on Wednesday, comes amid growing tensions between the US and other countries over digital taxes that mostly take aim at American tech giants, including Amazon, Google and Facebook.

Essentially, it was tasked with creating a new set of tax rules designed to stop companies that operate in G20 countries from shifting their profits to tax havens, such as Luxembourg, Bermuda, Jersey or Ireland.

What Happened: The Organization for Economic Cooperation and Development has unveiled a proposal to increase countries' ability to tax digital companies for sales on their territory independently from the location of a firm's headquarters, the Financial Times reported October 9. A Treasury Department spokesman said Wednesday that the United States "is studying the OECD Secretariat's proposal and is actively engaged in the process aimed at forging a consensus on global tax issues" before reiterating the administration's opposition "to unilateral digital services taxes".

The aim is to give the government where the user or client of a company's product is located the right to tax a bigger share of the profit earned by a foreign company there. Simon Jefferies of the Conservatives said the party's forthcoming platform would have more details about taxing multinational tech companies. Wednesday's release brought an 18-page framework plan that officials hope will form the basis of an global agreement on digital taxation as early as next year.

"In a digital age, the allocation of taxing rights can no longer be exclusively circumscribed by reference to physical presence", the OECD said in a consultation document.

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Other countries, such as the United Kingdom, have also implemented tax laws that address large multinationals.

The framework will be taken up for discussion by finance ministers from large countries, who are due to meet in Washington next week.

Since the passing of the French tax laws, the countries have agreed on a compromise whereby the tax will continue to be applied to tech giants, but France has promised to scrap the tax - and any taxed amounts paid by United States companies would be deducted - once the OECD creates an worldwide tax framework.

"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".

In an e-mail Wednesday, Facebook Canada spokesperson Erin Taylor said that "We continue to support multilateral approaches like that being undertaken at the OECD".