Potential reform to international tax with new OECD proposals
G20 finance ministers meet today to discuss the OECD’s proposed rule changes for taxing cross-border income. The meeting takes place as a side event at the IMF/World Bank summit. The OECD hopes a “unified approach” to negotiations might build a consensus through 2020.
If G20 nations back the proposals, the OECD will then begin negotiations between the 134 countries which have already indicated support. The OECD hopes to have a basic consensus by January, with a more official agreement by June next year.
However, disagreement persists - France has continuously railed against EU rules letting US tech giants like Google and Amazon declare EU based earnings in low-tax havens, like Ireland or Luxembourg. On the other side, Luxembourg and the Irish both complained that new proposals are an attack on national sovereignty.
Change is inevitable
Most countries accept the inevitability of reform. As the digital revolution moves into the realm of taxation, it is the nature and breadth of the new arrangements that must be fleshed out. A broad consensus is required and the scope for tax havens to veto will be limited.
Public outrage has grown as corporate tax avoidance has been placed under greater scrutiny. Treasuries across the world lose billions annually, resulting in a clamour to crack down on what many see as corporate theft. The solution is for tax jurisdictions to inherit greater taxing rights over residual profits, based on a formulaic system.
Outlining a few of the proposals:
- Companies with a revenue of over 750 million Euros will be targeted. However, this would not apply to companies who deal business-to-business – rather, customer-facing companies will be targeted. This will hit the biggest digital companies, such as Google.
- Specific jurisdictions will gain rights to tax a company once sales have reached a certain amount (yet to be negotiated) in their domestic market.
- The new proposals will also look to limit the effects of Transfer Pricing, with rules being put in place requiring internal transfers to be charged at market rates, which will stop companies over or undercharging to avoid tax.
- It is hoped that the idea of a minimum international tax rate will also come into the negotiations at some point.
These are very interesting times for global tax with the implications for tax professionals, particularly transfer pricing specialists, set to be huge and wide ranging. Kingpin will endeavour to keep you up to date with these important developments.
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