UPDATE 1-Multinationals face heftier tax bills under OECD proposals
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PARIS (Reuters) – Governments will get more power to tax big multinationals doing business in their countries under a major overhaul of decades-old cross-border tax rules outlined on Wednesday by the Organisation for Economic Cooperation and Development.
The rise of big internet companies like Google and Facebook has pushed current tax rules to the limit as such firms can legally book profit and park assets like trademarks and patents in low tax countries like Ireland regardless of where their customers are.
Earlier this year more than 130 countries and territories agreed that a rewriting of tax rules largely going back to the 1920s was overdue and tasked the Paris-based OECD public policy forum to come up with proposals.
The issue of taxing big cross-border multinational firms has become all the more urgent as a growing number of countries have adopted plans for their own tax on digital companies in the absence of a global deal.
“The current system is under stress and will not survive if we don’t remove the tensions,” OECD head of tax policy Pascal Saint-Amans told journalists on a conference call.
He said the overhaul would have an impact of a few percentage points of corporate income tax in many countries with no big losers apart from big international investment hubs.
While that means countries like Ireland or offshore tax havens could suffer, countries with big consumer markets like the United States or France would benefit from the shake-up.
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 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.
Companies affected would be big multinational firms operating across borders with the OECD suggesting they should have revenue of over 750 million euros ($821 million).
They would also have to have a “sustained and significant” interaction with customers in a country’s market, regardless of whether they have a physical presence there or not.
Thus defined, not only would big internet companies be covered but also big consumer firms that sell retail products in a market through a distribution network, which they may or may not own.
Companies meeting those conditions would then be liable for taxes in a given country, according to a formula based on set percentages of profitability that remain to be negotiated.
The OECD expects the first sign of whether there is broad political support behind their proposals next week when finance ministers from the Group of 20 economic powers discuss them at a meeting in Washington.
Afterwards 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.
The proposals issued on Wednesday run in parallel to a second track of reform also steered by the OECD that aims to come up with an internationally agreed minimum corporate tax rate companies cannot avoid.
Reporting by Leigh Thomas; Editing by Christian Lowe