Technology giants and other large multinationals could soon face a global minimum level of corporate taxation under new proposals from the OECD, even if they have successfully and legally shielded their profits in tax havens.
The Paris-based organisation called on Friday for the introduction of a safety net to enable home countries to ensure their multinationals cannot escape taxation, even if other countries have offered them extremely low tax rates.
The proposals constitute the second part of a review of global tax policy by the international organisation which oversees global co-ordination of taxes. The OECD last month proposed that governments should tear up a century of tax history by allowing countries to tax operations in their jurisdiction even if companies have no physical presence there.
It is now consulting on this second set of proposals, on setting a global minimum corporate tax level.
Together the two proposals aim to eliminate the huge advantages some companies enjoy by shifting profits around the world to minimise their tax bills — a strategy that has become particularly common among those involved in digital technologies. The proposals would also reduce the incentives for countries to lower their tax rates in an effort to attract such footloose businesses.
For example, the first proposal would give France the right to tax Google on part of its sales to French advertisers.
The new proposals outlined by the OECD on Friday would augment this rule by enabling the US to ensure that Google paid a minimum level of tax on its global profits — if, for example France chose not to exercise its rights or Apple was still able to shield its profits in other low-tax jurisdictions such as Ireland.
The proposals would not only apply to tech giants such as Facebook, Apple, Amazon, Netflix and Google, but also other multinationals that make significant sums from intangible assets such as brands.
The OECD said: “A minimum tax rate on all income reduces the incentive for taxpayers to engage in profit-shifting and establishes a floor for tax competition among jurisdictions.”
The G20 group of nations has agreed to let the OECD draw up detailed proposals by the end of 2020, which if approved would then be introduced into national tax systems and the tax treaties between countries. Countries have given their backing because they want to avoid unilateral measures, such as digital services taxes, that many European countries are proposing. This could inflame global trade tensions, some fear.
The specific levels of minimum tax rates have not yet been discussed as the OECD wants to reach agreement on the principles first. It has given interested parties a month to respond to its consultation.
US representatives of tech companies gave the plans a cautious welcome, accepting that countries would go it alone if this global initiative failed.
Jennifer McCloskey, vice-president of policy at the Information Technology Industry Council, said: “The growing threat of a patchwork approach to international taxation underscores why these significant questions and challenges raised by the digitisation of business must be addressed in a multilateral setting.”