Economy

OECD proposes giving countries right to tax multinationals' global profits

OECD proposes giving countries right to tax multinationals' global profits”

A study by the Tax Justice Network found that the OECD proposals, created to limit the scope of multinationals to avoid tax, could end up shrinking the tax paid in poorer countries.

The issue has become particularly big in the European Union, where multinationals with business across the continent pay taxes nearly exclusively in the EU country where their local headquarters are based, often a low-tax jurisdiction like Ireland, Luxembourg or the Netherlands.

The OECD said in a statement that its proposal would help the talks to "ensure large and highly profitable multinational enterprises, including digital companies, pay tax wherever they have significant consumer-facing activities and generate their profits".

"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.

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 global investment hubs, Saint-Amans said.

Multinationals like Google and Facebook can reduce their tax burdens by filing in low tax countries like Ireland.

This year it imposed its own tax on digital giants, drawing the ire of US President Donald Trump even though Paris has vowed to scrub the levy once a global accord is in place. The EU has ordered Apple to pay Ireland nearly $15 billion in back taxes, for example, after finding that their tax deal was unfair because it was better than what other regular companies could expect.

Countries such as France have been pushing for stricter rules which would force the tech giants to pay more tax.

The rise of big internet companies like Google and Facebook has pushed existing 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. The initiative primarily addresses digital companies, which can have significant market share in countries without a physical presence and as a result escape corporate taxation.

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.

After Washington, 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 U.S. says France's move unfairly targets American companies, but the French government says it will stick with the tax unless there is a global solution at the OECD.



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