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The OECD has hailed progress on a global deal to make tech giants and other large multinationals pay more tax where they do business, after publishing an international treaty drafted by more than 130 countries.
The treaty, published on Wednesday morning, codifies the landmark deal that countries reached two years ago to update the international tax system for the digital age.
“The release of this text . . . represents another significant step towards practical implementation of the October 2021 agreement,” said Manal Corwin, director at the OECD Centre for Tax Policy and Administration.
If signed and ratified by enough countries, the text would lead to the redistribution of $200bn-worth of profits a year from multinationals to countries where sales are made. Some 143 countries are taking part in negotiations at the OECD.
The existing international rules, which were designed in the 1920s, are out of date, as they do not adequately give countries the right to tax digital businesses operating within their borders but without a physical presence.
The changes will apply to multinationals with more than €20bn in revenue and a profit margin above 10 per cent. For those companies, 25 per cent of their profits above a 10 per cent margin would be taxed in countries where they have sales.
The reforms are expected to raise revenue of between $17bn to $32bn a year, the OECD has forecast.
However, it remains uncertain how many national governments will pass the deal.
Meanwhile, unless a certain proportion of countries sign the treaty by the end of the year, a ban on unilateral digital services taxes previously agreed by countries will expire. This could lead to a “proliferation” of digital services taxes that would be “significantly harmful”, Corwin warned.
Despite negotiating countries “unanimously” agreeing to the publication of the treaty text on Wednesday, the multilateral convention was “not yet open for signature” as differences remained between some countries, she added.
In particular, Brazil, Colombia and India have reservations about how their existing levies will interact with the new tax regime.
Corwin said the disagreements did not mean the countries had not endorsed the treaty text, but there were areas “where there is still conversation”.
“Those countries have continued to be extremely constructive throughout, [by] trying to bridge the gaps . . . and will continue to do so,” she said.
The text of the treaty will be presented to G20 finance ministers and central bank governors in a new OECD secretary-general tax report ahead of their meeting in Morocco this week.
It is unclear whether some countries, notably the US, will sign the treaty and ultimately ratify it in their legislatures.
In order to come into legal force internationally, the treaty will need to be signed by at least 30 jurisdictions, which house the headquarters of a minimum of 60 per cent of the 100 or so companies affected by the changes.
Source: Economy - ft.com
