The Organisation for Economic Cooperation and Development has proposed a radical corporate taxation overhaul to make it harder for multinationals operating across borders to shelter profits.
The proposal unveiled Wednesday gives OECD member countries the right to tax a proportion of multinationals’ global profits wherever those profits might have been shifted around the world and irrespective of whether a company has a “physical presence” in the taxing country.
Taxes in a given country would be assessed acording to a formula based on set percentages of profitability that remain to be negotiated.
“In a digital age, the allocation of taxing rights can no longer be exclusively circumscribed by reference to physical presence,” the OECD said in a consultation document. “The current rules dating back to the 1920s are no longer sufficient to ensure a fair allocation of taxing rights in an increasingly globalized world.”
The proposal “is designed to respond to these challenges by creating a new taxing right,” the document added.
The current tax regime has allowed digital enterprises such as Facebook, Apple, Amazon, Netflix, and Google to shift profits around the world to minimize their tax bills.
“Big internet firms have pushed tax rules to the limit as they can book profit and park assets like trademarks and patents in low tax countries like Ireland wherever their customers are,” Reuters said, noting that “the drive for a global rule book has received new urgency as countries unilaterally adopt plans for a tax on digital companies over frustration with current rules.”
The new OECD system would apply to multinationals with annual revenue of more than 750 million euros ($821 million) and that have a “sustained and significant” interaction with customers in a country’s market.
“It would enable France, for example, to tax an element of the sales of Google to French advertisers and the U.S. to have greater taxing rights over the profits attributable to the brands of the French luxury brand company LVMH related to the sales in America,” The Financial Times said.
Tax havens and low-tax jurisdictions such as Ireland would be adversely affected, according to the FT.