Pikes across roads and walls around cities have enabled tax authorities to take a slice of business profits since before the dawn of the nation-state. Trouble is this pike-and-wall approach hasn’t served too well in the new, digital age as tech giants and global multinationals have essentially walked around the barriers and taken their money home.
This, however, may be about to change. The Organisation for Economic Co-operation and Development (OECD) said recently that representatives from 95 jurisdictions had agreed to “address the tax challenges of the digitalization of the economy.” In other words: the richest countries in the world want to drag the pike-and-wall approach into the 21st century and end years of avoidance.
OECD head Ángel Gurria told AFP at the World Economic Forum in Davos on January that despite differences between the U.S. and EU last year, “I believe that the conditions exist to lay the foundations for an agreement this year that could be approved and enter into force in 2020.”
The OECD-led policy reforms are part of an initiative dating to 2015 and are targeted to go into action in 2020. The Paris-based institute has been forced into action by individual countries such as the U.K., France, who have brought the issue to a head by writing and implementing their own laws that tax global digital service revenues in different ways.
The problem is that if each country implements different laws, companies may be subject to double-taxation in some cases and no taxation in others. That’s what the OECD seeks to prevent in one of the policy “pillars” announced recently.
But they are no means alone: U.S. officials are aiming to set a minimum global tax rate on multinationals, including digital service providers, that would give taxing priority to places where companies invest.
The EU is also ruminating over proposals that focus more on the location of the users of the services — although this has been hindered by the fact that the EU itself is divided between tax havens such as Luxembourg and Ireland, and countries with few company headquarters but lots of service users.
The overall upshot, however, is that despite the seemingly endless debates a framework for a global digital tax will, one day, exist. While some multinationals will rail against the changes, others such as Google, have already expressed an interest in a coordinated global approach that would make their tax planning more predictable and homogenous.