Tech Giants Taxation: G20 Paves the Way for Key OECD Negotiations

The economic organization will be able to discuss with 134 countries its “unified approach”, the main features of which were presented last week.

Tax Havens
Tax Havens

On Friday 18 October, G20 finance ministers paved the way for crucial and complex negotiations within the Organization for Economic Cooperation and Development (OECD) on the taxation of digital giants and multinationals, with the aim of reaching a global agreement by June 2020.

“We welcome the recent progress made,” said Japanese Taro Aso at the end of the meeting, which was held in Washington in the margins of the annual meeting of the International Monetary Fund (IMF).

This support will enable the OECD to take part in discussions with 134 countries on its “one size fits all” approach, which it presented last week.

The taxation of digital giants and multinationals is a major challenge in adapting global taxation to the digitization of the economy in recent decades, so that states can collect taxes even if groups are not physically present on their territory.

There is progress

The negotiations, which started in January in the OECD after several years of delay, were blocked by the presence on the table of three different and ‘competitive’ proposals from the United Kingdom, the United States and India.

French Finance Minister Bruno Le Maire, whose country has decided to tax digital giants on their revenues pending a global agreement, welcomed the G20’s support, but warned that negotiations have only just begun: “We are making progress, but I would not say that we are close to an agreement. “

Commissioner Pierre Moscovici, for his part, also welcomed the OECD’s approach, although he had reservations: “I hope that we will not lose our ambition in the field of digital taxation and that it will not be watered down”.

Three pillars

The OECD proposal is based on three pillars. The first one defines the scope of the new tax: it provides that it will apply to multinationals that “have a significant interaction with end-users”. On the other hand, those who have no direct relationship with the public, such as car suppliers, who sell their production to manufacturers, would be excluded.

The second pillar provides for a system to determine whether or not a country can tax a multinational on the basis of the company’s turnover.

Finally, a ‘legal guarantee’ is introduced for multinationals with an arbitration mechanism in the event of disputes between States and large groups in order to avoid double taxation.

Tax havens

According to the OECD, the so-called market countries and developing countries would be the winners of this tax reform and the losers would be the tax havens where the headquarters of the multinationals are located.

The GAFAs (acronyms for Google, Amazon, Facebook and Apple) responded positively to the OECD proposal. “Tax policy should give companies the stability to operate in their own country and abroad. We will continue to support a multilateral approach, such as that of the OECD,” said a spokeswoman for Facebook.

Amazon, in turn, described this proposal as a “major step forward” and reiterated its support for the work of the OECD, as did Google, which referred to its previous position in which it supported the institution’s efforts.

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