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International Community Agrees on a Road Map for Deal on Taxing Multinational Firms

Companies like Google, Facebook and Amazon are able to cut tax bills by booking profits in low-tax countries

A total of 129 countries and territories have adopted a “Programme of Work” laying out a process for reaching a new global agreement for taxing multinational enterprises, the Organisation for Economic Co-operation and Development (OECD) said on Friday.

The roadmap aims to resolve the tax challenges arising from digitalisation of the economy.

The Programme of Work will explore the technical issues to be resolved through two main pillars.

The first pillar will explore potential solutions for determining where tax should be paid and on what basis (“nexus”), as well as what portion of profits could or should be taxed in the jurisdictions where clients or users are located (“profit allocation”).

International Community, Roadmap
The roadmap aims to resolve the tax challenges arising from digitalisation of the economy. Pixabay

The second pillar will explore the design of a system to ensure that multinational enterprises – in the digital economy and beyond – pay a minimum level of tax.

This pillar would provide countries with a new tool to protect their tax base from profit shifting to low/no-tax jurisdictions, and is intended to address the remaining issues identified by the OECD/G20 Framework on Base Erosion and Profit Shifting (BEPS) initiative.

According to a report in RTE.ie, companies like Google, Facebook and Amazon are able to cut tax bills by booking profits in low-tax countries no matter where the end customer is.

In 2015 the OECD estimated revenue losses from BEPS of up to $240 billion, equivalent to 10 per cent of global corporate tax revenues.

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OECD created the “Inclusive Forum” to co-ordinate international measures to fight BEPS and improve the international tax rules.

“Important progress has been made through the adoption of this new Programme of Work, but there is still a tremendous amount of work to do as we seek to reach, by the end of 2020, a unified long-term solution to the tax challenges posed by digitalisation of the economy,” OECD Secretary-General Angel Gurria said in a statement.

“Today’s broad agreement on the technical roadmap must be followed by a strong political support toward a solution that maintains, reinforces and improves the international tax system. The health of all our economies depends on it,” Gurria added.

The document, which calls for intensifying international discussions around two main pillars, was released on Friday, but it will be presented by the OECD Secretary-General to G20 Finance Ministers for endorsement during their June 8-9 ministerial meeting in Fukuoka, Japan. (IANS)

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