William Gallagher
A consortium of 137 countries has agreed to revamp tax rules to close decades-old loopholes for multinational corporations. It's prompted by the rise of digital firms but Apple, for one, has been a vocal supporter of reform.
The Organization for Economic Cooperation and Development (OECD) has announced that officials from 137 governments have agreed to launch new negotiations that will potentially see international tax laws radically revamped.
Current tax laws have not been substantially changed in decades, but the enormous rise of digital firms has put the system under pressure. When the tax laws were created, they were founded on the assumption that multinational firms would have a physical presence in each territory where they operated.
With digital firms, this is no longer true and it's created loopholes. Corporations can choose to pay tax through any country where they do have an office, so they can also elect to pick the country with the lowest tax fees.
Apple, although a vocal supporter of tax reform, has benefited from this too, with its European operation effectively being taxed as if it's all going through the company's offices in Ireland.
While that specific example has resulted in Apple becoming embroiled in legal dispute with the European Union, Tim Cook has recently been promoting tax reform of the type now proposed.
"I think logically everybody knows it needs to be rehauled, I would certainly be the last person to say that the current system or the past system was the perfect system," said Cook before today's news. "I'm hopeful and optimistic that [the OECD] will find something."
Now, according to Reuters, the OECD has gathered enough support at its Paris talks to announce the group proposals.
Pressure to reform the tax system has been growing so much that countries such as France have introduced or proposed their own reforms rather than wait for consensus. These moves, though, have added to what the OECD sees as a need for urgent negotiations.
"It's moving fast because what is at stake is a massive trade war," Pascal Saint-Amans, OECD head of tax policy, told Reuters. "This is what we see on a daily basis with the interaction between France and the U.S. and with the interaction between the U.S and the countries that have said they would launch digital services taxes."
France has decided to postpone its new digital tax while the French and US governments are in trade discussions. That truce will continue to the end of 2020.
It's not yet known when the OECD believes governments can agree and implement reforms.
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30 Comments
It's a welcome change, sure you can decry all these companies, but if they're following the "rules", then it's the rules that need to change. Otherwise each company is arbitrarily making up their own ideas for whom they should be paying tax. And let's be frank, all of these countries want reasons for the tax to land in their pocket rather, so without clarity there will always be conflicts in interpretation, these rules need to come the top.
About time. Most of the world's wealth goes to the top tier of these companies. Funding of politicians who have created tax laws which legally get these corporations pay little to zero tax (Amazon) on their vast income. This has to stop. We all pay taxes somewhere between 20-40% because taxes keep our society, cities, and states going. This fall look carefully at your state and city elected officials and their voting history in regards to giving the wealthiest Americans a free pass on April 15th. Your burden will be lighter if tax laws were fair and the wealthiest will still be plenty wealthy but you children will have better schools.
Great! Does that mean people will pay less in taxes now that tech companies are paying more?
The US is still pushing for "safe harbor" policies, tho they are stopping short of defining precisely what that means. It will make talks a lot tougher and take much longer. It is entirely possible that the US and EU will fail to come to an agreement and they go their own way at implementing a digital tax on Apple and Google and Amazon et.al. apart from a worldwide policy stance on sales of hard goods, profits, and tax obligations by way of intellectual property transfers.