U.S. tech giants may be forced to pay more taxes in Europe and developing countries as the world’s rich nations draft a new global standard for taxing multinational corporations.
This move would revolutionize corporate taxation and allow the authorities to levy up to 4 percent more tax. This could lead to additional tax revenues of $100 billion worldwide.
Under the new measures, companies like Google, Amazon and Facebook, as well as highly profitable European luxury goods companies, will have to pay corporate taxes on profits where they operate, rather than being able to relocate them to tax havens.
In recent years, governments have come under increasing public pressure to take action against tax avoidance strategies.
The new system is ready to be implemented if a political agreement can be reached next year, the Organization for Economic Cooperation and Development (OECD) said. Whether the agreement can be reached will be one of the first major tests for the next US president after the November election.
Pascal Saint-Amans, head of tax policy at the OECD, said: “The glass is half full: the package is almost ready, but there is no political agreement yet.
Earlier this year, Washington reversed the global digital tax plans after suspending talks with European countries and threatened to impose tariffs if eurozone countries continued to levy digital taxes.
The Paris-based organization warned that if the reforms failed, trade wars would likely result, costing 1 percent of global national income.
The current concept consists of two main pillars to prevent conglomerates from shifting their profits to low-tax areas.
The first is that a portion of global profits is allocated to the countries where customers are located, even if they sell from a distance, rather than corporate income tax being based on the physical location of the business.
The second is that there should be a minimum corporate tax rate, potentially 12.5 percent, regardless of where their headquarters were located. This means that if a company is located in a place with low corporate tax rates, other countries would have the right to levy taxes up to the global minimum.
Blueprints for both “pillars” are now to be published to serve as a basis for further discussions, the OECD said, and will be presented at an online meeting of G20 finance ministers on Wednesday.
The OECD added that the pandemic this year has hindered progress on the introduction of a levy, although “the COVID 19 pandemic makes the need for a solution even more compelling”.
The failure of a global agreement could lead some countries to go it alone on digital taxation, further fueling global trade tensions.
Several European countries, including France and the UK, have already announced their own levies in the absence of a global agreement.