OECD floats sending tech tax proceeds to countries where revenues are generated

Silicon Valley is about to lose a battle in its war against paying tax on big-tech revenues

Silicon Valley is about to lose a battle in its war against paying tax on big-tech revenues

The Organisation for Economic Cooperation and Development says it is working to overhaul worldwide tax laws that the organization says are no longer suitable in today's world of multinational businesses, such as Apple, Google, and other tech firms.

Currently, multinationals tend to pay most of their tax in the country where they are based.

Researchers found that the additional tax recovered from corporate tax havens would mainly benefit the richest countries.The findings indicate that while there will be a 5% fall in profits booked in tax havens, around 80% of the redistributed profits will go to high income countries.

Washington, meanwhile, fears that U.S. companies have been singled out.

The issue has become particularly big in the European Union, where multinationals with business across the continent pay taxes nearly exclusively in the EU country where their local headquarters are based, often a low-tax jurisdiction like Ireland, Luxembourg or the Netherlands.

The UK proposal focuses mainly on digital groups, and says any country where a firm has users could impose tax.

"The current system is under stress and will not survive if we don't remove the tensions", said Pascal Saint-Amans, OECD head of tax policy. The EU has ordered Apple to pay Ireland nearly $15 billion in back taxes, for example, after finding that their tax deal was unfair because it was better than what other regular companies could expect.

Amazon, whose European headquarters is in Luxembourg, another low-tax jurisdiction, called the OECD's latest proposal "an important step forward". The measures would apply to companies with revenues of more than US$821 million that operate across global borders and have a "sustained and significant involvement in the economy".

They would also have to have a "sustained and significant" interaction with customers in a country's market, regardless of whether they have a physical presence there or not.

Companies meeting those conditions would then be liable for taxes in a given country, according to a formula based on set percentages of profitability that remain to be negotiated.

OECD officials have said a broad agreement is needed by January if the digital tax is to be approved next year - in which case it would come into effect in 2021. The hope is that the 134 countries that originally pushed for reform can reach an agreement in 2020.

The proposals issued on Wednesday run in parallel to a second track of reform also steered by the OECD that aims to come up with an internationally agreed minimum corporate tax rate companies can not avoid.

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