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OECD Releases Plan for Global Digital Tax

The plan "represents a unified approach to taxing the digital economy"

On Oct. 9, 2019, the Organization for Economic Cooperation and Development (OECD) released a proposal that it says represents a “unified approach” to taxing the digital economy. The OECD plan is based on allocating more corporate profits to countries where multinational corporations have a large market presence. This means some countries with big consumer bases are going to see more tax revenue under the plan than others.

OECD has been guiding talks for months between more than 130 countries, and the new plan does seek to mollify U.S. officials who were concerned about a digital tax that unfairly targets American tech giants like Apple, Amazon, Facebook and Google. The new proposal incorporates some suggestions from the Trump administration and would also affect makers of luxury goods, automobiles and other products that are based in Europe.

The OECD proposal would apply to multinational “consumer-facing” businesses that sell to consumers on a digital platform and make huge profits. The OECD’s work has taken on some urgency as a few countries have grown impatient and moved ahead with their own digital tax proposals while waiting for an international agreement.

This summer, France implemented a 3 percent tax on yearly revenues of tech companies that make at least 750 million euros annually and provide services to users in France. As part of a deal made between French Finance Minister Bruno Le Maire, Treasury Secretary Steven Mnuchin and White House economic advisor Larry Kudlow, France agreed to repay U.S. tech companies the difference between the French tax and the digital tax being drafted by the OECD.

“We think the scope, which is broader than but starts with and covers digital, is probably relevant to cover what needs to be covered and prevent countries from moving to unilateral measures when they’re frustrated with existing rules,” said Pascal Saint-Amans, director of the OECD’s Center for Tax Policy and Administration, on a call with reporters.

Importantly, the OECD proposal is broadly drafted and does not specify how much companies will have to pay. The plan was sent to finance ministers from the G-20 this week, before they are set to meet in Washington next week.

According to the Wall Street Journal, Trump administration officials are in support of the plan, as are some of the tech companies that would be affected.

“Reaching broad international agreement on changes to fundamental international tax principles is critical to limit the risk of…distortive unilateral measures and to provide an environment that fosters growth in global trade,” Amazon said in the WSJ article.

This article was provided to OSAE by the Power of A and ASAE's Inroads.

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