PARIS (Reuters) – The Organisation for Economic Cooperation and Development (OECD) published a multilateral treaty on Wednesday that would replace a hodge-podge of national digital services taxes if ratified by enough countries.
The release of the text puts pressure on the United States in particular, where a two-thirds majority in the deeply divided Senate is needed to ratify treaties.
The document is the first pillar of a two pillar overhaul of rules for the cross-border taxation of multinational companies, which was agreed in 2021 by nearly 140 countries but whose implementation is proving slow and complicated.
Many countries complain the world’s fragmented tax system allows multinational companies – particularly major U.S. tech firms – to pay little tax in jurisdictions where they make large revenues, and so some have introduced their own digital taxes, despite opposition from Washington.
The treaty codifies how governments are to reallocate taxing rights on about $200 billion in profits from the biggest and most profitable multinationals to the countries where their sales occur.
The Paris-based OECD estimates the reallocation will yield additional global tax revenue of between $17 billion and $32 billion, with low and middle-income countries gaining the most.
If ratified, the treaty requires that countries that have, or are planning, national digital services taxes drop them.
Washington is particularly sensitive to that issue as many of such taxes were put in place to target big U.S. digital companies such as Google, Amazon and Apple.
To enter into force, the 30 countries home to at least 60% of the affected multinational companies have to ratify the treaty, which means that the U.S. has to be on board.
OECD head of tax Manal Corwin said failure to ratify the text could lead to “grave consequences” and not only because it could trigger a proliferation in the use of digital services taxes and trade retaliation.
“It also in my mind threatens the stability of the broader international system that both countries and companies have depended on for a long time,” Corwin told journalists.
The second pillar of the 2021 global corporate tax deal sets a minimum corporate tax rate of 15%, which countries are supposed to start implementing from next year.
(Reporting by Leigh Thomas; Editing by Mark Potter)
Credit: The Star : Tech Feed
