Talks on new international tax rules for multinational internet companies made progress in Paris at meetings 29-30 January. The OECD said the aim is to present a final proposal by the end of 2020. However, the US has proposed making it an optional regime.
Participants in the latest meeting agreed to pursue negotiation of new rules on where tax should be paid (“nexus” rules) and on what portion of profits they should be taxed (“profit allocation” rules). This is designed to ensure that multinationals with "sustained and significant business" in places where they may not have a physical presence still pay taxes in these jurisdictions. The approach adopted at the meeting is largely based on the proposals from the OECD last October.
The OECD said endorsement of this 'Unified Approach' is a significant step, as until now the countries had been considering three competing proposals to address the tax challenges of digitalisation. A next meeting is planned for July in Berlin, where the participating countries will try to reach a political agreement on the details of the proposal.
This may prove difficult, as the US has stated it wants an optional regime, whereas Europe is in favour of binding rules. US Treasury Secretary Stephen Mnuchin wrote to the OECD Secretary-General Angel Gurria December, asking for a 'safe harbour' regime, where companies could choose where to apply the new tax scheme. The EU has said it will go ahead with implementing its own digital tax if a deal at the OECD is not reached by year-end.
The OECD said many of the other participants in the talks "have expressed concerns" about the US proposal. It has agreed to include the proposal in its work plan, but said a decision on this would not be taken until the overall architecture is agreed.
Progress on the plans will be presented at the G20 meeting in Riyadh next month.
