Planned global tax rules aim to ensure big tech and other multinationals ‘pay their fair share’

Overhaul comes amid rise of hugely profitable digital companies that minimise their tax bill by setting up offices in low-tax jurisdictions

Critics say measures do not go far enough (Reuters)

A radical shake-up of international tax rules, proposed by the Organisation for Economic Cooperation and Development (OECD), would force large multinational companies to pay taxes even in countries where they do not have a physical presence.

The overhaul comes amid the rise of hugely profitable digital companies, such as Amazon and Google, that minimise their overall tax bill by setting up offices in low-tax jurisdictions.

“We’re making real progress to address the tax challenges arising from digitalisation of the economy,” said Angel Gurria, the OECD secretary-general.

“This plan brings together common elements of existing competing proposals, involving over 130 countries, with input from governments, business, civil society, academia and the general public.”

The ultimate goal is to ensure all multinational corporations “pay their fair share”, he added.

The proposal breaks away from the current system, dating back to the 1920s, by introducing the principle that companies should pay tax wherever they have “significant consumer-facing activities” and generate their profits.

The new principle is needed because companies can increasingly serve customers in a country without having a physical presence there, the OECD said.

The organisation suggested that the way to determine whether a company has “sustained and significant” involvement in a country would be to see how much of its revenue comes from there and whether the amount meets a certain country-specific threshold.

Once it is established that a multinational corporation can be taxed in a particular country even though it is not physically present there, the next question is how much profit should be taxed in that jurisdiction, the OECD went on.

The detailed proposal is now open to a public consultation.

Mr Gurria called for international cooperation on the new tax rules, warning: “Failure to reach agreement by 2020 would greatly increase the risk that countries will act unilaterally, with negative consequences on an already fragile global economy.”

One group unlikely to respond favourably to the OECD’s plan is Tax Justice Network. Chief executive Alex Cobham said the proposal lacks ambition, and introduces more complexity and uncertainty “for tax abusers to hide behind”.

“Given a once-in-a-century opportunity to reform and reinvigorate a broken international tax system that loses $500bn in government revenue to corporate tax abuse every year, the OECD has decided to tinker around the edges,” he said.

“The OECD is now raising the prospect of carving out businesses that are not directly ‘consumer-facing’ … To be clear, there is no suggestion that non-consumer-facing multinationals are not also engaged in corporate tax abuse.”