The draft, finalised after lengthy negotiations, will now be subject to consultation.
Background: International efforts to reform corporate taxation gathered pace between 2018 and 2019. In 2018, the European Commission proposed rules for an EU-wide approach, but member states failed to reach an agreement. This led to individual EU countries going their own way in proposing a digital service tax, such as in France where the tax has already been approved.
A radical change after a century: Almost in parallel with the EC’s initiative, the OECD also started working on a global initiative to reform corporate taxation, to reflect the changes in the way transactions take place in the digital world. The OECD was critical of the EC’s proposal, which was deemed at risk of reaching unintended consequences and ultimately damaging the digital sector, including small businesses. Following more than one year of negotiations behind the scenes, the OECD has now disclosed its proposal, which for the first time breaks the principle that countries can only tax companies based on their soil. The new proposal aims to update a system dating back to the 1920s, which is “no longer sufficient to ensure a fair allocation of taxing rights in an increasingly globalised world.” Countries will gain taxing rights on multinationals which often do not have any physical presence there, despite selling their products in those jurisdictions.
What happens now? The ongoing work will be presented in a new OECD Secretary-General Tax Report during the next meeting of G20 Finance Ministers and Central Bank Governors in Washington DC between 17 – 18 October 2019. The OECD has launched a public consultation, open until 12 November 2019. A meeting will be held 21 – 22 November 2019, to allow stakeholders to provide input on the ongoing work.
