U.S. tech giants may be forced to pay more tax in Europe and developing countries as the world's rich nations draft a new global standard for taxing multinational firms.
The move would revolutionise corporation tax, allowing authorities to collect up to 4 percent more tax. This could potentially raise $100 billion in extra tax revenues around the world.
Under the new measures, companies such as Google, Amazon and Facebook, as well as highly profitable European luxury goods firms, will have to pay corporate taxes on profits where they operate and will be unable to shift them to tax havens.
Governments have been under an increasing amount of public pressure to clamp down on the tax avoidance strategies over the last few years.
The new system is ready to be implemented if political agreement can be reached next year, the Organisation for Economic Co-operation and Development (OECD) said. Whether the deal can be struck will be one of the first big tests for the next U.S. president after November's election.
Pascal Saint-Amans, head of tax policy at the OECD, said: "The glass is half full: the package is nearly ready but there is still no political accord."
Earlier this year Washington upended the global digital tax plans after suspending talks with European countries, threatening tariffs if nations in the eurozone continue levying digital taxes.
The Paris-based organisation warned that failure to pass reforms was likely to result in trade wars that would cost 1 percent of global national income.
The current blueprint is made up of two main pillars to stop conglomerates shifting profits to low tax jurisdictions.
The first is that an element of global profits will be allocated to the countries in which customers are based, even if they sell remotely, instead of corporation tax being based on the physical location of the company.
The second is to have a minimum corporate tax rate, potentially of 12.5 percent, regardless of where they were headquartered. This means that if a company was based in a place with low corporate rates, other countries would have the right to collect taxes up to the global minimum.
Blueprints for both "pillars" will now be published to serve as a foundation for further talks, the OECD said, and will be presented to an online meeting of G20 finance ministers on Wednesday.
The OECD added that the pandemic hindered progress this year on implementing a levy, even though "the COVID-19 pandemic makes the need for a solution even more compelling."
Failure to reach a global agreement may prompt some countries to go it alone on digital taxation, further stoking global trade tensions.
Several European countries including France and Britain have already announced their own levies in the absence of a global accord.
Uncommon Knowledge
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
