OECD sets out international corporate tax proposal

OECD sets out international corporate tax proposal

The OECD has taken steps to ensure multinational companies pay their fair share of taxes in countries where they have significant consumer activities.

The proposal from the OECD’s secretariat, published on October 9, is a combination of three different plans put forward by members and covers more than 130 countries. It is designed to reallocate profits towards the countries in which they are earned, rather than just where the companies are physically based.

The plan is based on the work of the OECD and the G20 to combat tax evasion through “base erosion and profit shifting”, or BEPS.

“We’re making real progress to address the tax challenges arising from digitalisation of the economy, and to continue advancing toward a consensus-based solution to overhaul the rules-based international tax system by 2020,” said Angel Gurría, the OECD’s secretary-general.

He warned that, without combined, co-ordinated action on tax rules, countries would seek to act individually, leading to “negative consequences on an already fragile global economy”.

The report proposes targeting multinational companies with “highly digital business models”, but also plans to include other consumer-facing companies.

Rather than basing corporate income tax on physical presence, it proposes a “new nexus” for tax levels dependent on sales. The OECD said this would include country-specific thresholds to ensure smaller economies could benefit. The new tax framework should also be flexible enough to ensure sales through third-party distributors were included, the report stated.

The OECD has put the proposals out for public consultation until November 12. The full document is to be officially presented to G20 finance ministers and central bank governors during a gathering in Washington DC on October 17 and 18. It can be found here.

The OECD’s work has also targeted setting a minimum level of corporate income tax. This will be subject to a separate public consultation expected to take place in December.

Last Updated: 12 October 2019
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