BRUSSELS (Sputnik) – The Organization for Economic Cooperation and Development (OECD) has announced an agreement that could pave the way for a new system of taxation in the world where more and more companies are able to reach customers across the world.
Some 127 countries and territories agreed to try and find a way, by 2020, to tax profits where they are made rather than where the company is registered, the OECD said Tuesday.
EU Countries Want Tech Giants’ Money
The rise of technology companies, such as Google, Amazon, Facebook, Apple, and Microsoft, has pushed the European Union to reconsider taxation. All of these firms were launched in the United States, but their products and services are used in many other countries around the world.
As taxes differ in the EU member states, a foreign company can choose where it wants to set up a factory or an office.
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Ireland’s welcoming tax policy backfired, when the European Commission ruled in 2016 that Apple had to pay Dublin more than 14 billion euros ($16 billion) in back taxes. Brussels found that Ireland gave Apple preferential treatment. Ireland said it disagreed with the ruling and planned to appeal it, but took the money and put it in escrow fund pending the appeal results.
“There has been some progress, such as mutual tax information, between Luxembourg, Belgium, France and Germany for example, but a lot of water will come under the bridges before real tax harmonization can be seen… There is no tax solidarity between EU countries,” economist Eric Dor, a professor at the IESEG School of Management in Lille, told Sputnik.
Business Welcomes OECD Efforts
The European Confederation of employers, BusinessEurope, welcomes “the progress made by the OECD towards an international solution to address the tax challenges of the digitalisation of the economy,” the organization’s senior media adviser Sofiya Yevchuk told Sputnik.
BusinessEurope supports the OECD efforts to tackle tax fraud and evasion, as these practices damage those who pay their taxes in full, Yevchuk said.
“However, it is important that any new measure does not further burden those taxpayers and should be aimed to those who avoid paying taxes,” she added.
OECD experts still have a lot of work to do, fiscal law expert Thierry Afschrift, of the Afschrift association of fiscal lawyers which spans several cities around the world, told Sputnik.
“These countries only state that they agree to discuss! Absolutely nothing is done yet. The OECD experts envisage to find other criteria for taxation than the head office location, to determine where taxation is applied. Double taxation must be of course avoided. The OECD would like to use the notion of ‘significant economic presence’. This would add some measure of multilateralism to what are only bilateral agreements between countries now,” Afschrift said.
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Taxes Can Get Political
Nicola Tournay, a spokesman for Belgium’s People’s Party (PP), believes that the reasons why the tax harmonization is hard to achieve are political.
“To make decisions on this matter, the member states of the European Union are obliged to reach a unanimous agreement. So, it is enough that one single member state prefers to support full tax competition and the unanimity cannot be reached: the reform fails,” Tournay told Sputnik.
In addition, taxes on large US companies could anger Washington, exposing EU firms to potential retaliation, Tournay added.
Afschrift also warns of the importance of the US attitude to global tax reform.
“Europe is the party requesting a change; the United States for the moment has no interest in moving. Facebook and the other digital giants are largely profitable and really create wealth in the United States. These companies pay taxes and pay 80 percent of their taxes in the United States. Europe has only users and customers of these firms,” Afschrift said.
However, the United States may have shifted its stance a little recently, according to Tournay.
“The revolutionary agreement in principle of the OECD in Paris, seems to show that Washington relaxes on the subject of tax havens. The United States feels the need to consolidate its own tax base after having made many tax cuts. This is a major turning point,” the PP spokesman said.
Afschrift is more sceptic about the OECD’s chances to succeed.
While the OECD is working on a global scale, some have decided to go it alone. EU competition commissioner Margrethe Vestager reportedly said last month that the commission had not given up on an EU-wide digital tax plan. The idea was backed by France and Germany, but opposed by a number of other member states.
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France has stuck with the plan and is now working on a national tax on large technology companies. Economy and Finance Minister Bruno Le Maire said in late January the government would receive a draft bill on the tax by the end of February, and the parliament would be able to vote on it soon afterwards. The new tax will target companies with more than 750 million euros ($860 million) in global sales and 25 million euros in France.