Groups 137 countries have agreed to launch a rewrite of old cross-border tax rules for the digital age within 2020, the Organization for Economic Cooperation said on Friday.
The rise of tech companies such as Apple, Amazon, Facebook and Google is challenging the existing rules since the companies can book profits in low-tax countries like Ireland no matter where their customers are located.
According to the Statement by the Inclusive Framework on BEPS released by the OECD, participants of a Paris meeting agreed to pursue the negotiation of new rules on where tax should be paid ("nexus" rules) and on what portion of profits they should be taxed ("profit allocation" rules), to ensure that MNEs conducting sustained and significant business in places where they may not have a physical presence can be taxed in such jurisdictions.
"It is more urgent than ever that countries address the tax challenges arising from digitization of the economy, and the only effective way to do that is to continue advancing toward a consensus-based multilateral solution to overhaul the international tax system," said OECD Secretary-General Angel Gurría. "We welcome the Inclusive Framework’s decision to move forward in this arduous undertaking, but we also recognise that there are technical challenges to developing a workable solution as well as critical policy differences that need to be resolved in the coming months."
"The OECD will do everything it can to facilitate consensus, because we are convinced that failure to reach agreement would greatly increase the risk that countries will act unilaterally, with negative consequences on an already fragile global economy," Mr Gurría said.
Many countries are preparing national digital taxes in the absence of a major redrafting of current rules, despite threats from Washington to hit them with retaliatory trade tariffs because it sees such levies as discriminatory against big U.S tech groups.
France and the United States agreed a truce last week to set aside a row over France’s digital tax until the end of the year to allow time for the redrafting of international tax rules.