Plans to shake up the way governments tax multinationals, which could upend the decades-old Irish tax regime, are racing ahead, with an agreement possible by next summer.
The Organisation for Economic Co-operation and Development (OECD), which has been tasked by the world’s richest nations, said it had made progress in drawing up rules that will assess and allocate tax on profits by multinationals like Google, Facebook, and Apple, to countries where they generate the revenues.
Its “consumer-facing” approach to taxing big businesses has been in the works for some time, but definitively breaches the principle that underpins the Irish tax regime that levies corporate taxes on multinationals that have chosen to locate their head offices in Ireland.
The OECD has narrowed its options to be presented to the G20 group of richest countries, and has set a timetable for an initial agreement in January, with full support expected next summer.
Ireland has benefitted from even more billions in windfall taxes from corporate taxes recently, as multinationals responded to the first wave of global tax reforms by shifting huge amounts of intangible intellectual property into their Irish-based companies.
Many economists have warned the Government that it can’t rely on potentially unsustainable corporate tax receipts as it fuels hikes in public sector pay and other spending programmes.
In a webcast from Paris, OECD tax chiefs Pascal Saint-Aman, Richard Collier, and Asa Johansson said that the rules in its so-called Pillar One deliberations would lead to a “significant” overhaul of the global tax regime.
It has examined setting €750m and other thresholds to determine the worldwide income of multinationals that would be included in the new regime.
However, it said it would be up to a political decision to decide the threshold.
“The proposal, which is now open to a public consultation process, would re-allocate some profits and corresponding taxing rights to countries and jurisdictions where multinationals have their markets. It would ensure that multinationals conducting significant business in places where they do not have a physical presence, be taxed in such jurisdictions, through the creation of new rules stating where tax should be paid (‘nexus rules’) and on what portion of profits they should be taxed (profit allocation rules),” the OECD said..
Mr Saint-Aman — who as director of the Centre for Tax Policy and Administration is the public face of the OECD’s tax overhaul plans — said it had narrowed the approaches for an overhaul.
Its new nexus rules would be unconstrained by the physical presence of the multinational, he said.
Ms Johansson said its Pillar One recommendation “involves a significant change to the way taxing rights are allocated among jurisdictions” and would increase tax revenues at a modest rate.
She also said:
John Whelan, managing partner at consultancy The Linkage Partnership, said that if the OECD fails to get agreement on its proposals, large European countries, including France and the United Kingdom, plan to go their own way to introduce digital taxes on multinationals.