OECD proposes new compromise in digital tax feud

The world’s richest countries began examining a compromise on how to tax multinational companies in a digitalized global economy, potentially calming tensions that have sparked tit-for-tat unilateral moves.

The Organization for Economic Cooperation and Development proposed a “unified approach” to countries haggling over how to allocate taxing rights. It merges competing proposals that had divided countries, with some wanting to single out digital companies and others aiming at a broader target.

Progress in the international tax negotiations is being closely watched as it has become an important bargaining chip in a dispute that is mixing with trade issues.

The tensions bubbled over in July when the U.S. responded to a French digital tax by launching a so-called "301 investigation" that could result in tariffs. The U.S. says France’s move unfairly targets American companies, but the French government says it will stick with the tax unless there is a global solution at the OECD.

The compromise put forward Wednesday is just one element in a negotiation that Group of 20 economies say they aim to conclude by the end of 2020. To meet that, the OECD said there’ll need to be agreement on its unified approach by January.

Jose Angel Gurria, secretary-general of the Organization for Economic Cooperation and Development (OECD), speaks during the Group of 20 (G-20) ministerial symposium on international taxation at the G-20 finance ministers and central bank governors meeting in Fukuoka, Japan, on Saturday, June 8, 2019. The challenges of raising tax from the digital economy was the focus of a session with finance ministers from China, France, Japan, Indonesia, Britain and the U.S. Photographer: Toshifumi Kitamura/Pool via Bloomberg
Jose Angel Gurria, secretary-general of the OECD at a Group of 20 symposium on international taxation in June 2019.

“Failure to reach agreement by 2020 would greatly increase the risk that countries will act unilaterally, with negative consequences on an already fragile global economy. We must not allow that to happen,” said OECD Secretary General Angel Gurria.

Negotiations hosted by the OECD have at times been bogged down by disagreements about how to approach the question of digital tax. The OECD said its compromise proposal has a wide scope that covers “highly digitalized business models.” It also proposes new rules on where tax should be paid that depend less on the physical location, and what portion of profits should be taxed.

-- William Horobin (Bloomberg News)