On Wednesday, 9 October the Organisation for Economic Co-operation and Development (OECD) Secretariat published a proposal for a "unified approach" on the taxation of digital giants to advance negotiations on international tax reform.
The proposed approach takes up the elements common to the three competing proposals that were on the table in Pillar I, namely the proposal based on user participation, the proposal on significant economic presence and the proposal on intangible marketing assets (see EUROPE 12262/14).
"This brings us closer to our ultimate goal: ensuring all MNEs pay their fair share", OECD Secretary-General Angel Gurría said in a statement.
But he also warned: "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!"
The proposal first of all seeks to delimit the scope of application. This will concern "highly digital" companies, but more broadly all companies that have a "significant interaction with final consumers".
On the other hand, "extractive industries" are excluded from the scope of application. The document also indicates that further discussions should be held to determine whether other sectors, such as financial services, for example, should be excluded.
It also remains to be determined which size limit should apply and in particular whether a turnover threshold of €750 million should be established.
The proposal also changes the rules of the game by establishing a new link between a company and the state that taxes it ('nexus') that is no longer based on the criterion of physical presence, but which is largely based on sales.
As for the distribution of profits between countries, the OECD's approach consists in reallocating part of a company's residual profits to the various jurisdictions in which the company operates. However, the exact proportion has yet to be defined.
Finally, the proposal sets out a mechanism for arbitration in the event of a dispute, in particular to avoid double taxation of companies.
Mixed reactions. Reactions were not long in coming. Upon his arrival at the Eurogroup meeting in Luxembourg, the French Finance Minister, Bruno Le Maire, considered this to be a "very good proposal".
"The principles and the unified approach follow the approach we decided upon with the G7 Ministers last July in Chantilly (see EUROPE 12299/10)", commented a source from the French Ministry of Finance.
"Of course, we’ll have to look into the details of this proposal to make sure it tackles the challenges brought by the digitalisation of the economy", the source added.
Amazon, for its part, welcomed an "important step forward". "Reaching broad international agreement on changes to fundamental international tax principles is critical to limit the risk of double taxation and distortive unilateral measures", the multinational declared.
On the other hand, Oxfam said it was "deeply disappointed" by the proposal. "Unfortunately, particularly for developing governments and their citizens, what the OECD has come up with today is very disappointing. Under this new proposal, companies’ profits and their ability to shift them offshore will barely be affected and consequently developing countries will only see a very small increase in their corporate tax revenues", said Susana Ruiz, head of Oxfam's tax campaign.
Next steps. The proposal will be submitted to the G20 Finance Ministers in Washington on 17-18 October. It is also the subject of a public consultation open until 12 November, before a hearing to be held in Paris on 21 and 22 November.
As regards Pillar II of the reform, which provides in particular for the introduction of effective minimum company taxation (see EUROPE 12298/7), it will not be until early November that a working document is made public.
See the OECD proposal: http://bit.ly/35fG9nf (Original version in French by Marion Fontana)