Multinationals like, Apple, Facebook and Amazon are currently avoiding taxes. The organization for economic cooperation and development released a proposal to take on these digital tax dodgers. The goal of this proposition is the ensure international agreement on tax principles.
The debate between both political and corporate leaders regarding how and where to tax firms that perform activities across national borders has been going on for years now. Before the rise of the digital era, this was not an issue. Since the traditional companies paid tax in the country where their economic operations were taken place. These rules were defined in 1920. Unfortunately, they are outdated and no longer adequate to make sure that there will be a fair allocation of tax rights in this digital age. With the rise of digital companies, it has become difficult to tax companies that sell their goods online, since these digital firms can easily move the source of their revenues to other counties. The tax rate in these countries is often significantly lower. Which allows them to profit from paying lower tax rates.
The economic cooperation and development have defined a framework that could be the solution for this problem and therefore the end to digital tax dodgers. The proposition would grant countries to tax giant multinationals, even though these companies do not perform activities inside their country borders. The proposal will work in its advantage for consumption-heavy countries, such as Western Europa, but also the United States of America and China. “Tax havens “ like Ireland will however not benefit from this possible agreement. What will this framework mean for the digital economy? Giant internet companies would be enforced to pay tax in the countries where they are selling their products and will prohibit them from shifting their revenues to low-tax locations.
I think it is obvious that the world requires an international agreement on tax principles. As only the multinationals benefit from the currently outdated rules. I am not sure if this proposal will be able to solve this problem entirely, would a minimum tax rate do the trick?
References:
Partington, R. (2019, 9 oktober). OECD aims to stop tech firms shifting profits to low-tax locations. Geraadpleegd op 14 oktober 2019, van https://www.theguardian.com/politics/2019/oct/09/global-tax-shakeup-would-force-tech-firms-to-pay-more
Rappeport, A., & Tankersley, J. (2019, 12 juli). As Nations Look to Tax Tech Firms, U.S. Scrambles to Broker a Deal. Geraadpleegd op 14 oktober 2019, van https://www.nytimes.com/2019/07/12/business/economy/tech-company-taxes.html?module=inline
Stiglitz, J. E. (2019, 7 oktober). Corporate tax avoidance: it’s no longer enough to take half measures. Geraadpleegd op 14 oktober 2019, van https://www.theguardian.com/business/2019/oct/07/corporate-tax-avoidance-climate-crisis-inequality
Tankersley, J. (2019, 9 oktober). Tech Giants Shift Profits to Avoid Taxes. Thereâs a Plan to Stop Them. Geraadpleegd op 14 oktober 2019, van https://www.nytimes.com/2019/10/09/us/politics/tech-giants-taxes-oecd.html
Hi Romee, thank you for your interesting post.
Indeed the proposal from the OECD takes a step in the right direction from preventing this kind of tax avoidance. The future of tax is an important topic, and it is definitely lagging behind trends such as globalisation, technology and society’s expectations today.
During my internship I actually learnt a lot more about the tax world, and that with current technologies there is also more need for companies to be paying attention to it. Tax departments have made great technological progress in recent years, and with growing requirements from finance authorities worldwide, technology is playing an increasingly important role in managing these expectations. At the same time, the finance authorities are also gearing up on analytics tools and are finding it easier catching tax fraud cases. Here AI is for example a key technology, which not only reduces tax risks, but also reduces a lot of the time-consuming activities like searching large amounts of data, or manual routine tasks. Thereby, it is vital for companies to take another look at their internal tax function and see not only how the risks of ever more demanding finance authorities can be reduced, but also how value can be derived from digitising this department to provide competitive advantages by moving it closer with their finance department.