Ban on national digital taxes extended to buy time for OECD deal

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More than 130 countries have extended a controversial ban on taxes targeting corporate technology giants for another year until 2025, as they scramble to introduce landmark measures updating the international tax system for the digital age. .

After three days of talks at the OECD’s Paris headquarters, most countries have approved a statement revealing new details on a plan to make the world’s 100 biggest companies pay more tax where they do business Went.

They also agreed to postpone plans to introduce a national digital services tax for another 12 months to allow more time to ratify a key global tax accord, which they were due to sign in the autumn of 2021 but have yet to complete. has not been passed yet.

The introduction of a series of digital services taxes would be an obstacle to getting the deal approved, as a patchwork of national measures would defeat the purpose of agreeing a coordinated global solution.

“We are thrilled that we were able to secure approval of the result statement from 138 jurisdictions,” Manel Corwin, director of the OECD’s Center for Tax Policy and Administration, told the Financial Times.

He said it showed “significant, broad agreement with the statement”.

However, five countries, including Canada, refused to approve the expansion. That has set it up for a clash with its neighbor the US, where many of the world’s biggest technology companies are based, and trade tensions risk flaring up again if Canada presses ahead with its plan to tax big technology.

Four other countries involved in the talks – Belarus, Pakistan, Russia and Sri Lanka – did not approve of the statement.

The talks focused on how to implement a key issue of the global tax accord. “Pillar I” would redistribute $200 billion a year in profits from multinationals to the countries where sales are made, and require changes to global tax law.

But there remains a dispute between countries about the exact wording of the legal language. The OECD tax chief admitted the text will no longer be published in July as planned.

Corwin said this is because “there are some outstanding issues between some countries that have to be resolved”.

However, a statement published on Wednesday morning gave new details on the conditions needed to turn the planned rule into a legal reality, and the OECD is confident a signing ceremony, proposed for later this year, could take place.

The moratorium on the introduction of digital service taxes was to expire on 31 December 2023. Canada has legislated for a new digital services tax to come into effect on January 1, 2024. People familiar with the talks confirmed that Ottawa declined to sign the statement. for extension of the ban.

If the country’s digital services tax is implemented as planned, Washington is expected to fight back on behalf of US tech giants such as Google, Facebook and Amazon.

Last week, US Trade Representative Catherine Tay urged Canada to refrain from imposing a digital services tax until the OECD process continues.

Meanwhile, the countries also agreed on steps designed to ensure that the deal is passed in most jurisdictions, even if it is not ratified in all countries participating in the talks.

America’s polarized politics make it unlikely that it will be able to ratify the deal in Congress, where changes to tax treaties require a two-thirds majority in the Senate; The chamber is currently divided 51 to 49 in favor of Democrats.

However, under the measures agreed this week, the treaty will only need to be signed by 30 jurisdictions, as long as they account for at least 60 percent of the 100 companies affected by the changes. Countries would need to sign by the end of 2023.

“There is a lot of discussion and speculation going on in the US about the prospects for ratification,” Corwin said. “But this is the third milestone (after the text is finalized and signed by the countries) and our approach and our view is that we need to reach the first two in order to make that last one relevant.”