Start of a Global Tax System? Corporate Executives Try to Assess Potential Impact of Tax Change Proposals
Corporate
Executives Try to Assess Potential Impact of Tax Change Proposals
Companies are studying suggestions by the OECD that
would mark a departure from current international tax rules, but details are
murky
Corporate tax chiefs are trying to assess the potential
implications of a proposal for a new global tax system for consumer-facing
businesses, an effort that is being complicated by what some companies describe
as a lack of critical details.
The Organization for Economic Cooperation and Development, which
is running the initiative, was scheduled to meet Thursday and Friday in Paris
to discuss a proposal that would set a standard tax rate for a company’s global
operations and allow individual governments to tax profits above that based on
sales accounted for by each country.
The new rules would represent a departure from current
regulations that look at where companies are based and where they hold patents
and brands.
Dubbed the “unified approach,” the rules would apply to
companies with annual revenues of more than €750 million ($830 million) in
consumer-facing industries, a broad term that includes technology
companies—which have been in the spotlight for their tax practices—and other firms selling services
and goods to consumers.
Companies—some of which are still working through the OECD’s
2016 framework on base erosion and profit shifting, which abolished various tax
loopholes, or the 2017 U.S. corporate tax overhaul—could be required to again
make sweeping changes to their global tax structure within a short period.
The OECD aims to have agreement among its 36 member states on
the unified approach by 2020.
That has caused high-profile companies and business associations
to voice their concerns publicly ahead of this week’s meeting.
“Before deciding on the final proposal, we encourage the OECD to
clarify a number of issues,” music-streaming company Spotify AB
said in published remarks to the organization.
Ride-hailing company Uber Technologies Inc. said
the current consultation document provided by the OECD only provides the
framework for a discussion and that more information is necessary to come to an
agreement.
Volvo AB, in comments submitted to the OECD, said the lack of
detail makes it difficult for the Swedish truck maker to assess the
implications of the policy changes.
Seventy-nine percent of tax executives at global companies
described the current tax environment as uncertain, according to a recent Ernst
& Young survey. Many respondents cited the OECD’s initiative as one of the
reasons for the fogginess.
The OECD didn’t immediately respond to a request for comment.
The organization’s proposal follows moves by various countries to implement unilateral digital-services tax regimes to
increase receipts from tech giants such as Facebook Inc., Amazon.com Inc. and Alphabet Inc. ’s
Google. Some of these firms pay very little tax in European countries even
though they book substantial revenue there.
Global tax rates for U.S. multinational companies are likely to
go up as part of the OECD’s proposed changes, said Michael Lebovitz, a partner
in law firm Mayer Brown’s tax transactions and consulting practice without
specifying how significant the increase could be.
Questions remain about the scope of the proposed framework, said
Sandy Bhogal, a partner at law firm Gibson, Dunn & Crutcher LLP. There is
particular confusion about what would be considered as a consumer-facing
business, he said.
Defining a consumer-facing business as any business that markets
or supplies consumer products or services—as suggested in the OECD
proposal—would go too far, Volvo said in its statement.
Amazon stated that a new international tax regime should be
applicable to all types of businesses instead of ringfencing the digital
economy, according to a comment letter signed by Kurt Lamp, the company’s vice
president for global tax.
Some companies are worried about existing unilateral digital
service taxes and whether they will be withdrawn should there be an OECD-wide
agreement.
Countries should commit themselves not to pursue or should
cancel competing unilateral measures as a condition for a multilateral
agreement, Mr. Lamp said in his comments.
Travel e-commerce company Booking Holdings Inc. pointed
out the need for clear rules to avoid double taxation.
Companies also told the OECD they are worried about how disputes
between countries over the application of the rules would be resolved.
“It is vital that a robust and binding arbitration process is
developed which saves companies from being caught in the middle of disputes
between tax authorities over profit allocation,” online marketplace Etsy Inc. said
in its comments to the OECD.
The OECD will be discussing these and other related issues at
its meeting in Paris.
Write to Nina
Trentmann at Nina.Trentmann@wsj.com
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