OECD moves to redraw rules for taxing global giants

Open this photo in gallery:

The OECD is proposing a rewrite of global rules to make it easier for countries to raise taxes on Big Tech and other multinational companies that have used an array of strategies to minimize the amount they pay.

The Organization for Economic Co-operation and Development proposed a global tax overhaul on Wednesday, advising that 134 participating countries could come together “on an equal footing for multilateral negotiation of tax rules” to adapt to today’s digitally driven global economy.

The proposal, the Paris-based OECD said in a statement, would guarantee that companies conducting significant business in countries where they don’t have a physical presence could still be taxed.

It also warns against countries unilaterally imposing their own tax regimes on multinationals before the OECD process is over. But Canada’s major political parties have promised to do just that. Last week, both the Conservatives and the NDP lined up behind the Liberals, pledging to levy more taxes on global tech companies, particularly on revenues earned in the country that might be reported in lower-tax jurisdictions.

The Liberals said Wednesday that their plan, anchored by a 3-per-cent tax on big digital companies’ revenue, would be a stopgap until participating countries reached a consensus.

The OECD hopes to have the overhauled international tax system agreed upon by 2020, after refining it through public consultations and multilateral negotiations. Big-tech companies have become the world’s most profitable and well-capitalized businesses while also coming under increasing public scrutiny.

These usually Silicon Valley-headquartered companies have faced criticism for booking significant amounts of their profits outside of the countries where they were generated, including in tax havens such as Ireland, to avoid hefty bills. The Independent Commission for the Reform of International Corporate Taxation (ICRICT) said Wednesday that multinational corporations push as much as 40 per cent of foreign-derived profits into tax havens.

The OECD will present details to next week’s meeting of Group of 20 finance ministers and central-bank governors; the organization is warning that global standards need to be put in place to avoid a messy patchwork of unilateral measures and subsequent trade disputes. France has already faced threats from the United States after recently passing a 3-per-cent tax on digital companies, which the Liberals in Canada used as a model for their own campaign pledge.

“The proposal by the Liberal Party, which was mirrored off the French proposal, is exactly what the OECD is trying to prevent from occurring, and could lead the U.S. to retaliatory trade measures,” said Patrick Marley, partner and tax-law co-chair with Osler, Hoskin & Harcourt LLP in Toronto.

Instead, the OECD’s multilateral approach would focus more on taxing similar multinationals; if France taxed a big tech company, for example, the U.S. could choose to tax French wines or designer goods, Mr. Marley said. “From my perspective, I would expect that whoever wins the election would be mindful that the OECD is moving quickly towards a global consensus solution.”

Liberal spokesperson Eleanore Catenaro said that the party’s proposal would effectively be a placeholder policy until a consensus was reached within the OECD next year, to ensure the country took action on big-tech taxation.

Don Drummond, a former Toronto-Dominion Bank chief economist who explored a similar tax nearly two decades ago in the federal Finance Department, said in an interview that the OECD’s "intent is clear” to give governments more freedom to tax multinationals. But he doesn’t expect details to be resolved soon because of the forthcoming consultations and 2020 deadline.

In an e-mail Wednesday, Facebook Canada spokesperson Erin Taylor said that “We continue to support multilateral approaches like that being undertaken at the OECD." The company reiterated that it pays applicable taxes in every country where it operates, including, in Canada, corporate income taxes, sales taxes and payroll taxes.

Aaron Brindle of Google Canada said that the company agreed that tax rules should be “simpler and clearer. Google complies with the tax laws in Canada and all the countries in which it operates. If governments change the rules, we’ll comply with the new ones, too.”

NDP spokesperson Mélanie Richer called the OECD proposal “a start," saying that the party “would work with them to develop a system that is simpler and stronger.” Simon Jefferies of the Conservatives said the party’s forthcoming platform would have more details about taxing multinational tech companies.

In a statement, ICRICT chair Jose Antonio Ocampo said that the progress the proposal represents is limited, and that it would mostly benefit the 36 member countries of the OECD, forcing developing countries to work within a system designed for other markets.

Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.