OECD proposal could mean tech giants will no longer be able to shift their profits to...

nanoguy

TS Addict
Staff member

The Paris-based Organization for Economic Cooperation and Development (OECD) is targeting large internet companies that have been using every opportunity to pay lower taxes with a new initiative that will see the current corporate tax system get the first major overhaul since the 1920s.

Next week, the finance ministers of the 20 wealthiest countries in the world are expected to meet in Washington, where they'll review the OECD proposal. More than 130 countries and territories have shown their support for a rewriting of the tax rules, as a result of a race to the bottom where many governments have seen a steady decrease in rates for corporate income tax over the last 40 years just to keep companies from taking their business elsewhere.

The new rules could make tax havens like Ireland a thing of the past, as they include a minimum tax that would apply globally. Furthermore, governments in developed countries would get more power to tax big companies based on sales made on their territories. This includes internet companies as well as holdings that own profitable brands or distributors of luxury goods.

The OECD proposal also aims to simplify the global tax system and prevent countries from implementing their own digital sales taxes and similar measures that only add to the current global trade tensions. The organization wants to get the approval of the G20 by the end of January 2020 so that it can finalize the rules as soon as possible.

It's worth noting that emerging and developing countries stand to win from the new rules, as more often than not big companies sell products and services in their territories but pay little tax in return. The OECD notes that "in a digital age, the allocation of taxing rights can no longer be exclusively circumscribed by reference to physical presence."

Amazon told the Financial Times that it sees the proposals as "an important step forward," but also emphasized the need to achieve "a broad international consensus is crucial in order to limit the risk of double taxation and unilateral distortive measures." Naturally, the OECD will have to work up the fine details that will ensure companies can adapt to the new rules in a way that allows them to stay profitable.

To put things in perspective, the OECD is looking to prevent companies from shifting profits and using tax-planning strategies and welfare benefits as a way to avoid paying their fair share. The organization estimates that up to $240 billion are lost every year, which could be used to fund welfare benefits and other public services.

The improved tax rules would also lower the need to levy hefty fines at companies that practice tax avoidance. Just last year, Apple had to pay Ireland a whopping $16.7 billion in back taxes.

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Squid Surprise

TS Evangelist
"It's worth noting that emerging and developing countries stand to win from the new rules, as more often than not big companies sell products and services in their territories but pay little tax in return."

The thing is, the reason many of those corporations went to these developing companies in the first place was the low tax rate... if you raise it, the companies will simply relocate to somewhere else... same goes for labour costs... when you raise minimum wage in a developing country, the corporations leave.
 

Godel

TS Maniac
"It's worth noting that emerging and developing countries stand to win from the new rules, as more often than not big companies sell products and services in their territories but pay little tax in return."

The thing is, the reason many of those corporations went to these developing companies in the first place was the low tax rate... if you raise it, the companies will simply relocate to somewhere else... same goes for labour costs... when you raise minimum wage in a developing country, the corporations leave.
Who is talking about employment? The big companies are selling **** and providing commercial services in foreign countries and paying little or no tax on the profits made in those countries.
 
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Yynxs

TS Addict
Of course universal taxes won't be passed to consumers. That would be just unfair.
 
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cliffordcooley

TS Redneck
Of course universal taxes won't be passed to consumers. That would be just unfair.
Collecting taxes from corporate which represent a large portion of consumer business is in the consumer interest. Passing those taxes back to the consumer would be counter productive, as to why those taxes are collected in the first place.
 

jobeard

TS Ambassador
Who is talking about employment? The big companies are selling **** and providing commercial services in foreign countries and paying little or no tax on the profits made in those countries.
It's called an unintended consequence. So many today can't see beyond their own noses
 

gamerk2

TS Evangelist
"It's worth noting that emerging and developing countries stand to win from the new rules, as more often than not big companies sell products and services in their territories but pay little tax in return."

The thing is, the reason many of those corporations went to these developing companies in the first place was the low tax rate... if you raise it, the companies will simply relocate to somewhere else... same goes for labour costs... when you raise minimum wage in a developing country, the corporations leave.
There's an easy way to address that: Pass a law that forces every corporation incorporated under US law to pay all it's workers the equivalent of US minimum wage + benefits. [And yes, there is the *assumption* such a law would actually be enforced by the government, which is a fatal weakpoint...]

Regardless, if implemented and enforced, this would actually force a lot of corporations that produce goods overseas for sale in the US to move back to the US in order to lower costs, no trade war required.
 

Squid Surprise

TS Evangelist
There's an easy way to address that: Pass a law that forces every corporation incorporated under US law to pay all it's workers the equivalent of US minimum wage + benefits. [And yes, there is the *assumption* such a law would actually be enforced by the government, which is a fatal weakpoint...]

Regardless, if implemented and enforced, this would actually force a lot of corporations that produce goods overseas for sale in the US to move back to the US in order to lower costs, no trade war required.
You don't think they''d just "re-incorporate" in China, India or Mexico? And how are you going to get that law passed? You don't think big business controls what laws get passed in the country to begin with?
 

gamerk2

TS Evangelist
You don't think they''d just "re-incorporate" in China, India or Mexico? And how are you going to get that law passed? You don't think big business controls what laws get passed in the country to begin with?
There's downsides to re-incorporating elsewhere, that should not be ignored. US law gives a "lot" of protections that these companies gladly take advantage of. Re-incorporate, and all those go away.

Also consider that if *other* businesses overseas starts paying the equivalent of US Minimum wage + Benefits there will be significant upward pressure on wages (why work at a place for $0.50/hr instead of $10.50/hr), especially for specialists.

Finally, since you'd be increasing the wealth of overseas countries (since not everyone will re-locate back to the US), you'd be making US exports a lot more attractive as the higher overall cost of US produced goods will be less of a problem (more people with more money).

As for getting the law passed, that's up *entirely* to the voters. I'm just pointing out there's a *much* more effective way to get results.
 

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