Tax Reform Is Going Global

Countries are closing in on a far-reaching deal that would reform how digital profits are taxed around the world

By Rochelle Toplensky




Multinational companies need to prepare for tax reform again—this time outside of the U.S.

Unlike PresidentTrump’sshake-up in 2017, the potential global tax overhaul would force many companies to pay more to governments, not less. But this may be a small price to pay for a stable international framework.

Amazon, Google and other tech giants currently face a patchwork of controversial new “digital services taxes” levied on revenue rather than profit. A 3% tax in France is applicable in the current fiscal year, while the U.K. has proposed a 2% tax from next April. Ten other European states are considering similar measures, as are many other countries including India, South Korea and Mexico.

The new levies will raise some income for governments, but they are mainly intended to ramp up pressure for global reform. France and many others have promised to remove them when a wider deal on taxing digital profits is reached.


French President Emmanuel Macron. France has approved a new tax on large tech companies like Alphabet’s Google and Amazon. Photo: ludovic marin/Agence France-Presse/Getty Images


After seven years of slow progress led by the Organisation for Economic Cooperation and Development, the nearly 130 nations in the body’s Task Force on the Digital Economy seem to be centering in on an agreement. They hope to have a unified approach ready when G-7 leaders meet in Washington in mid-October.

It will change how taxing rights are allocated between countries and establish a global minimum tax. The overhaul will have ramifications far beyond the tech sector, as traditional industries gather more data, and develop digital services and profit from intellectual property.

Importantly, there is support from the U.S. The 2017 cuts have raised concerns in Washington about falling tax revenue, encouraging a push for agreement on new global rules to stabilize the system. Companies want certainty too. “U.S. business has realized it is either (we find) a solution or chaos,” saysPascal Saint-Amans,director of the OECD Centre for Tax Policy and Administration.

The G-20 launched a wide-ranging program called “Base Erosion and Profit Shifting” in 2013 to crack down on multinational companies shifting profits around the world to cut their tax bills. Digital profits have been a focus from the start because they are growing and unusually easy to move. Companies can sell digital products or services into countries where they have few, if any, employees, facilities or other physical assets. Existing global tax rules allow companies to transfer those profits, often to a low-tax jurisdiction.

U.S. companies now owe U.S. tax on their global earnings, but until recently could defer it by keeping it offshore. Their offshore cash pile peaked at almost $2 trillion in 2017, but President Trump’s tax reform changed the game. It hit offshore cash with a one-time 15.5% U.S. tax, established a minimum tax of 13% on foreign earnings and reduced the headline U.S. corporate rate to 21%, from 35%.

To be sure, the global changes will reach deep into countries’ economies and finding an agreement will be difficult. Even if the OECD gets political approval by next summer, as it hopes, the new tax rules won’t likely take effect before 2022.

After years of talk, though, there seems to be real momentum toward a deal between national leaders. It is time for companies to take global tax reform seriously.

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