G20 expected to back OECD's digital tax proposal

The deal aims to solve the puzzle on how to tax technology firms, which shift the bulk of their earnings to low-tax jurisdictions, a major challenge with the increasing digitisation of the economy while heading off a myriad of new tax laws from individual governments.

Washington: G20 finance ministers Friday are expected to give the green light to an OECD proposal that aims to find an agreement on taxing global tech giants by June.

The deal aims to solve the puzzle on how to tax technology firms, which shift the bulk of their earnings to low-tax jurisdictions, a major challenge with the increasing digitisation of the economy while heading off a myriad of new tax laws from individual governments.

The Organization for Economic Cooperation and Development (OECD) will present its "unified approach" to a digital tax at a G20 gathering on the sidelines of annual meetings of the International Monetary Fund and World Bank.

Public outrage has grown over the practice of profit shifting, which critics say deprives governments of their fair share of tax revenue since tech giants can often pay next to nothing in countries where they rake in huge earnings since they are based in low-tax nations.

The negotiations, which started in January after several years of delay, were deadlocked over three divergent and competing proposals by Britain, the United States and India.

The OECD has sought a compromise by presenting its own "unified approach" last week.

After a green light from the G20, the 134 countries involved in the negotiations will have to reach a political agreement to move forward.

They were looking at a "June 2020 timeframe," said Pascal Saint-Amans, director of the OECD Center for Tax Policy and Administration, at a press conference in Washington.

OECD Secretary-General Angel Gurria last week said officials were making "real progress" to address the tax challenges arising from the digital economy but warned time was running out.

"Failure to reach an agreement by 2020 would greatly increase the risk that countries will act unilaterally, with negative consequences on an already fragile global economy. We must not allow that to happen," Gurria said.

France moved ahead over the summer to impose a digital tax -- amid outcry from Google, Amazon, Facebook and Apple -- but has vowed to scrap it once a new international levy is in place.

EU Commissioner Pierre Moscovici has already said the bloc "will welcome this approach in a positive manner" while expressing some reservations, hoping their ambitions would not be diluted.

The "unified approach" gathers common elements from the three competing proposals.

The OECD proposal would mean reallocating some profits and corresponding taxation rights to countries and jurisdictions where digital giants have their market, regardless of where the firms are registered.

The new rules would mean that such companies would be taxed in places where they conduct significant business even if they do not have a physical presence there -- an issue that has little significance in the increasingly digital age.

According to the OECD, so-called market countries and developing nations would be the winners in this tax reform, and the losers would be the tax havens that host the headquarters of multinationals.

"Investment hubs are not winners and are significantly affected," said Saint-Amans.

But he denied the proposal favoured rich countries, such as members of the OECD.

"Developing countries are involved and very active," he said.

The global tech giants have also signaled their approval.

Amazon, whose European headquarters are in Luxembourg, a low-tax jurisdiction, called it "an important step forward" while Facebook said it supported "multilateral approaches such as the one adopted by the OECD."