Global roadmap takes step toward solving digital tax conundrum

Nearly 130 countries and territories have agreed to a roadmap aimed at overhauling international tax rules which have been overtaken by development of digital commerce.

The Organisation for Economic Cooperation and Development (OECD) said on Friday it will put the outline work program to finance ministers of the Group of 20 economic powers next week to build support for the highly technical and sensitive negotiations.

Companies like Google, Facebook and Amazon have strained existing rules and created tensions because they are able to cut tax bills by booking profits in low-tax countries no matter where the end customer is.

“There is now an international consensus recognizing that our tax rules are no longer adapted to the 21st century,” French Finance Minister Bruno Le Maire, a strong supporter of the overhaul, said in a statement.

A growing number of countries, including France, Britain and Italy, are creating new taxes on digital companies that sell into their markets from low-tax countries like Ireland, while Washington has threatened retaliation.

It believes U.S. groups are unfairly targeted while companies say the multiplication of national taxes makes it harder for them to do business.

After agreeing to the principle of rewriting cross-border tax rules earlier this year, the OECD said 129 countries and territories had endorsed a 40-page work program laying out options to revamp countries’ rights to tax foreign companies and set a global minimum corporate tax rate.

The aim is now to narrow down the options on the table in order to have the outline for a global deal by the end of the year or January 2020 so that the remaining details can be hammered out for a final agreement late next year.

The roadmap agreed on Tuesday and released on Friday sets out two tracks with the first focused how to divide up rights to tax a company where the good or service is sold even if it does not have a physical presence in the country.

If companies are still able to find a way to book profits in low tax or offshore havens, countries could then apply a global minimum tax rate to be agreed under the second track.