Big tech firms to face higher tax bills under new OECD proposals

OCED plan could see Google, Facebook, eBay and Apple paying more tax

The Organisation for Economic Cooperation and Development (OECD) has proposed an overhaul of global tax rules to give governments more power to tax companies like Google, Apple and Facebook.

The plan was announced after more than 130 countries agreed on the need for global tax reform.

Multinational firms, which do their business in multiple countries, have long been a challenge for tax authorities. Currently, big firms like Facebook and Google can cut their tax burdens by structuring their operations in order to legally recognise profits in low-tax countries, such as Ireland and Luxembourg, regardless of where their customers are actually based.

In response, a number of countries have devised their own taxes on digital firms in the absence of a global agreement to shut down what is widely regarded as tax avoidance by major firms.

France has been particularly vocal on this issue, proposing a digital services tax under which a select group of 30 firms, including Amazon, Google and Facebook, would face a three per cent levy on their sales in France.

The tax will be imposed purely on digital transactions, covering locally targetted advertising, data sales and marketplace fees.

Britain is also moving ahead with a plan to introduce a digital services tax targeting search engine companies, social media platforms and online marketplaces - ie: Google, Facebook and eBay, respectively. The new tax will come into effect in April 2020, although the government has stated that it would withdraw the tax if an appropriate global deal was reached in time.

Earlier this year, the European Union was also said to be close to an agreement for a new tax on technology companies.

The US trade officials are currently not very happy with French digital services tax. They argue that it inappropriately targets American firms and could lead to new tariffs on French goods.

The OECD proposal means that tech giants would be required to pay more tax in countries where they make more profits. Under the new agreement, rules would be defined regarding in which countries tax should be paid, how much business a firm must do in a country to be taxable and how much profit can be taxed there.

"We're making real progress to address the tax challenges arising from digitalisation of the economy, and to continue advancing toward a consensus-based solution to overhaul the rules-based international tax system by 2020," said OECD Secretary-General Angel Gurría.

"This plan brings together common elements of existing competing proposals, involving over 130 countries, with input from governments, business, civil society, academia and the general public. It brings us closer to our ultimate goal: ensuring all MNEs pay their fair share."

The OECD has launched a public consultation on its tax proposals that would need to be agreed by governments before they come into effect.