Safe harbour provisions proposed by the US found little favour with other countries.
Officials from 137 countries and jurisdiction met earlier last week to thrash out a consensus on the appropriate way to tax multinational enterprises. The group dispersed with the hope of closing a multilateral deal by December-end.
Taxation of digital giants such as Google, Amazon, Facebook, Apple and Microsoft pose particular challenges to tax officials as they are able to shift their profits to lower tax jurisdictions.
Organised by the Organisation for Economic Co-operation and Development (OECD), the meeting agreed to continue working on the nexus (where tax should be paid) and profit allocation (what portion of profit should be taxed) rules.
Governments agreed that the new regime will apply to not just digital service companies but also those selling directly to consumers. Mining, oil or other B2B companies are probably going to be exempted from such rules.
Earlier in January, France and the United States called an uneasy truce over French taxation of American digital companies.
Over the last few years, consensus has emerged that such companies whose business spans the globe, often without a concomitant physical presence can be taxed in such jurisdictions where they have significant and sustained businesses.
The US with its large pool of such digital giants stands to lose the most and hence has been advocating 'safe harbour' provisions, which allow its companies to opt-in to such a regime. That position, however, has not found favour with the other members.
"It is more urgent than ever that countries address the tax challenges arising from digitalisation of the economy, and the only effective way to do that is to continue advancing toward a consensus-based multilateral solution to overhaul the international tax system," said OECD Secretary-General Angel Gurría.
Consensus in taxation of digital companies is essential as a failure of this process will heighten the risk of countries acting unilaterally.
This consensus building is part of a wider G20 effort at improving certainty and stability on the international taxation front.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.
