TORONTO ― A global economic body has proposed a new way of taxing tech giants and other multinationals, a topic that is gathering attention around the world and has become an election issue in Canada.
The plan from the Paris-based Organization for Economic Co-operation and Development, which advises 134 countries, comes after France and the United States agreed in August to find a way to better tax digital businesses by mid-2020.
The OECD’s proposal, which applies to multinationals in all sectors, would re-allocate some tax revenue to countries where big companies like Google, Facebook, Amazon and Apple “have significant consumer-facing activities and generate their profits,″ the OECD said.
Watch: OECD cuts growth outlook to post-crisis low. Story continues below.
Currently, multinationals tend to pay most of their tax in the country where they are based. That’s particularly true for business carried out online, such as ad revenue from online searches or social media.
Canada’s Liberal party has already proposed to follow France’s plan of imposing a three per cent tax on the revenue that tech giants generate in the country.
Justin Trudeau’s election platform commits to impose the tax on revenue generated by the sale of online advertising and users’ personal data for companies with global revenues of at least $1 billion and Canadian revenues of at least $40 million. The party estimates the tax would bring in more than $2.5 billion over four years.
Trudeau proposed the tax as an interim measure until a consensus is reached on the OECD plan to co-ordinate a global tax plan on these relatively new forms of revenue that don’t require a company to have a physical presence in the country.
The party has also committed to follow OECD standards of sales tax for digital products consumed in Canada such as Netflix, which doesn’t face a national sales tax but is required to pay provincial sales tax in Saskatchewan and Quebec.
The NDP have said they would make sure that big tech companies “play by the same rules as Canadian broadcasters,″ in part by ensuring they pay taxes. The Conservatives have not released their full platform but have indicated they intend to make changes to taxes on multinational companies.
A growing issue
The issue has become particularly big in the European Union, where multinationals with business across the continent pay taxes almost exclusively in the EU country where their local headquarters are based, often a low-tax jurisdiction like Ireland, Luxembourg or the Netherlands.
In some cases, the small countries have been accused of offering advantageous tax terms to multinationals who agree to establish headquarters there. The EU has ordered Apple to pay Ireland almost $15 billion in back taxes, for example, after finding that their tax deal was unfair because it was better than what other regular companies could expect.
The issue of how to better tax multinationals, particularly digital businesses, came to a head over the summer after France put a tax on the digital operations of large tech companies. That drew complaints from the U.S., where most of the big tech companies are based.
The two sides agreed in August to try to reach a global deal, after some other European countries had threatened to follow France’s path. France pledged to reimburse companies any excess taxes once an international deal is in place.
The OECD’s proposal will be presented to finance ministers of the G-20 in Washington next week.
― With files from The Associated Press