Global tax revolution for tech giants delayed to 2024

A failure to implement rules that would give countries outside the US more rights to tax tech giants risks reigniting a transatlantic trade dispute. PHOTO: REUTERS

PARIS (BLOOMBERG) - A global taxation deal heralded as a "revolution" for the profits of multinational tech firms has run into a thicket of technical difficulties that will delay implementation to 2024 at the earliest.

Work at the Organisation for Economic Cooperation and Development (OECD) on a legal instrument to change tax treaties the world over has proved tougher than foreseen when negotiators initially set next year as a target for the new system to come into force.

"These are complex and very technical negotiations in relation to some new concepts that fundamentally reform international tax arrangements," OECD secretary-general Mathias Cormann said on Monday (July 11). "We will keep working as quickly as possible to get this work finalised, but we will also take as much time as necessary to get the rules right."

While Mr Cormann had previously flagged possible delays, the confirmation of a new timetable is another setback for an international agreement aimed at addressing rampant cross-border profit shifting that has cost governments an estimated US$100 billion (S$141 billion) to US$240 billion in tax revenue a year.

There is more uncertainty too: In the US Congress, the overhaul still lacks the universal support of Democrats and faces concerted Republican opposition.

A failure to implement new rules that would give countries outside the US more rights to tax firms such as and Facebook's parent Meta Platforms ultimately risks reigniting a transatlantic trade dispute over digital levies that began during Mr Donald Trump's presidency.

European nations and the US had agreed to suspend their tit-for-tat measures so long as OECD's global accord is implemented by Dec 31, 2023. Canada has also passed legislation that would put in force a national digital tax, retroactive to Jan 1, if the new global rules are not in place by the end of next year.

The Paris-based OECD, which hosts talks on tax between about 140 countries, said it will now present a draft of rules to Group of 20 finance ministers meeting in Indonesia later this week. The aim is to finalise a mechanism to change international treaties by mid-2023, for implementation in 2024.

Members of Congress will be keen for a clearer indication of how the redistribution will affect US tax revenue. The Treasury has so far said the deal will have a negligible net impact. Lawmakers and US-based multinationals will also be looking for clues on how it will affect those companies' bottom lines.

Beyond the part of the global deal relating to where companies are taxed - known as Pillar One - there is also uncertainty over Pillar Two, which would create a minimum corporate tax. The European Union has failed to secure the required unanimous backing of member-states after Hungary withdrew its support.

Last week, in a sign of the importance of the changes for the US administration, the Treasury Department said it would end a 43-year-old tax treaty with Hungary. Still, the OECD said technical work on the minimum levy is "largely complete" with most major economies having already scheduled implementation plans.

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