US offer on global tax deal would tie levies to revenue

NEW YORK • The United States is proposing that countries should be able to tax more corporate profits based on revenues within their borders, in a bid to reach a global taxation deal, according to two people familiar with the offer.

The US sent a proposal to the nearly 140 countries participating in the Organisation for Economic Cooperation and Development's (OECD) talks on digital taxation and global minimum levies, an offer that could help move previously stalled negotiations to consensus.

The plan calls for the taxation rights to be allocated based on a formula that accounts for revenues generated within a specific country, according to the people.

The quantitative proposal is a departure from current options, which attempt to define which business models and industries are subjected to the tax, with an emphasis on technology and other businesses that interact with consumers. The US proposal would be formulaic and apply to multinational companies across industries, not just digital firms.

The US had resisted suggestions from other countries to limit the rules to digital businesses, which it says would target US technology giants including Alphabet's Google, Facebook and Amazon.com.

Firms that fall within the scope of the OECD's plan would see some of their profits taxed by many more countries than they do now. They would pay more tax in countries where they have users or consumers, and less in the country where they are headquartered, assuming those are not one and the same. It would not necessarily raise firms' taxes, but change where some of their profits are taxed.

The OECD is trying to forge an agreement among 139 countries on its plan for a global tax overhaul by this summer. Negotiators failed to reach a consensus last year, with disagreements over the scope being one of the main hurdles.

The OECD plan intends to address concerns that tech giants are not being fairly taxed when they have users, but limited physical presence, in many of the countries in which they do business.

The negotiations have centred on two pillars. The first addresses which country has the right to tax what corporate profits. The second pillar focuses on a global minimum corporate tax rate in an effort to stop a race to the bottom on such rates as countries seek to compete with one another to attract business investment.

US President Joe Biden proposed a 21 per cent global minimum tax rate as part of his overhaul plan to finance domestic infrastructure spending. His administration may be hoping to influence the global tax talks and encourage countries to sign onto a higher minimum tax rate - previous proposals had been roughly 12.5 per cent.

An agreement among the participants in the OECD talks is also seen as the best way to stop the proliferation of digital tax measures imposed by individual countries across the globe. Companies say a growing patchwork of measures means their profits are taxed multiple times by different countries.

Deputy Secretary of the US Treasury Adewale Adeyemo told CNBC in an interview on Wednesday that the US would not support digital taxes that target American companies, a view that has bipartisan support among members of Congress.

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A version of this article appeared in the print edition of The Straits Times on April 09, 2021, with the headline 'US offer on global tax deal would tie levies to revenue'. Subscribe