The OECD has proposed on Wednesday a global shake-up of corporate online taxation.
The plan would see digital groups such as Facebook, Apple, Amazon, Netflix and Google pay in the country of operation rather than shift profits around the world to minimise their tax bills.
EU member states are now divided between states that have worked to attract corporate behemoths, like Ireland, and states that have seen multinationals make billions without paying taxes, like Italy.
Under new OECD plans, firms would have to pay tax wherever they have significant consumer-facing activities and generate their profits. The new rules bring together common elements of three different proposals from 134 countries, members of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS).
“Failure to reach an agreement by 2020 would greatly increase the risk that countries will act unilaterally, with negative consequences on an already fragile global economy,” OECD Secretary-General Angel Gurría said in a statement on Wednesday.
“The current system is under stress and will not survive if we don’t remove the tensions,” the OECD’s head of tax policy Pascal Saint-Amans said.
Italy will implement a planned “web tax” in 2020, obliging big digital companies to pay a 3% levy on some Internet transactions, Economy Minister Roberto Gualtieri said on Tuesday.
“Profits have to be taxed where they are made,” Gualtieri told a parliamentary hearing in Rome.
The Italian web tax is similar to the French and the British. It will apply to companies with annual revenues worth at least €750 million euros and digital services exceeding €5.5 million. The Treasury forecast is that the web tax would yield €600 from 2020.
EU Economic Affairs Commissioner-designate Paolo Gentiloni has said he plans to oversee efforts to harmonize taxes on digital services, in line with OECD proposals.
Among the expected winners from the reforms are major digital markets like the US, Germany, France and the UK.
The second pillar of negotiations is looking at other BEPS issues, seeking to ensure there is a minimum corporate income tax on multinational profits. That could trigger a broader and deeper conflict as countries like Ireland, but also Luxembourg, Malta, and The Netherlands could see the erosion of revenue from corporate tax intake.