Negotiators See Global Deal on Taxing Big Tech Companies Within Reach – Crypto News

Meeting on Monday and Tuesday in Paris, tax officials from 143 jurisdictions had hoped to seal an agreement on a new way to divide the taxes levied on the profits of about 100 of the world’s biggest companies. Such a deal—part of a series of changes to how, where and how much multinational companies are taxed around the world—would reallocate the taxation of some $200 billion in corporate profits across the world.

The global initiative is meant to let countries capture tax revenue from the large companies at the center of the information-based economy. Currently, those companies can operate worldwide while concentrating their profits in their home countries or in small, low-taxed jurisdictions; they then pay relatively little tax in the more populous nations where many of their users are.

Failure to reach an agreement could have far-reaching consequences. If the talks collapse, several nations have threatened to adopt instead special taxes on these primarily American tech companies. Washington views those taxes as hostile and could retaliate with tariffs.

A year ago, negotiators had described the first half of 2023 as a hard deadline.

Officials guiding the talks said reservations by some countries were still preventing an agreement. But they said those concerns should be resolved in the coming weeks. This would pave the way for a treaty to be agreed to by the end of this year. It would then have to be signed and ratified by participating nations.

“There is huge convergence and agreement on the major components,” said Manal Corwin, head of tax policy at the Organization for Economic Cooperation and Development, which has been shepherding efforts to revamp the tax system for the past decade.

Failure to conclude a deal quickly could lead to a free-for-all in which governments around the world implement targeted levies on large technology companies—known as Digital Services Taxes—likely prompting the US to retaliate for what it sees as unfair treatment of American businesses.

Lily Batchelder, assistant US Treasury secretary for tax policy, said the talks have made significant progress.

“There remain important issues to resolve on [this piece]which would protect US businesses against discriminatory Digital Services Taxes and other unilateral measures,” she said.

The talks on dividing tax revenue build on a 2021 agreement that also saw governments set a minimum tax rate on the profits of a larger pool of businesses that operate internationally. Those two parts of the talks are technically separate but politically linked.

The piece of the agreement under discussion this week would mark the most sweeping overhaul in a century of the rules that determine where profits can be taxed. It is intended to alter the thousands of treaties between nations that currently determine how much individual governments receive and to prevent countries from imposing novel taxes on companies.

For now, 138 jurisdictions have given it their backing—Canada, Sri Lanka, Pakistan, Russia and Belarus oppose it. Canada is concerned about the lack of a firm deadline for implementation, according to an official familiar with the talks.

More problematically, legislators in the world’s largest economy—the US—are divided and wary, casting doubts on the prospect of a treaty’s being ratified there even if the talks succeed.

The existing rules were designed in an era when businesses needed a large physical presence in a country—such as a factory—to make profits there. In the digital age, physical proximity isn’t necessary to serve a nation’s customers.

Governments began to look for ways to address the ensuing erosion of their tax revenue a decade ago. Europe, in particular, wanted to find ways to tax US tech giants that had a major presence but little corporate income in countries such as France and Germany. Some introduced their own levies on digital services to pressure the US to agree to an overhaul of the rules.

In response, the US threatened tariffs on European imports. The current talks represent a movement toward a compromise that would give countries with large customer bases a way to get more revenue—at the expense of smaller countries where many tech companies have placed intellectual property.

Under the current outline, the standstill on unilateral taxes would be extended until at least 2025 to give legislatures time to approve the new rules. Some 30 countries that host 60% of the taxed companies would need to sign the convention by the end of this year for the extension to take effect.

US lawmakers, particularly Republicans, have criticized the Biden administration’s approach to the negotiations. They say they haven’t been included in talks or kept sufficiently informed about the potential impact on US businesses and revenue. A US approval would be essential for the global accord to move forward.

Treasury Secretary Janet Yellen has said the reallocation of taxing rights would have a minimal effect on overall US tax collections. Tech companies would likely pay less money to the US and more to foreign governments. But pharmaceutical companies, which often book their profits from US sales in Ireland and Puerto Rico, would likely pay more to the US under the deal.