Governments will gain more power to tax major multinational companies — including Silicon Valley behemoths — for conducting business in their countries under a proposed overhaul of cross-border tax rules released by the Organisation for Economic Cooperation and Development.
The proposal, unveiled on Wednesday, comes amid growing tensions between the U.S. and other countries over digital taxes that mostly take aim at American tech giants, including Amazon, Google and Facebook.
Under the new rules outlined by the Paris-based organization, countries would have the capability to tax digital companies based on sales, rather than physical presence. (Because digital companies don’t require a physical presence to run their business within a certain country, they benefit from the current system, which taxes them based on the location of their operations and assets, not where their sales are generated).
According to a recent European Union report, digital companies pay, on average, half of what their traditional brick-and-mortar counterparts do in taxes — even as their revenue expands four times as fast as revenue for other multinational companies.
”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. “We must not allow that to happen.”
The proposal was sent to G-20 finance ministers ahead of their meeting in Washington, D.C. on Oct. 17-18.
Earlier this year, the OECD agreed to rewrite the tax rules that date back to the 1920s at the urging of more than 130 countries and territories, according to Reuters.
The proposal comes at a critical time as countries look to impose their own taxes on digital companies in the interim.
France has been particularly vocal about the need for a digital services tax; over the summer, President Emmanuel Macron signed a law — targeting a slew of big tech companies based in the U.S. — imposing a 3 percent tax on companies worth at $834 million globally and $27.5 million in France. (France said the tax is temporary until the OECD determines how to tax digital companies.)
The move sparked ire from the Trump administration, which suggested it “unfairly” targeted the U.S.