The global tax revolution for tech giants is delayed to 2024

ByJosephine J. Romero

Jul 25, 2022 , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

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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 Organization for Economic Cooperation and Development 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 Monday. “We will keep working as quickly as possible to get this work finalized, but we will also take as much time as necessary to get the rules right.”

While 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’s cost governments an estimated $100 billion to $240 billion in tax revenue a year.

There’s 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 United States more rights to tax firms like Amazon and Facebook’s parent Meta Platforms Inc. ultimately risks reigniting a transatlantic trade dispute over digital levies that began during Donald Trump’s presidency.

European nations and the United States 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 aren’t 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 finalize 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’s 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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