Countries at the United Nations are rewriting international tax rules in an effort to be able to tax technology giants like Alphabet and Amazon based on where their users are located rather than where they’re headquartered.
A draft tax proposal seen by Bloomberg – which covers advertising, search functions, social media platforms, online gaming, cloud computing, supply of user data, and more – could significantly increase how much tax companies pay, and where.
A portion of the draft treaty, referred to by the UN as a protocol and dated May 5, is due to be discussed at the UN in New York in August.
Many countries in the European Union and the developing world have complained that tech companies get away with not paying taxes in jurisdictions where they don’t have employees or offices, even when they earn significant revenue from users in those countries.
Several countries, including France, Italy, the UK, and Spain, have imposed digital services taxes for online advertising revenue.
The US, where most of the largest tech companies are headquartered, has been critical of digital services taxes, calling them discriminatory. A proposal at the Paris-based OECD that would also reallocate taxing rights to countries where companies make their revenue has stalled because of US opposition.
The US left the UN negotiations last year altogether. Unlike at the OECD, however, the UN discussions on the treaty don’t need unanimity for the measure to be approved.
The draft has some protections to ensure jurisdictions where companies are headquartered continue to get some revenue. It proposes a cap on the share a source country can tax, and introduces safeguards to ensure companies aren’t double taxed.
The UN is also working on a mechanism to resolve disputes between tax authorities and companies.
Discussions at the UN have largely been driven by developing countries, which believe international tax rules mostly formed by developed countries ignore their concerns. The UN hopes to have a treaty ready by the end of 2027. – Bloomberg
