The OECD hopes that its proposal will advance negotiations for an international corporate tax framework, based on the Inclusive Framework on BEPS that came out of the OECD/G20.
“The current rules dating back to the 1920s,” the OECD said, “are no longer sufficient to ensure a fair allocation of taxing rights in an increasingly globalised world.”
Months of negotiations have come to a conclusion on this proposal, which would see companies pay tax in jurisdictions where they do business, even if they don’t have a physical presence there.
The new rules outline both where taxes should be paid, and what portion of profits should be taxed.
“We’re making real progress to address the tax challenges arising from digitalisation of the economy, and to continue advancing toward a consensus-based solution to overhaul the rules-based international tax system by 2020,” said OECD secretary-general Angel Gurría.
“This plan brings together common elements of existing competing proposals, involving over 130 countries, with input from governments, business, civil society, academia and the general public. It brings us closer to our ultimate goal: ensuring all [multinational enterprises] pay their fair share,” he added.
Facing the challenges of an increasingly digitalised economy has caused some diplomatic ruptures, including at the G7 earlier this year.
The French and US finance ministers locked horns over a proposed digital tax levy in France, the latter claiming that US companies would be disproportionately affected.
Although bringing large digital multinationals to account is an overarching aim, the OECD hopes to broker an international consensus before countries take up unilateral domestic digital taxes.
Both France and the UK have already proposed levies, but both have said that they would be scrapped in favour of an international version.
Failing to reach an agreement by 2020 would increase that risk, Gurría says, and would have “negative consequences on an already fragile global economy”.
There will be a public consultation on these proposals, which include resolving base erosion and profit shifting issues and ensuring a minimum corporate income tax on multinational profits. Consultations are expected to take place in December.
Finance ministers from the G20 countries will be presented with the report at their next meeting in Washington, on 17-18 October.