Large internet companies would be forced to pay more tax in countries where they sell products and services under proposals for a global shake-up of taxation rules that currently allow companies to shift profits to low-tax locations.
The Organisation for Economic Co-operation and Development wants to upgrade the international tax system for the 21st century and make multinationals such as Facebook, Amazon and Google pay more corporate tax in the countries in which they generate their biggest sales.
The OECD, which represents the wealthiest countries, said existing tax rules dated back to the 1920s and no longer ensured a fair allocation of taxing rights in an increasingly globalised world.
Ángel Gurría, its secretary general, said: “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.”
Gurría said he wanted swift action on the proposals. “Failure to reach agreement by 2020 would greatly increase the risk that countries will act unilaterally, with negative consequences on an already fragile global economy. We must not allow that to happen,” he said.
The changes are part of the OECD’s base erosion and profit shifting (Beps) work, which attempts to counter the tax-planning strategies used by large companies to exploit gaps in rules.
The OECD estimates up to $240bn (£196bn) in revenue is lost to exchequers, which could be used to fund key government projects, welfare benefits and public services.
Under the plans, which the OECD launched for consultation on Wednesday, some profits and tax rights would be reallocated to countries where companies make their biggest sales.
The rules would dictate where tax should be paid and how much profit companies should be taxed on.
A spokesperson for Amazon said the plans were an important step forward and the company would “continue to actively support and contribute to the OECD’s work to achieve a consensus-based solution”.
Several European politicians welcomed the proposals. Markus Ferber, a German conservative MEP on the European parliament’s economic and monetary affairs committee, said: “It is high time to adapt the corporate tax rules for the digital age. The OECD standards finally move away from the antiquated idea of physical presence.”
However, the plans were described as weak and overly complex by anti-poverty campaigners, who said they would fail to “deliver meaningful progress against corporate tax abuse”.
The Tax Justice Network said the proposals would do “little or nothing” for developing countries. Alex Cobham, the charity’s chief executive, said the OECD had rejected clear definitions of businesses that would be affected and the taxable profits caught by the rules.
“To add uncertainty, while at the same time leaving the widely derided arm’s length principle largely in place, is a feat of complex engineering that would only serve to further undermine the credibility of international tax rules,” he said.
Susana Ruiz, the tax campaign lead at Oxfam, said: “Unfortunately, particularly for developing governments and their citizens, what the OECD has come up with today is very disappointing.
“Under this new proposal, companies’ profits and their ability to shift them offshore will barely be affected and consequently, developing countries will only see a very small increase in their corporate tax revenues.”
The Tax Justice Network has previously said the OECD proposals could end up shrinking the tax paid in poorer countries, making global inequality worse.
While many poorer countries lose out most through tax abuses, the changes could cause their tax bases to shrink by 3%, researchers said. They said about 80% of taxes clawed back were likely to be redistributed in high-income countries.
