U.S. Big Tech giants such as Facebook, Inc, and Apple, Inc that have long avoided paying their fair share of taxes by exploiting national tax loopholes will no longer be able to do so by this summer at the earliest.
The coming into power of the Biden administration has given the 37-member Organization for Economic Cooperation and Development (OECD) confidence its long-delayed international agreement for taxing multinational enterprises (MNEs) will finally be implemented within the year.
The "OECD G20 Base Erosion and Profit Shifting Project," or BEPS Project, is an international framework to combat tax avoidance by MNEs using base erosion and profit shifting tools. Begun in 2013, the project has been approved by 137 countries, including all OECD members.
The project's aim is to mitigate tax code loopholes and country-to-country inconsistencies so corporations can't shift profits from countries such as Sweden with high corporate tax rates to countries such as Ireland with low tax rates.
The tax reforms consist of two pillars. Pillar one refers to the digital economy and will see profits taxed where customers are located. Pillar two refers to a minimum global tax rate that disregards where firms are physically headquartered.
Existing national taxation rules are mostly based more on where companies' permanent offices and plants are located instead of where they make their sales. Under the BEPS Project, global tech giants generating revenues by offering consumer products or digital services will be taxed based on their sales, even in countries where they aren't physically present.
OECD said the framework will cover businesses such as online advertising services, online search engines, social media platforms and online gaming. It noted the new rules stand to boost global revenues from corporate income taxes by up to 4%, or $100 billion, annually.
OECD said 137 countries have broadly agreed on an outline of the new taxation rules for companies operating in the digital space globally.
German Finance Minister Olaf Scholz said it's now "highly likely" the BEPS Project will be approved before a summer deadline at the OECD level.
"I'm really confident that we'll get an agreement," he said.
"It is highly likely that we will get the success we are working for so hard. And the new administration gave me the impression that they understand the need for an agreement in this field and that they will work on solutions together with all of us, which I think, is a big, big success. And anyone knows that the timetable is very strict, we have to agree in summer."
His confidence is being bolstered by support from the Biden Administration, whose newly confirmed Secretary of the Treasury, Janet Yellen, is known to back the deal.
Yellen supported calls for the new global taxation system on tech giants during her confirmation hearing last week at the U.S. Senate. The Trump administration pulled out of the OECD talks in the summer of 2020.
A number of European countries plan to impose taxes on digital companies above a certain revenue threshold, which will mainly U.S. tech firms such as Google, Apple, Amazon, and Facebook.
