Global Tech Firms Brace for Tax Rules Which Could Create New Disputes
05 October 2015 - 11:31PM
Dow Jones News
By Sam Schechner
PARIS--Global tech firms such as Amazon.com Inc. are already
preparing for new tax rules that could force them to pay corporate
taxes in more countries where they operate, but are also girding
for what some say will be more fights with--and between--national
tax authorities.
The Organization for Economic Cooperation and Development on
Monday announced a series of recommendations aimed at stopping big
multinational companies in many industries from avoiding paying
billions of dollars in taxes every year through baroque structures
which are legal, but which have come under increasing political
pressure, particularly in Europe.
Some of the world's biggest tech firms, including Apple Inc.,
Facebook Inc. and Google, whose corporate parent is now called
Alphabet Inc., have come in for special scrutiny because they
generate massive revenue in many European countries but pay
relatively little income tax in them. The new rules could encourage
firms to adopt new tax structures that rely less on some offshore
tax havens, while declaring more income in countries such as
France, Germany and the U.K.
"We're seeing the beginning of the end of structures that are
deemed artificial," one tech executive said, adding that internal
discussions about new structures are under way. "There is a known
timetable and you have to look at lots of different options about
how to do it."
Google, Apple, Facebook and Amazon didn't immediately have any
comment on Monday, but have all said in the past they pay the tax
they owe.
While tech firms have lobbied hard to push back new rules that
would have targeted them specifically, many of the broader
recommendations will have an impact on taxation in the digital
economy.
At particular issue for companies in the tech space are
recommendations for a legal concept called permanent establishment.
Under tax treaties, the profits of a foreign company are usually
only taxable in a country if it has a permanent establishment
there.
The concept has helped shape corporate structures across Europe.
Many tech firms, such as Google, maintain a single headquarters in
a tax advantaged country where they collect all their revenue from
external clients. The firms don't declare external revenue in other
countries because they claim various exceptions to the permanent
establishment definition under current tax treaties. It is exactly
that kind of structure that has led to a fight between Google and
France.
The OECD says Monday's recommendations will tighten the rules to
avoid what OECD officials have described as abuse of the system.
Several tech executives say, however, that the new rules may be
implemented differently by countries and companies, leading to new
disputes between countries over how to allocate revenue, and new
legal wrangling between companies and tax authorities over how much
to pay whom.
"The new language will create new debates," said a tech
official. "Room for interpretation is the worst possible
world."
Earlier this year, the U.K. implemented what it calls a diverted
profit tax, in anticipation of the new OECD recommendations.
Proponents say it is in line with where the OECD was heading, but
an OECD official warned at the time that the U.K.'s approach could
undermine its multilateral plan.
Amazon, which is facing a tax inquiry at the European Union, has
started collecting revenue from customers in several European
countries, including the U.K., Germany and France, rather than
funneling all of its sales through low-tax Luxembourg.
But it is unclear how much more--if any--taxes Amazon will pay
under the plan because it also attributes costs, such as the
wholesale purchase of books, to individual countries as well,
according to a person familiar with Amazon's vendor contracts. That
could largely offset the new revenue, given Amazon's razor-thin
margins.
Write to Sam Schechner at sam.schechner@wsj.com
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(END) Dow Jones Newswires
October 05, 2015 08:16 ET (12:16 GMT)
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