Collapse of global tax treaties could impose $100 billion in costs: Organisation for Economic Co-operation and Development

On Monday, the Organisation for Economic Co-operation and Development said, the global economy could see a drop of more than 1% in output if international talks to rewrite cross-border tax treaties break down and trigger a trade war.

On Friday, around 140 countries had agreed to extend negotiations ahead of U.S. Presidential election and the Coronavirus induced pandemic squashing hopes of reaching a deal by this year.

Countries are under growing pressure to bring in large, profitable multinationals under their respective tax regimes.

The aim is to update international tax laws to the e-commerce age, especially for a large MNCs including Facebook, Google and Amazon, which routinely book profits in low-tax countries such as Ireland regardless of where their customers are. In the absence of digital international guidelines, a growing number of governments are planning to introduce their own digital services taxes, which has prompted threats of trade retaliation from the Trump administration.

“In the ‘worst-case’ scenario, these disputes could reduce global GDP by more than 1%,” said the OECD, which has been steering the global tax talks, estimated in an impact assessment.

Inversely, new rules for digital taxation and a proposed global minimum tax would increase global corporate income tax worldwide 1.9% to 3.2%, or about $50 billion to $80 billion per year. This could touch $100 billion when including an existing U.S. minimum tax on overseas profits, amounting to 4% of global corporate income tax, said the OECD.

“While countries agreed on OECD blueprints for a future deal, the key remaining issue to be solved was the scope of businesses to be covered, which would then make it easier to agree the technical parameters,” said OECD head of tax Pascal Saint-Amans.

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