OECD Finds No Consensus on Interim E-Commerce Taxes

The Organization for Economic Cooperation and Development’s highly anticipated interim report on taxation in the digital economy, released Friday, delivered few answers, admitting a wide gulf between countries on the vexing issues of how to track and tax value in an online, cloud-based economy.

The OECD warned against the European Commission’s plan to propose a new tax next week targeting digital companies, arguing that it may cause economic distortion and raise business costs. The report highlights deep disagreements between its 35 member countries over how to tax technology companies, Euractiv reported.

The announcement could give ammo to critics of the EU plan who argue the bloc should wait to align its tax rules with other countries. The OECD’s criticism comes five days before the commission is set to announce its controversial proposal.

Brussels’ decision to introduce a new tax focusing on digital companies will satisfy demands from countries including Germany and France, but the commission has already been hit with criticism from member states with lower corporate tax rates, like Ireland and Luxembourg.

Disagreements within the bloc have fuelled contentious debate over the tax proposal. And negotiations before the legislation is approved are likely to be difficult: any change to EU tax law must be approved unanimously by all member states.

The commission announced last autumn that it would introduce a tax singling out digital companies as an “interim” measure to meet demands from several member states. A draft of the EU proposal that circulated this week sets a tax rate of 3% of revenue that will hit large companies with global turnover of at least €750 million. That means that tech giants based outside the EU, like Google and Facebook, will be affected.

The plan jumps ahead of the OECD’s timeline to strike agreement by 2020 over the issue with its member countries, which include the United States and Japan.

But the EU executive has insisted that it will come up with new legislation while commission officials continue to work with the OECD on a compromise deal with a broader group of countries.

Pierre Moscovici, the EU’s economy and taxation chief, has said that digital companies pay an average corporate tax rate of 9% in the EU, compared to other firms that pay 23%.