The global economy could shed more than 1% of output if international talks to rewrite cross-border tax rules break down and trigger a trade war, the OECD said today, after countries agreed to keep up negotiating to mid-2021.
Nearly 140 countries have agreed to extend talks after the pandemic outbreak and US hesitation before the presidential election squashed hopes of reaching a deal this year.
Public pressure is growing on big, profitable multinationals to pay their share under international tax rules after the Covid-19 pandemic strained national budgets, the countries said in an agreed statement.
The aim is update international tax rules for the age of digital commerce, in particular to discourage big Internet companies like Google, Facebook and Amazon from booking profits in low-tax countries regardless where their customers are.
In the absence of a new international rulebook, a growing number of governments are planning 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%," the OECD, which has been steering the global tax talks, estimated in an impact assessment.
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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 a year.
That could reach $100 billion when including an existing US minimum tax on overseas profits, amounting to 4% of global corporate income tax, the OECD said.
Meanwhile, any drag on global growth would be no more than 0.1% in the long term.
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, OECD head of tax Pascal Saint-Amans said.
Meanwhile, the OECD said it sees support from both parties in Washington for a reform of international tax rules.
"We believe that the desire to move forward is shared in the US, and that it is bipartisan," OECD head Angel Gurria told journalists.
"Regardless of the results of the election of November 3, we will be able to move forward," he added.
Ibec welcomed the publication of the OECD blueprints saying it shows continued, and well flagged, technical progress on the issues surrounding taxation in a digital age.
"This has happened in a challenging backdrop, as COVID and external events have slowed the pace of political progress," said Gerard Brady, Ibec chief economist.
"It is now clear that the process of agreeing on the remaining technical challenges and delivering a political agreement will continue on until the middle of 2021."
"Given the importance of the issues at stake, the OECD should be given that time to reach a conclusion without countries pushing for further unilateral measures.
He added that Ibec continues to believe a multilateral solution is the only way to avoid damaging uncertainty and complexity for business, the growth of unilateral measures, and an overflow of political tensions into trade and other policy areas.