Nearly 140 countries around the world, led by the OECD, are rewriting rules that would tax high-tech and other multinational companies (WSJ, “Global Companies Are Caught Between New Taxes and a Trade War,” Oct. 13, 2020). The proposed rules would effectively transfer tax rights between countries, including allocating shares of taxable profits, determining which country should have tax authority, and a minimum tax rate. The current proposal is little more than an opportunistic scheme designed to increase the tax coffers for many nations at the expense of the U.S.
Initially, countries seemed mostly concerned about the erosion of their traditional tax base by digital markets having a minimal physical presence. While the digitalization challenges remain a focus, the international initiative appears to have expanded to include rewriting tax rules affecting all large multinational companies in the hopes of reining in arbitrage, stopping companies from shopping favorable tax venues, and establishing a minimum tax rate across countries. Government spending during the COVID pandemic coupled with economic shutdowns have only added to the urgency of these actions.
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