$100 billion — that's how much the OECD says could be lost on an annual basis if negotiations to develop global cross-border tax rules collapse.
What's being negotiated:
- 137 countries came together in January to agree on new rules for taxing multinational corporations that do business globally.
- In particular, governments are looking to find a way to tax tech giants like Amazon and Facebook.
- These tech corps often book profits in low-tax countries like Ireland, allowing them to avoid paying taxes in higher tax jurisdictions where their customers reside.
What's the problem:
- Making a deal that satisfied so many different countries is tough.
- The Americans have pushed for a "safe harbour" rule that would allow companies to decide whether to subject themselves to either existing or future rules (an idea that nearly everyone else opposes).
- Low-tax countries want to keep profits booked in their countries so they can impose taxes themselves (albeit small ones).
- A deal has yet to be reached, despite the deadline already being extended.
What's at stake:
- If a global agreement can't be reached, countries will impose their own national taxes on digital services.
- The U.S. government has threatened to retaliate with tariffs against any country that imposes taxes on U.S. based tech companies.
- The OECD projects trade disputes driven by this issue could reduce global GDP by as much as 1%.
Zoom out: With the global economy already knocked back by COVID, an international tarrif war could make things even worse.