140 governments agree to rewrite cross-border tax agreement for digital economy

On Friday, in a statement the Organization for Economic Cooperation said, nearly 140 governments have agreed to rewrite their decades-old cross-border tax agreements over the coming months following talks this week in Paris.

The rise of internet giants, including, Facebook, Google, Apple, and Amazon have weighed on countries given that these companies exploit loopholes in existing tax agreements which allow them to book profits in low-tax countries rather than at the country of origin.

Tax officials from 137 governments agreed at a meeting in Paris to launch negotiations on new rules for where tax should be paid and what share of profit should be taxed when lage digital and other consumer-facing businesses do not have a physical presence in the market, said the OECD.

These negotiations come despite threats of trade retaliation from Washington which sees such moves as discriminatory against large U.S. tech companies.

“It’s moving fast because what is at stake is a massive trade war,” said OECD head of tax policy Pascal Saint-Amans. “This is what we see on a daily basis with the interaction between France and the U.S. and with the interaction between the U.S and the countries that have said they would launch digital services taxes”.

Last week, Paris and Washington agreed to a truce and set aside France’s digital tax initiative until the end of the year to allow time for the redrafting of international tax rules.

“A U.S. proposal to let companies choose whether to subject themselves to current rules or the future arrangements received next to no support at the meeting, but countries agreed to not deal with it until the technical work was done”, said Saint-Amans.

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