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The increase is equivalent to four per cent of governments’ current corporate income tax revenues. The OECD said 100 “large [multinational enterprise] groups” will account for over half the reallocated profit from proposals that allow a country to tax firms with sales within its borders, even if they don’t have a corporate presence. (The Logic)

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Talking point: In January, officials from 137 countries agreed to negotiate on the changes and finalize a deal by the end of the year. Today’s analysis incentivizes them to stay engaged in those talks, since most governments would see some revenue gains, with “low and middle-income economies” particularly benefitting. But the document also teases a bigger payoff for a second set of policies that ensure firms pay a minimum level of tax, in part by reducing rate differences between jurisdictions; countries like Ireland have been accused of providing illegal state aid to attract investment by reducing multinationals’ tax burdens. However, the end-of-year timeline only applies to the first set of changes; participating governments said last month the technical details of the second group of proposals still need to be worked out before adoption negotiations begin.

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New Delhi has reportedly told the U.S. Trade Representative (USTR) its new levy does not target any specific country. The tax is two per cent of the value of payments taken outside India for services to consumers within it, as well as e-commerce transactions and revenue from ads targeting residents. It took effect on April 1. (Bloomberg)

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Talking point: Google, Facebook and other firms likely to have to pay the tax have reportedly asked for it to be deferred for at least six month due to the pandemic. That would move the start date close to the end of the year, which is when the OECD hopes to have agreement from the nearly 140 governments that are negotiating a new global taxation regime for multinational firms. But many countries are moving forward with their digital-levy plans because the pandemic has hurt their economies, and therefore their tax revenues. The USTR is investigating those measures, including India’s, a process that could end with retaliatory tariffs.

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France and the United Kingdom also promised to impose taxes targeting tech giants like Apple and Facebook a day after the U.S. pulled out of OECD negotiations on the talks. (Financial Times)

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Talking point: Both sides are ratcheting up the rhetoric. French Finance Minister Bruno Le Maire called the U.S. decision a “provocation,” and said his country would pursue a tax on large tech firms “whatever happens,” while Spain said it would not permit “any type of threat from another country.” U.S. Trade Representative Robert Lighthizer said, “The other people getting together and deciding they’re going to take action against the United States without our acquiescence is something that’s not acceptable.” The breakdown in talks bodes ill for the nascent U.S.-EU trade deal, which many now see as very unlikely to be reached prior to the November U.S. election. The breakdown in OECD talks, which include 140 nations, also has global implications. The U.S. launched trade investigations, which can be a precursor to sanctions, into taxes from India and Brazil earlier this month. The federal Liberals, who campaigned on imposing a digital tax and have been involved in the OECD negotiations, have so far avoided a trade investigation from the U.S. Asked if Canada intends to go ahead with a digital services tax without U.S. participation, Maéva Proteau, Finance Minister Bill Morneau’s press secretary, said, “Our government prefers to take an approach grounded in multilateralism. Canada will continue work with its international partners on the issue of digital taxation.” 

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The U.S. Chamber of Commerce, the Internet Association—which represents Facebook, Google and Amazon, among others— the Entertainment Software Association and other lobby groups said the measure “purposely targets, and would almost exclusively impact” U.S. firms, undermining their participation in the Canadian technology market. The Liberals’ federal election platform included a three per cent value-added tax on sales of online advertising and user data for companies with $1 billion or more in global revenue, of which at least $40 million is made in Canada. (Reuters)

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Talking point: The Liberals’ tax is modelled on one the French government implemented in July, which also provides a template for how a U.S.-Canada dispute could play out. At the time, U.S. President Donald Trump threatened a “substantial reciprocal action,” citing French wine, and his administration launched a trade investigation. But the U.S. backed off after France agreed to reimburse the difference between its tax and the OECD’s final proposal to overhaul the global corporate tax system, due by the end of 2020. The Liberals said their tax, which is supposed to take effect in April 2020, is a temporary measure until the OECD changes are implemented. In Ottawa, both Twitter and Airbnb updated their lobbying registrations this month to include the digital-tax proposal.

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Governments would be able to tax a to-be-determined portion of firms’ worldwide earnings, even if they do not have a physical presence in the country, according to a consultation document released Wednesday. The measures would apply to companies with revenues of more than US$821 million that operate across international borders and have a “sustained and significant involvement in the economy.” The OECD is also proposing a “legally binding” dispute-settlement mechanism to arbitrate between companies and governments. (The Logic)

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Talking point: The proposals are designed to stop governments from creating a fragmented taxation system by imposing country-specific levies on Big Tech, which France has passed and officials in the U.K. and Canada’s Liberal Party are considering. The Trump administration has opposed the French measure, threatening retaliatory tariffs. But the OECD measure is not restricted to the tech giants, most of which are run from California—for example, the U.S. would be able to impose higher taxes on the American sales of luxury brands, some of which are based in France. Those kinds of trade-offs are designed to encourage a quick consensus on the new approach to taxation. The OECD document states it needs agreement on the types of rules countries are willing to set by January 2020 so it can set the specific revenue thresholds and tax levels by the end of 2020.