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Economy

OECD to agree on basing digital tax on profit margin and revenue

Apple, Amazon and about 100 other large companies would meet the threshold

Countries and regions negotiating on how to levy a digital services tax are coordinating to ensure that it would apply to Google, Amazon, Facebook and Apple.

TOKYO -- The Organization for Economic Cooperation and Development is proceeding with a U.S. proposal to set an international rule on what companies are subject to a digital services tax, the intergovernmental organization told about 140 countries and regions participating in the negotiations.

The OECD discussed a number of calculations under the proposal put forward by the U.S. in April. The tax would affect about 100 global companies that exceed a certain standard based on profit margin and revenues.

The organization is aiming to reach an agreement by midyear, perhaps as early as July at a meeting of finance ministers and central bank governors from 20 industrial and emerging-market nations that is to be held in Italy.

Proposals include levying the tax on global companies whose annual revenues surpass 10 billion dollars, or whose profit margins are over 15% or 20%. While the U.S. proposal does not name any companies, participants in the negotiations are coordinating to include the U.S. digital giants known as GAFA -- Google, Amazon, Facebook and Apple.

A Japanese finance ministry official said that "most Japanese companies would not be included under the current calculations."

Traditional corporate tax regulations target factories, stores and other real-world holdings. But the digital economy now allows corporations to provide services globally -- and not necessarily via physical sites. This has regulators calling for updated rules better suited to the new playing field.

The OECD in October announced a proposal to set a standard based on types of services such as online advertising and cloud services. However, participating countries said they would have difficulty drawing lines between such services.

The U.S. proposal for a standard based on profit margin and revenue would be simpler. The previous U.S. administration of President Donald Trump was against targeting the U.S. companies, but the new administration led by President Joe Biden is taking a softer approach -- and is receiving positive reviews from other countries.

The U.S. has also softened its proposal for a minimum tax rate. It now says it would be satisfied with a 15% rate, down from its previous 21% proposal. Washington eased its position in the hope of winning favor from low tax rate countries like Ireland.

The OECD is growing wary of digital tax rules being independently set by countries and regions such as India and the EU. Delaying an agreement on a common rule could allow gaps to grow between countries.

Some observers say an agreement is not likely until October or later.

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