Why new plans to make multinational tech giants pay more tax won’t get very far

A blueprint has been finally agreed, but that’s just the first step and failure to get it implemented means countries will go it alone with measures like Britain’s digital services tax, writes James Moore

Impossible job? The OECD will struggle to deliver

Whenever people urge action on the tax avoidance tactics beloved by tech giants and other multinationals their shills and defenders inevitably cry: “Wait for the OECD, they're sorting it out.”

The rich country club has been working on plans to reform the creaky international system governing corporate taxation for some time.

The reason for that cry, of course, is that waiting for it to get an agreement on the way forward is a bit like waiting for Godot. 

The organisation has been charged with trying to find a consensus among more than 100 countries, which is desperately difficult even with non controversial issues like what colour the sky was this morning? Sky blue? Cerulean? Teal? It’s an outrage, I tell you, an outrage. It was clearly sapphire  and if you don’t all agree with us we're going to walk out in a huff.

But wait, what’s this? There’s Godot putting in an appearance. I doubted that I’d ever write that a way forward had been agreed, but it seems that it has and it could redistribute an estimated $100bn.

With the developed world’s exchequers having dived deep into the red to pay for a coronavirus crisis that shows no sign of letting up, any sort of progress must feel almost like a stroke of divine intervention, at least to those likely to benefit.

The internationally agreed blueprints would see a portion of the global profits of tech giants, Europe luxury goods groups, and others that employ clever accountants to game the system for them, allocated to countries where their customers are.

The amounts are expected to be fairly small. But its still a significant shift given the current system is based on corporate location and these can, obviously, very easily be changed to minimise the tax rate.

The second pillar would see a minimum tax rate set that individual countries would be allowed to collect if it wasn’t being paid. The aim is to reduce the temptation for companies to locate in places that’ll charge them the equivalent of half a can of coke and a pack of toffees if the execs will just book into their five-star hotels and hire the odd fishing boat when it comes time to hold a board meeting.

But is this any good? No. No of course it isn’t. The Tax Justice Network, for example, describes it as “tax haven lite”. So that can of coke I mentioned? It turns from red to white, and has 300 millilitres in it instead of 330. That $100bn number looks big, and deliberately so, but when shared around it’s not so much especially in the context of the profits multinationals make and the tax they avoid.

Here’s how you build a consensus between more than 135 different nations with competing interests: you come up with something sufficiently limp that the ones that think they benefit from the current set up, and go into the discussions determined to back their “home” multinationals, don’t feel too bad about what they end up with while the rest say, fine, a share of a pack of toffees and a sip of low calorie fizzy pop is better than nothing.

Even then this mightn’t work. These are blueprints that have been agreed so they’re there when the political dynamic changes, as the OECD has stated.

Getting countries to agree in principle is one thing. Getting then to sign off on their implementation is another matter entirely. That’s especially true of one very big country in the midst of an election. Will anything change if Joe Biden replaces Donald Trump in the White House? I wouldn’t necessarily bank on it.

The thing about “America First” and screw the rest of the world is that Trump and his acolytes didn’t invent the concept, whatever they’d like their supporters to believe. It’s how that nation has always conducted itself.

The OECD has put out some fairly dire predictions as to what might happen should its plan fail to get ratified if and when the political dynamic does change.

Countries will go it alone by imposing their own taxes (such as Britain’s digital services tax) and the US, and others who think they benefit from the current set up, may very well retaliate with tariffs.

Kaboom, we have a trade war at the worst possible time. The OECD says this could knock 1 per cent off global GDP, which, based on last year’s figures, racks up to $1.4tn, or 14 times the $100bn or so the OECD reckons will get redistributed through its package.

Maybe that’s what it’ll take.