What you need to know

  • New OECD proposals could mean companies like Apple face larger tax bills.
  • More than 130 countries have agreed tax reform is necessary due to the rise of internet companies.
  • Proposals could would mean companies pay tax regardless of whether they have a physical presence in a country.

According to Reuters, new proposals from the OECD could affect the way large multinational companies like Apple pay taxes, leading to heavier tax bills. The news comes following general agreement that tax laws have not kept pace with the rise of internet companies like Apple, Facebook and Google, and that a major overhaul is needed.

According to Reuters:

Governments will get more power to tax big multinationals doing business in their countries under a major overhaul of decades-old cross-border tax rules outlined on Wednesday by the Organisation for Economic Cooperation and Development.

"The current system is under stress and will not survive if we don't remove the tensions," OECD head of tax policy Pascal Saint-Amans told journalists on a conference call.

He said the overhaul would have an impact of a few percentage points of corporate income tax in many countries with no big losers apart from big international investment hubs.

While that means countries like Ireland or offshore tax havens could suffer, countries with big consumer markets like the United States or France would benefit from the shake-up.

The OECD proposals set a scope for the companies that would be covered by the new rules, define how much business they must do in a country to be taxable there and determine how much profit can be taxed there.

Under the new proposals governments would have more power to tax companies based on where their users or clients live, rather than simply where the company is based.The move would affect companies with a revenue of over $821 million.

Thus defined, not only would big internet companies be covered but also big consumer firms that sell retail products in a market through a distribution network, which they may or may not own.

Companies meeting those conditions would then be liable for taxes in a given country, according to a formula based on set percentages of profitability that remain to be negotiated.

According to Reuters these proposals run parallel to further OECD proposals aiming to establish an internationally agreed minimum corporate tax rate that comapnies "cannot avoid".