How The U S Is Quietly Opening The Door To An International Agreement On Digital Tax forbes.com - get the latest breaking news, showbiz & celebrity photos, sport news & rumours, viral videos and top stories from forbes.com Daily Mail and Mail on Sunday newspapers.
Michael Devereux, Clemens Fuest, Ben Lockwood
The current tax international rules, designed in the 1920s, aimed to reconcile two main objectives: avoiding double taxation and allowing countries to tax multinationals operating in their territories. In a digital world, these rules are not effective in controlling the behaviour of multinational enterprises, which can easily take advantage of differences in corporate tax rates (through what the OECD calls ‘base erosion’ and ‘profit shifting’). Profit shifting can be conducted via transfer prices on intangible assets, such as algorithms or licences (Choi et al. 2020). E-commerce allows a firm to avoid being taxed in a country by operating without a so-called Permanent Establishment. To restore fairness and public budgets, countries and international organisations are undertaking various initiatives.