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Other Countries May Copy U.S.'s Minimum Offshore Income Tax: OECD


Added on 04/07/2018

(Bloomberg Tax) -- Other countries may look to copy the U.S.'s minimum levy on global companies’ offshore income in their attempts to refine the taxation of internet-based businesses, according to an OECD official.

John Peterson, head of the organization’s aggressive tax planning unit, said at a University of Oxford business tax conference that “other countries are interested” in the U.S.’s global intangible low-taxed income scheme introduced from the start of this year for American multinational companies’ overseas assets.

Those countries “are looking at it and thinking, ‘Can we get away with the same thing?’” he told Bloomberg Tax at the Oxford University Centre for Business Taxation’s July 2 summer conference. The measure “has fundamentally changed the conversation” on new taxes for digital companies.

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GILTI’s minimum 10 percent tax effectively reduces the incentive for American companies to hold their lucrative intellectual property outside the U.S.

The GILTI of a U.S. shareholder of a controlled foreign corporation is generally the U.S. shareholder’s net income from all such corporations, less a 10 percent deemed return on tangible property such as patents or copyright. If GILTI isn’t already taxed abroad at a rate of at least 13.125 percent, it faces a 10.5 percent minimum tax in the U.S.

The U.S. introduced its GILTI levy as part of the 2017 tax act ( Pub. L. No. 115-97).

Big Tech Tax Trouble

Internet-based companies’ lack of physical presence, together with how they often derive huge profits from user-generated value, has created issues for tax authorities across the globe.

Globally, lawmakers are currently split on how to tax businesses like Facebook Inc. The Organization for Economic Cooperation and Development is aiming to find a worldwide consensus on the issue by 2020. It will provide an update on the matter in 2019. In the meantime, some policymakers are exploring interim taxes for these companies.

U.S. Company Focus

The debate around the taxation of the digitalized economy largely focuses on U.S. multinationals.

In March, the European Union proposed a temporary tax on the revenue of social media and search engine companies, like Facebook and Alphabet Inc.’s Google, and online platforms, such as eBay Inc. In the past, these companies have all received scrutiny over their international tax arrangements.

In the question-and-answer section of a panel discussion at the summer conference, speakers were asked about the impact of the U.S.’s GILTI already leaving these companies facing more tax.

“It’s certainly an issue that gets raised,” Peterson said in response. Due to the GILTI, countries like Ireland have questioned the need for new levies on internet-based business, he later told Bloomberg Tax.

Peterson, though, remained unconvinced that the GILTI can ultimately resolve the taxation of a digitalized economy. It still poses a risk for tax avoidance, as the measure is “cross-credible across all forms of tax,” he said.