Business

Global tax authorities discuss targeting multinationals with profit margins above 10%

Kyodo

Under their new rules, global taxation authorities have been discussing a proposal of targeting digital giants and other multinationals whose profit margins top 10 percent, Japanese government sources said Saturday.

The debate on creating global tax rules based more on where firms make their sales rather than on where their permanent offices are located has been growing at the Organization for Economic Cooperation and Development and international forums such as the Group of 20 (G20).

A working group of the OECD is likely to outline the draft rules next month, the sources said.

The G20 major economies are reviewing the existing international taxation regulations amid criticism that large U.S. IT companies, including Google LLC, are not paying their fair share of taxes as they can book profits in low-tax jurisdictions.

But the rules under consideration will cover a wide range of industries amid U.S. concern that its domestic IT titans collectively known as GAFA — Google, Apple Inc., Facebook Inc. and Amazon.com Inc. — would be major targets of the stricter regulations.

As for Japan, profit rates at Toyota Motor Corp. and other large companies remain below 10 percent, one of the sources said, adding that the impact of the envisioned rules will be limited.

As developed nations have shown their understanding on using the proposed level of profit margins as a guide under the new rules, the focus will be on whether it would gain approval from emerging economies including India, which calls for a drastic review of taxation rules.

The OECD will solicit opinions from governments on the plan for about a month after announcing it.

The G20 finance ministers and central bank governors are expected to discuss the matter when they meet next month in Washington, while the OECD seeks to reach a basic agreement in January, the sources said.

In their summit in Osaka earlier this year, the G20 leaders endorsed a time schedule to compile the final report on the new tax scheme by the end of 2020.

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