Countries agree to extend digital services tax freeze through 2024

PARIS (Reuters) – With the exception of Canada, countries with digital services taxes have agreed to hold off applying them for at least another year as a global multinationals tax deal to replace them was pushed back, the OECD said on Wednesday.

More than 140 countries were supposed to start implementing next year a 2021 deal overhauling decades-old rules on how governments tax multinationals that are widely considered to be outdated as digital giants like Apple (NASDAQ:) or Amazon (NASDAQ:) can book profits in low-tax countries.

The first part of the two-pillar deal aims to reallocate taxing rights on about $200 billion in profits from the biggest and most profitable multinationals to the countries where their sales occur.

The more than 30 governments that have or plan national digital services taxes had agreed to put them on ice under a standstill clause until the end of this year, or drop them altogether once the first pillar takes shape.

The second pillar calls on governments to put an end to tax competition between governments to attract investment by setting a global minimum corporate tax rate of 15% from next year.

While the second pillar is moving ahead with over 50 countries already in the process of implementing it, some countries have concerns about a multilateral treaty underpinning the first pillar, the Organisation for Economic Cooperation and Development said after talks in Paris.

The plan is therefore now to nail down the details so governments can sign off before the end of the year with the aim now for the treaty to enter force in 2025, instead of in 2024 as previously planned.

If at least 30 countries sign, then the freeze on national digital taxing rights will be extended through 2024 with an option to further extend through 2025 if needed, the OECD said.

Out of the 143 countries that are party to the deal, only five countries – Belarus, Canada, Pakistan, Russia and Sri Lanka – were not in a position at the meeting to offer their support, OECD head of tax Manal Corwin said.

“Canada was not in agreement with the standstill,” Corwin told journalists, citing the only country among the five holdouts with a digital services tax.

But even once governments sign the treaty, ratification will be no easy task, especially in the United States where a two-thirds majority in the Senate is needed.

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