However, tensions are thought to have surfaced in the OECD working party after looking at how to address the permanent establishment rules in the light of the burgeoning Internet economy. This working party is being jointly led by US and French teams, representing the two extremes of opinion among G20 nations.
France has been among the most aggressive in responding to online businesses that target French customers, but pay little or no French taxes. Tax authorities have raided the Paris offices of a number of firms including Google, Microsoft and LinkedIn, challenging the companies’ tax structures.
In the case of Google, French tax officials in 2011 demanded 1.7 billion euros (US$2.2 billion) in back taxes. In February this year, Google settled the case, agreeing to paying 60 million euros to help France with digital innovation and other issues. French President Francois Hollande said it was “a model for effective partnership and is a pointer to the future in the global digital economy.”
In the UK, outcry at Internet companies routing British sales through other countries reached a peak in May after a string of investigations by journalists and politicians laid bare the kinds of tax structures used by the likes of Google and Amazon.
UK Public Accounts Committee Chair Margaret Hodge called Matt Brittin, Google’s boss for northern Europe, before parliament after amassing evidence on the group’s tax arrangements from several whistleblowers.
After hearing his answers, she told him: “You are a company that says you do no evil. And I think that you do do evil” — a reference to Google’s corporate motto: “Don’t be evil.”
Last month, British Exchequer Secretary to the Treasury David Gauke told backbench legislators who had called a short debate on multinationals and tax avoidance that the UK government did still hold out hope that shortcomings in international tax guidelines — specifically in what constitutes a business taxable in the UK under permanent establishment rules — would be addressed by the G20.
“We are leading the way in encouraging the OECD to look at what needs to be done to ensure that the tax rules are brought up to date for the internet world,” he said.
Writing in the Observer in May, Google chairman Eric Schmidt appeared to drop his previously unapologetic defense of existing international tax rules.
In the face of building public anger, he conceded that rather than taking up tax incentives offered by governments, his firm and others had built tax structures that had not been foreseen by those who drafted the rules decades ago before the advent of the Internet.
“Given the intensity of the debate, not just in the UK but also in America and elsewhere, international tax law could almost certainly benefit from reform,” he wrote. Schmidt described the presentation of this week’s OECD action plan as “hotly awaited.”