It’s time for a new international tax deal
Finance ministers from the world’s largest economies recently came together and agreed on the need for the most significant reforms to the global tax system in a century. That’s great news.
We support the movement toward a new comprehensive, international framework for how multinational companies are taxed. Corporate income tax is an important way companies contribute to the countries and communities where they do business, and we would like to see a tax environment that people find reasonable and appropriate.
While some have raised concerns about where Google pays taxes, Google’s overall global tax rate has been over 23 percent for the past 10 years, in line with the 23.7 percent average statutory rate across the member countries of the Organization for Economic Co-operation and Development (OECD). Most of these taxes are due in the United States, where our business originated, and where most of our products and services are developed. The rest we paid in the roughly fifty countries around the world where we have offices helping to sell our services.
We’re not alone in paying most of our corporate income tax in our home country. That allocation reflects long-standing rules about how corporate profits should be split among various countries. American companies pay most of their corporate taxes in the United States—just as German, British, French and Japanese firms pay most of their corporate taxes in their home countries.
For over a century, the international community has developed treaties to tax foreign firms in a coordinated way. This framework has always attributed more profits to the countries where products and services are produced, rather than where they are consumed. But it’s time for the system to evolve, ensuring a better distribution of tax income.
The United States, Germany, and other countries have put forward new proposals for modernizing tax rules, with more taxes paid in countries where products and services are consumed. We hope governments can develop a consensus around a new framework for fair taxation, giving companies operating around the world clear rules that promote a sensible business investment.
The need for modernization isn’t limited to the technology sector. Both the OECD and a group of EU experts have concluded that the wider economy is “digitizing,” creating a need for broad-based reform of current rules. Almost all multinational companies use data, computers, and internet connectivity to power their products and services. And many are seeking ways to integrate these technologies, creating “smart” appliances, cars, factories, homes and hospitals.
But even as this multilateral process is advancing, some countries are considering going it alone, imposing new taxes on foreign companies. Without a new, comprehensive and multilateral agreement, countries might simply impose discriminatory unilateral taxes on foreign firms in various sectors. Indeed, we already see such problems in some of the specific proposals that have been put forward.
That kind of race to the bottom would create new barriers to trade, slow cross-border investment, and hamper economic growth. We’re already seeing this in a handful of countries proposing new taxes on all kinds of goods—from software to consumer products—that involve intellectual property. Specialized taxes on a handful of U.S. technology companies would do little more than claim taxes that are currently owed in the U.S., heightening trade tensions. But if governments work together, more taxes can be paid where products and services are consumed, in a coordinated and mutually acceptable way. This give-and-take is needed to ensure a better, more balanced global tax system.
We believe this approach will restore confidence in the international tax system and promote more cross-border trade and investment. We strongly support the OECD’s work to end the current uncertainty and develop new tax principles. We call on governments and companies to work together to accelerate this reform and forge a new, lasting, and global agreement.