Global tax deal may be ‘at risk’

A landmark agreement designed to ensure multinational companies pay their fair share of tax could fall through, Revenue Minister David Parker has told MPs.

The Organisation for Economic Co-operation and Development appeared to achieve a breakthrough last year when 136 countries, accounting for 90% of the world’s economy, agreed to its plan that would require multinationals pay a minimum rate of tax and for the very largest to spread their tax more widely around the world.

But OECD secretary-general Mathias Cormann announced last month there had been delays negotiating the details of the second element of the plan, know as ‘‘pillar one’’, and it did not expect that to be implemented until 2024, a year later than first envisaged.

Parker told Parliament’s finance and expenditure committee on Wednesday that the entire international tax reform package could be at risk.

Negotiations on pillar one had not proceeded as quickly as hoped, he said. ‘‘It hasn’t been landed yet and that poses some risks as to whether it is ever achieved internationally. If you can’t land that, you might not be able to land pillar two.’’ Parker said last year New Zealand stood to benefit from the agreement. The Government had been consulting on unilaterally imposing its own ‘‘digital services tax’’ on the revenues of internet, social media and ‘‘gig economy’’ giants before the multilateral approach was agreed.

Pillar one is the more significant and less controversial element of the tax deal, and had been strongly supported by the United States. It would allow countries where large multinationals are based – often the US – to top up the tax they claim for themselves if a multinational was paying less than 15% in any country in which it operated.

That rule would effectively prevent multinationals from benefiting from tax havens and was expected to result in them paying an additional US$150 billion (NZ$240b) of tax each year, globally. The pillar two rule, which some European Union and developing countries insisted on as a condition of a deal, would let countries claim a share of any excess global profits earned by the world’s very largest multinationals, even where they only exported products or services to that country and would not normally be subject to local taxation.

That rule was expected to redistribute about US$100b in tax revenue, including to smaller countries such as New Zealand.

The announcement of the OECD deal last year appeared to put a full-stop to a decade-long debate in New Zealand over the tax paid locally by business giants such as Google, Apple, Facebook and Microsoft.