An effort launched by the European Union (EU) three years ago to create an international tax regime for digital multinationals is expected to bear fruit at the G20 Finance Ministers and Central Bank Governors meeting next month.
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Negotiations for international levies referred to as the "digital tax" have been a major topic at finance ministries and treasury departments since the EU began work on its own version of a "digital tax" in 2018.
A "digital tax" is designed to make it more difficult for multinational technology companies like Google, Facebook, and Apple to save on their tax bill by recording profits in countries with low tax rates.
The issue has since been taken up by the Organization for Economic Co-operation and Development (OECD), an intergovernmental economic organization, and the G20, a forum of the world's 20 major economies.
The digital tax is "important as a way to level the playing field between countries," said Carsten Brzeski, chief economist with the Netherlands-based investment bank ING in Germany. "But the problem has always been in the details, in the specific ways such a regime would work."
These details include deciding on the actual tax rate that will be applied, enforcement mechanisms, and the creation of an oversight institution. Though the EU has not abandoned its own plans for a digital tax that would be applied across the 27-nation bloc, Brzeski said it has stepped back for the moment to see what will emerge from the negotiations within the OECD and the G20.
Media reports quote Daniele Franco, Italy's Minister of Economy and Finance, as expecting an "agreement in principle" from the upcoming G20 meeting. Italy holds the rotating presidency of the G20 this year.
Angel Gurria, former head of the OECD, made similar statements last week, saying support for the idea from the United States, which had recently opposed a global digital tax, has made a big difference.
According to Tommaso Di Tanno, a tax law professor at Bocconi University in Milan, the G20 is important because it can produce a political declaration of support for the idea of a digital tax though the details will most likely be hammered out within the OECD.
In basic terms, such an initiative would set up a minimum corporate tax -- the current proposals are for a rate of either 15 or 21 percent -- that would be applied across the board. If a company chooses to register its profits in a country with a lower rate, the difference would still be paid where that company is based.
"Since the overall tax rate would be the same under the new rules, it would discourage the practice of registering profits in specific countries just because they have low tax rates," Di Tanno said.