See More on Facebook

Business

New OECD tax rule for multinationals lacks clear definitions

OECD rules are lacking for corporations around the world.


Written by

Updated: November 12, 2019

A proposed system for taxing large multinationals, including global tech giants, unveiled by the Organization for Economic Cooperation and Development (OECD) last month has drawn mixed views on how it will impact Japanese companies.

While one viewpoint is that only a limited number of companies will be subject to the new tax, the Japanese economic community expects nearly 100 domestic companies to be affected.

The OECD plan is being considered because multinational enterprises, such as major digital companies that provide services across borders via the internet, are seeing rapid profit growth.

The new rule will allow governments to impose taxes on companies which do not have a physical presence within their borders, such as a branch office or factory. The OECD aims to reach a broad agreement in January 2020.

Reallocation of profits

Under the proposal, mainly companies that focus on “consumer-oriented” businesses will be covered. According to sources familiar with the matter, companies with global sales of more than €750 million (about ¥90 billion) and an operating profit margin of more than 10 percent will likely be targeted.

Profits exceeding 10 percent will be treated as excess profits generated from intangible assets such as intellectual property rights and brands, and a portion of the profits will be reallocated for taxation by each country.

To avoid possible criticism from the United States and others of unfairly targeting the tech giants, the new rule would cover multinational enterprises in a wide range of industries. As such, about 100 Japanese companies would fulfill the criteria, sources said.

From simple calculations based on fiscal 2018 financial statements, companies in the service or pharmaceutical industries — notably SoftBank Group Corp., Astellas Pharma Inc., Nintendo Co., Rakuten Inc., and Fast Retailing Co., which operates the fast fashion brand Uniqlo — are expected to be subject to the new tax.

Conversely, large manufacturers with low operating profit margins such as Toyota Motor Corp. and Hitachi Ltd. would be excluded.

Among the tech giants originally considered as the main targets of the new rule, Facebook Inc. and Apple Inc. — with operating profit margins of about 44 percent and 26 percent, respectively — are highly likely to be covered, while Amazon.com Inc. may be exempted because its profit margin is about 5 percent.

Vagueness of ‘consumer-oriented’ label

Within the OECD, some have suggested calculating profit margins by focusing only on consumer-oriented business.

However, it remains a fluid issue subject to future debate as to which companies will eventually be taxed. Although the proposal identifies some fields, such as the financial and mining industries, as being exempt, it does not clearly set criteria for “consumer-oriented business.”

The proposal does state that “online advertising” is included in such business. That could be because emphasis is placed on the fact that advertisements in the end are seen by consumers, even though tech giants gain advertising revenue from businesses.

Meanwhile, in the manufacturing sector, the viewpoint has been raised that it is necessary to determine whether auto parts makers are consumer-oriented businesses or not. Then there is the possibility of conflicts of interest as each country has its own specialty industries.

“It will be difficult to distinguish whether or not a business is consumer-oriented,” said Ernst & Young member firm EY Japan Tax Chairman Nobuhiro Tsunoda.

On Oct. 31, the Japan Business Federation (Keidanren) invited OECD officials for a conference with tax accountants and others from about 200 domestic companies for a briefing of the proposal.

At the meeting, Keidanren emphasized that the range of the new rules should be properly narrowed down, showing concern that the number of companies affected could be expanded.

From now, the OECD can be expected to be locked in intensifying tugs-of-war with each government, business groups and other concerned parties.



Enjoyed this story? Share it.


The Japan News
About the Author: The Japan News is published by The Yomiuri Shimbun, which boasts the largest circulation in the world.

Eastern Briefings

All you need to know about Asia


Our Eastern Briefings Newsletter presents curated stories from 22 Asian newspapers from South, Southeast and Northeast Asia.

Sign up and stay updated with the latest news.



By providing us with your email address, you agree to our Privacy Policy and Terms of Service.

View Today's Newsletter Here

Business

Japan: Koizumi offers no concrete plan on coal

The new environment minister needs to offer better ways to tackle climate change.  During a ministerial meeting of the U.N. climate summit in Madrid on Wednesday, Shinjiro Koizumi, the Environment Minister did not express concrete steps for reducing coal-fired thermal power generation. Environment Minister Shinjiro Koizumi did not express concrete steps for reducing coal-fired thermal power generation, for which construction of new plants is currently underway in Japan, during a ministerial meeting of the U.N. climate summit in Madrid on Wednesday. “I am afraid I cannot share new development on our coal policy today,” Koizumi said at the ongoing 25th Conference of the Parties to the U.N. Framework Convention on Climate


By The Japan News
December 13, 2019

Business

Power transition after Apec summit

Mahathir open to stepping down after APEC summit. Dr Mahathir Mohamad, the world’s oldest prime minister, has promised to hand over power to anointed successor Datuk Seri Anwar Ibrahim in spite of new sexual assault allegations against him. Dr Mahathir, 94, said he would not hand over before a summit of Asia-Pacific Economic Cooperation (Apec) countries that Malaysia is to host in November 2020, but could be ready after that. “I made a promise to hand over and I will, accepting that I thought that a change immediately before the Apec summit would be disruptive. “As far as I’m concerned, I’m stepping down and I’m handing the baton to him (Anwar). If people don’t want him, that is their business, but I will do my part of the promise… irrespective of whatever allegation. I made my promise, I keep my promise, ” he said in an interview w


By The Star
December 11, 2019

Business

India’s exit from 16-nation regional trade pact moves closer to reality

Japan intends to continue efforts to persuade India to remain in the RCEP. TOKYO (The Japan News/ANN) – The withdrawal of India from the negotiations for the Regional Comprehensive Economic Partnership free trade deal (RCEP) which have involved 16 countries including Japan, China, South Korea and members of the Association of Southeast Asian Nations (ASEAN), is seemingly coming closer to reality. Japan intends to continue efforts to persuade India to remain in the initial 16-country framework for the agreement of the regional trade talks. However, as there is still strong opposition to the RCEP within India, it remains to be seen whether the negotiations will go smoothly. At a press conference after a Cabinet meeting on Friday, Economy, Trade and


By The Japan News
December 9, 2019

Business

Huawei asks US court to overturn ban

The company is suing the FCC, the latest in a series of legal tussles. The legal battle between Huawei Technologies Co and United States government intensified on Thursday. The Chinese tech heavyweight announced a legal challenge to the US Federal Communications Commission, seeking to overturn the latter’s order that bans telecom carriers from buying the company’s equipment via federal subsidies. The move is the latest push by the world’s largest telecom equipment maker to pursue fair competition and treatment amid a slate of restrictions from Washington. Analysts said the FCC ban would have very limited impact on Huawei’s financial performance, but labeling the company as a national security threat would cause far-reaching reputational harm. In a petition filed in the US Court of Appeals for the Fifth Circuit on Thursday, Huawei asked the court to declare the FCC order un


By China Daily
December 6, 2019

Business

Chinese FM to visit India this month for boundary talks

The talks were to be held in September but had to be postponed as the two sides could not find a suitable date for the meeting. Chinese Foreign Minister Wang Yi is expected to visit India later this month to hold boundary talks with National Security Advisor Ajit Doval, sources said on Wednesday. Wang, who is also a State Councillor, and Doval are the designated Special Representatives (SRs) of the two countries for the boundary talks. The talks were to be held in September but had to be postponed as the two sides could not find a suitable date for the meeting. Besides holding boundary talks with the NSA, Wang, a trusted lieutenant of Chinese President Xi Jinping, will meet External Affairs Minister S Jaishankar. He will also call on Prime Minister Narendra Modi.


By The Statesman
December 5, 2019

Business

Najib to take the stand today

The former premier is accused of malfeasance. Today is the day that Malaysians will see, for the first in the country’s history, a former prime minister take the stand to answer charges against him in a court of law. Datuk Seri Najib Razak (pic), 66, will testify from the witness box as the first defence witness to rebut his seven charges of misappropriating RM42mil in SRC International Sdn Bhd funds before High Court Judge Mohd Nazlan Mohd Ghazali. According to his co-counsel Harvinderjit Singh, Najib will be called as the first witness on the opening day of the defence’s proceedings. Najib will be first questioned by his defence during examination-in-chief before being cross-examined by the prosecution. On Nov 11, Justice Mohd Nazlan ordered Najib to enter his defence on three counts of criminal breach of trust (CBT), three charges of money laundering and on


By The Star
December 3, 2019