GOOG Alphabet Inc

By Sam Schechner 

PARIS--Global tech firms such as Amazon.com Inc. are already preparing for new tax rules that could force them to pay corporate taxes in more countries where they operate, but are also girding for what some say will be more fights with--and between--national tax authorities.

The Organization for Economic Cooperation and Development on Monday announced a series of recommendations aimed at stopping big multinational companies in many industries from avoiding paying billions of dollars in taxes every year through baroque structures which are legal, but which have come under increasing political pressure, particularly in Europe.

Some of the world's biggest tech firms, including Apple Inc., Facebook Inc. and Google, whose corporate parent is now called Alphabet Inc., have come in for special scrutiny because they generate massive revenue in many European countries but pay relatively little income tax in them. The new rules could encourage firms to adopt new tax structures that rely less on some offshore tax havens, while declaring more income in countries such as France, Germany and the U.K.

"We're seeing the beginning of the end of structures that are deemed artificial," one tech executive said, adding that internal discussions about new structures are under way. "There is a known timetable and you have to look at lots of different options about how to do it."

Google, Apple, Facebook and Amazon didn't immediately have any comment on Monday, but have all said in the past they pay the tax they owe.

While tech firms have lobbied hard to push back new rules that would have targeted them specifically, many of the broader recommendations will have an impact on taxation in the digital economy.

At particular issue for companies in the tech space are recommendations for a legal concept called permanent establishment. Under tax treaties, the profits of a foreign company are usually only taxable in a country if it has a permanent establishment there.

The concept has helped shape corporate structures across Europe. Many tech firms, such as Google, maintain a single headquarters in a tax advantaged country where they collect all their revenue from external clients. The firms don't declare external revenue in other countries because they claim various exceptions to the permanent establishment definition under current tax treaties. It is exactly that kind of structure that has led to a fight between Google and France.

The OECD says Monday's recommendations will tighten the rules to avoid what OECD officials have described as abuse of the system. Several tech executives say, however, that the new rules may be implemented differently by countries and companies, leading to new disputes between countries over how to allocate revenue, and new legal wrangling between companies and tax authorities over how much to pay whom.

"The new language will create new debates," said a tech official. "Room for interpretation is the worst possible world."

Earlier this year, the U.K. implemented what it calls a diverted profit tax, in anticipation of the new OECD recommendations. Proponents say it is in line with where the OECD was heading, but an OECD official warned at the time that the U.K.'s approach could undermine its multilateral plan.

Amazon, which is facing a tax inquiry at the European Union, has started collecting revenue from customers in several European countries, including the U.K., Germany and France, rather than funneling all of its sales through low-tax Luxembourg.

But it is unclear how much more--if any--taxes Amazon will pay under the plan because it also attributes costs, such as the wholesale purchase of books, to individual countries as well, according to a person familiar with Amazon's vendor contracts. That could largely offset the new revenue, given Amazon's razor-thin margins.

Write to Sam Schechner at sam.schechner@wsj.com

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(END) Dow Jones Newswires

October 05, 2015 08:16 ET (12:16 GMT)

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