The Global Tax Man Is Coming For You

Closer Multilateral Cooperation Between Tax Authorities

Tax authorities will share data and cooperate to a greater extent than ever before. This increased collaboration aims to eliminate potential loopholes.

For digital nomads and remote workers, this means working abroad is unlikely to exempt you from declaring income and paying taxes at home. Tax authorities will share information, making it harder to slip through the cracks.

Enabling Global Tax Enforcement

A key intention of the OECD’s rules is to combat tax evasion and profit shifting in the digital age. Internet-based businesses can easily move operations and assets between jurisdictions. This allows large corporations to base themselves wherever taxes are lowest.

However, the same factors that enable corporate tax avoidance also enable individuals to earn money online across borders. The OECD’s regulations dramatically widen the net of tax enforcement over economic activity on the internet.

This increased enforcement may bring in more total tax revenue. But it places a disproportionate burden on micro-businesses and contract workers versus multinational corporations.

Unilateral and Multilateral Taxation Powers

The OECD’s BEPS framework increases taxation powers in two key ways:

1. Unilateral powers – A country can tax a corporation’s profits in that country even if they don’t have a physical presence there. This targets firms that deliberately avoid establishing tax residency.
2. Multilateral powers – Groups of countries can coordinate to tax corporations in a unified way. This aims to prevent tax avoidance via loopholes between different jurisdictions.

These taxation powers will affect large digital companies like Facebook and Google. But their implementation opens the door to unprecedented multinational tax cooperation and enforcement that could extend far beyond these huge tech firms.

The Global Tax Man Is Coming For You

The OECD, headquartered in Paris, is increasingly acting as a global tax authority. The organization is made up of 38 member countries, so far dominated by advanced economies.

The BEPS project expands the OECD’s ability to influence tax policy worldwide. Countries are adopting its reporting standards and agreements on taxation rights. This allows uniform new rules to be rolled out globally.

The fact that even non-OECD countries like India, China, and Russia are implementing BEPS demonstrates its broad international reach.

In essence, we are witnessing the emergence of a global tax regime with the ability to track economic activity and enforce taxation across borders. An unprecedented multilateral collaboration between tax authorities is now in effect.

Unintended Consequences for Online Freelancers and Sellers

The OECD defends its tax transparency rules as targeting large corporations and wealthy tax evaders with complex offshore schemes. In reality, these new regulations create extensive data harvesting and reporting requirements affecting small online businesses and contractors:

• Platforms like Etsy and Upwork must report your sales and earnings data directly to tax agencies. This exposes income that previously went undeclared by some individuals.
• Tax authorities can easily share data on foreign accounts and assets, creating worldwide enforcement powers. This hinders using overseas accounts to shield income.
• Foreign digital nomads and online workers will find their home country can tax income earned abroad via data sharing between agencies. Gone are the days of working tax-free as a contractor while traveling outside your home jurisdiction.

While increased tax transparency is arguably a good thing, this unprecedented level of multilateral data gathering and monitoring seems likely to have negative unintended consequences for regular people simply trying to earn a living online.

Rather than exclusively targeting large corporations, these rules increase the tax compliance burden on micro-entrepreneurs, freelancers, sellers, and workers participating in the global digital economy.

By automatically harvesting and sharing huge amounts of financial data, the OECD risks overreach. If not adequately balanced against individual privacy and freedom, these emerging global tax enforcement powers could lead towards a dystopian system of mass financial surveillance.