The Organization for Economic Cooperation and Development recently published a proposal for new international rules on corporate taxation to keep pace with growing online cross-border business operations.

Existing international rules on corporate taxation were conceived roughly a century ago, mostly with manufacturing industries in mind. In principle, they hold companies taxable in the jurisdictions where they have permanent establishments, such as plants, headquarters or branch offices.

In a break from that principle, the latest proposal says companies should be taxed in the jurisdictions where they have users, even if they have no physical presence there.

The review is quite significant because it could mark a turning point in the corporate taxation system.

There is a pressing need to take action because questions have been raised about the moves of dot-com giants, collectively known as GAFA (Google, Apple, Facebook and Amazon). They are providing services across the globe through the Internet without having permanent establishments and are shifting profits to jurisdictions with low tax rates to reduce their tax burdens.

Individual countries, including France, sought to levy taxes on digital services on their own in accordance with their respective standards. But nations have made mutual concessions with an eye toward setting common rules.

Although the final details have yet to be worked out, the 134 countries and regions that are party to the discussions are hoping to reach an outline agreement next January and a final agreement by the end of next year.

The proposal says the new rules will cover businesses that engage globally in consumer-facing operations, such as sales of goods and the streaming of music, videos and ads.

The United States, which is home to GAFA’s head offices, remains opposed to taxation that would exclusively target dot-com giants. In making allowances for that, the new rules will be covering a broad range of global businesses that have high ratios of operating profits to sales.

A portion of the global gains of such businesses, up to a certain level, will be labeled “routine profits,” which will continue to be taxable in the countries where they have physical presence. The portion above and beyond that level will be deemed “nonroutine profits,” attributable to the brand value of the businesses and other factors, and part of that portion will be made taxable in different countries in accordance with the sales in their respective territories and other criteria.

Many questions remain. What threshold level will separate “routine” and “nonroutine” profits? How will sales by country be calculated in determining the allocation ratios? How, in the first place, will the targeted companies be defined?

All these essential points have yet to be settled.

An agreement would recede further into the distance if different nations were to insist on arguments that serve their own interests.

Given that Japan has been calling strongly for new international rules, Tokyo should persuade other governments in trying to find a middle ground.

Nations have also largely agreed on the need of a new rule to equalize the minimum levels of their effective corporate tax rates. They should cooperate to make progress toward an agreement on that front, with respect to what specifically those levels should be.

Public hearings and other occasions are scheduled to take place by the end of this year.

World experts should bring together ideas to design a mechanism that is both as plain as possible and perceived as fair.

In doing so, they should take account of the characteristics of digital technologies, which make progress from day to day.

--The Asahi Shimbun, Oct. 12