Amazon and Google are scrutinized as nations weigh tax revision

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Amazon and Google are scrutinized as nations weigh tax revision

Big tech companies like Facebook and Google are among the richest companies in the world – all the more so since a pandemic has kept consumers away from brick-and-mortar retail. However, the same companies often pay little or no taxes in places they rely on for much of their profits.

As governments around the world look for ways to pay for their growing costs, some are tapping into a new brand of revenue: taxes on digital services. These levies are aimed directly at the core activities of the big tech companies.

Why we wrote that

Big tech firms have already come under fire for not paying taxes where they make their income. Then came record profits in the pandemic. Now there could be a growing impetus to redefine tax justice for the digital age.

Spain, France, and the US state of Maryland are among the places to try. However, financial experts say that more effective solutions can be found by building international bridges.

The United States recently joined a 139-nation initiative to eliminate taxes on digital services. The aim is to create a system that redistributes corporate tax law across nations while also agreeing a global corporate tax rate.

The law professor at Georgetown University, Lilian Faulhaber, is confident that the approach can meet the reform requirements. She says: “In our truly networked world, as a country you can’t really fix anything yourself.”

On February 12, Maryland passed a digital advertising tax aimed specifically at big tech companies, the first of its kind in the United States. That tax hit a particularly delicate point in a year when technology companies were making record profits while much of the world suffered profound losses.

“At a time when COVID-19 is affecting Maryland’s budget in unforeseen and astronomical ways, Maryland families and businesses can pay the bill or Big Tech can begin paying their fair share,” wrote the chief champion of the new tax. Democratic Senator Bill Ferguson on his Facebook page.

Last year, companies like Apple, Facebook, Google and Amazon were seen as the “winners” of a pandemic that changed much of online life – and put a strain on national budgets. This adds up to longstanding complaints that these hugely successful companies are failing to pay their fair share of corporate taxes. Hence a growing question: should profitable tech companies do more to the common good?

Why we wrote that

Big tech firms have already come under fire for not paying taxes where they make their income. Then came record profits in the pandemic. Now there could be a growing impetus to redefine tax justice for the digital age.

The new Maryland tax is contributing to dozens of lawmakers around the world who have taken or proposed similar initiatives – and the list is growing. “Taxes on digital services” are popular. They are bringing in much-needed revenue and appear to be holding the tech giants accountable. However, financial experts argue that independent taxation by states or nations is an imperfect and perhaps even harmful approach. International cooperation can offer a more sustainable and effective solution.

What is digital taxation and why is it important?

E-commerce taxes come in many shapes and sizes. However, the most common is the digital services tax, which is a tax on gross income from selected activities. Taxes typically range from 1% to 10% and are targeted at companies that exceed a certain revenue threshold – that is, big tech. That explains why the tax is called la tasa Google in Spain. In France, the version of le taxe GAFA is offered and refers to Google, Amazon, Facebook and Apple.

Proponents argue that taxes allow countries to claim their fair share of revenue for activities that take place within a country’s borders. Traditionally, multinational corporations pay taxes where a business is located, not where customers live. But digital companies make sales worldwide. For example, someone in France can create original content and post it on Facebook or write a review on Amazon to add to a company’s sales. From a French point of view, this revenue should be a fair game for taxation.

The tax benefits are tangible for the general public. For example, Maryland has donated the $ 250 million it will raise to public schools.

However, critics see several economic disadvantages: overlapping taxes for multinational corporations, and price increases for consumers and small businesses – Big Tech customers who ultimately have the tax cost passed on to them. “This is a rather distorting tax,” says economist Thomas Tørsløv from the Danish think tank Kraka. “It’s not a very good way of generating income.”

Taxes also fuel international antagonism. Last year, the US viewed digital service taxes as discriminatory against American businesses and threatened retaliation against countries that enact them.

Does the challenge require a multilateral solution?

International dialogue and coordination is exactly what is needed, say some financial experts. They say current tax systems are still rooted in a stationary view of the world economy and do not have a good grasp of where income is being made in the digital age.

“The business models of large multinational companies are very different from those of the tax system,” says Lilian Faulhaber, law professor at Georgetown University.

Companies are capitalizing on the inconsistencies by finding creative ways to shift profits overseas and reduce their domestic tax burden, says Dr. Tørsløv. This is one of the reasons why taxes on digital services, which he sees primarily as a political signal to frustrated voters, are popular. They seem to be addressing concerns that companies are not paying their fair share. “This digital service tax is a very concrete way of saying,” I actually taxed Google, I actually taxed Facebook, “he says.

Dr. However, Tørsløv says that international cooperation, rather than restricting digital taxes, “is probably the only way to solve the fundamental problem of avoiding corporate taxes”.

What’s next?

Professor Faulhaber and other experts warn that taxes on digital services could even lead to a trade war without a major reform of the international system.

It may seem that every new digital tax worldwide is evidence of increasing fragmentation and antagonism – every country is looking for itself to get the revenue it wants. But the digital tax trend is also evidence of common concerns that require common solutions.

The Organization for Economic Co-operation and Development (OECD) is working with 139 countries on a two-part plan to eliminate taxes on digital services.

Pillar One would reallocate tax laws by making tax laws less dependent on physical presence – an important issue that needs to be addressed given the digital nature of the economy. “Pillar Two” consists of a global minimum corporate income tax to make tax evasion more difficult for large companies.

Some countries only want the former, others only the latter, but it was clear to the OECD that the final agreement would encompass both parts – a promising strategy, says Professor Faulhaber.

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On April 5, US Treasury Secretary Janet Yellen declared her support for a minimum global corporate tax rate. While her predecessor pulled the US out of talks last summer, its commitment to international negotiations sparked optimism that the OECD could reach an agreement by July this year.

“In our truly networked world, as a country, you can’t really repair anything yourself,” says Professor Faulhaber. She hopes that a coordinated international approach can address universal reform needs. “We will not return to the status quo.”