The international debate on how the country should tax large US technology companies such as Google, Amazon and Facebook is heating up, which poses a challenge to President Joe Biden’s new administration.
The upcoming mid-year deadline is about negotiations on a global agreement to resolve trade disputes with France and other countries. France and other countries are levying separate digital taxes, which the United States considers discriminatory.
France imposes a 3% tax on the digital income of large technology companies, which actually selects American technology giants. The French government has stated that it will withdraw taxes to support an international solution negotiated by the Organization for Economic Cooperation and Development (Organization for Economic Cooperation and Development). The organization is located in Paris and is an international organization composed of 37 advanced economies.
Experts and officials say time is getting shorter and shorter. Manal Corwin, the head of tax at professional services company KPMG and a former Treasury official in the Obama administration, said that the number of digital taxes outside the OECD process has multiplied and “may trigger a trade war. “
US trade officials called unilateral digital taxes unfair and threatened to retaliate against French goods, but delayed sanctions.
Finance officials from more than 130 countries/regions held an online meeting on Wednesday to resume negotiations on how to best ensure that multinational companies avoid tax avoidance by transferring their activities and profits between countries. A key issue is how to properly tax companies such as technology companies, which may not have branches in a country, but where they use online advertising, user data sales, search engines or social media platforms.
The talks are about how to allocate a portion of the company’s revenue to the country that uses the service so that the government there can benefit from the tax. The two-day meeting was designed to assess the development of things, and there was no final decision.
OECD Secretary-General Angel Gurria said in his opening speech that it is crucial to reach an agreement before mid-2021.
Gurria said: “The importance of reaching an agreement is increasing.” More than 40 countries are considering or planning unilateral digital taxes. If these digital retaliations are implemented, we will turn the retaliatory tax burden into trade. Tensions, maybe a trade war… when we need the opposite,” he said.
The coronavirus pandemic has only taken a sharper position on the issue of digital taxation. The pandemic has accelerated digitization through remote work and contactless activities, and in some cases has brought considerable profits to digital companies. At the same time, the government budget has decreased due to increased expenditures.
KPMG’s Corwin said: “Many countries said, “We ask the OECD to reach an agreement.” But out of the desire to collect these taxes and fiscal requirements, politics is combined with the financial pandemic. The consequences are increasing the pressure on the government to take action.”
She said that most participants want international agreements, not unilateral measures that are out of control, “but political and financial needs have caused the inability to wait longer than June.”
No agreement was reached in several key areas. An open question is, as digital technology is spreading throughout the economy, should technology companies be singled out? Under pressure from the United States, the scope of negotiations was expanded to include other types of consumer-oriented businesses, such as multinational brands, which can also make cross-border profits.
Barbara Angus, head of global tax policy at professional services company EY, said that the question of whom the new digital tax applies to is the “biggest political issue” in the talks.
She said: “If other consumer-oriented businesses are introduced, the U.S. as a large market will receive taxes from some foreign consumer-oriented businesses that serve the U.S. market, and may lose some of the digital businesses headquartered in the United States Taxation rights.” said.
Karan Bhatia, Google’s vice president of government affairs and public policy, said in a blog that the need to update the international tax system “is not limited to technology. Almost all multinational companies use data, computers, and Internet connections. To power its products and services.”
Bhatia said that Google “strongly supports” the work of the OECD and opposes “discriminatory unilateral taxes.”
Facebook’s Mark Zuckerberg said the company hopes that the OECD process will succeed, “so that we have a stable and reliable system.” Amazon said in a statement, “We will continue to firmly support and contribute to the Contribute to the work of the OECD” and called for a broad international agreement to limit “distorting unilateral measures”.
In addition, the OECD negotiations are also aimed at determining that multinational companies pay at least the minimum tax. This part of the negotiation does not appear to be controversial.
According to OECD estimates, the digital tax may transfer up to 100 billion U.S. dollars (about 731.2 billion rupees) of profit rights to market countries, resulting in a moderate increase in tax revenue. In summary, the digital tax and the global minimum tax can increase global tax revenue by 60 billion U.S. dollars (about 43.870 billion rupees) to 100 billion U.S. dollars (about 73.212 billion rupees), an increase of 4%. Both are part of ongoing international efforts to reduce the incentives of large companies to transfer profits to low-tax countries.
The new US Treasury Secretary Janet Yellen (Janet Yellen) was asked at the Senate confirmation hearing that the meeting did not reveal detailed positions on key undecided issues. She said the Biden administration has “committed to multilateral efforts” through the OECD and “stopped the race to reach the lowest level of corporate taxation.”