The debate about how to tax Big is heating up Tech – Finance and trade

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News Highlights: The debate about how to tax Big is heating up Tech – Finance and trade

FRANKFURT, Germany – An international debate about how major US tech companies such as Google, Amazon and Facebook heats up, challenging President Joe Biden’s new administration.

By mid-year, a deadline looms for talks on a global deal to defuse trade disputes with France and other countries that impose idiosyncratic digital taxes that the United States sees as discriminatory.

France imposes a 3% tax on digital revenues for major technology companies, basically differentiating the US technology giants. The French government has said it would withdraw the tax in favor of an international solution negotiated under the auspices of the Organization for Economic Co-operation and Development, a Paris-based international organization of 37 advanced economies.

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Experts and officials say time is running out. Manal Corwin, tax director at professional services company KPMG and former Treasury Department official in the Obama administration, said digital taxes that multiply outside the OECD process “threaten to spark a trade war.”

US trade officials have called unilateral digital taxes unfair and threatened trade retaliation against French goods, but have delayed sanctions.

Funding officials from more than 130 countries met online on Wednesday to resume negotiations on how best to ensure multinational corporations do not avoid taxation by shifting their operations and profits between countries. An important question is how companies, such as technology companies, that may not have a presence in a country but still do substantial digital business there in the form of online advertising, the sale of user data, search engines or social media platforms.

The talks are about how some of a company’s income can be allocated to the country where its services are used so that the government can benefit from the taxes there. The two-day meeting is designed to assess what matters are and no final decision is expected.

OECD Secretary-General Angel Gurria said in an opening speech that reaching an agreement in mid-2021 is crucial.

“The importance of reaching an agreement is growing every day,” said Gurria. More than 40 countries are considering or planning unilateral digital taxes, and if they impose them, “there will be this retaliation, we will turn a tax strain into a trade tension, maybe a trade war … when we need the opposite,” he said . .

The coronavirus pandemic has only sharpened the issue of digital taxation. The pandemic has accelerated digitization through remote working and contactless activities, and in some cases has led to strong profits for digital businesses; Meanwhile, government budgets are under pressure from additional spending and less tax revenues.

Corwin of KMPG said, “Many countries have said,” We are waiting for the OECD to come to an agreement, “but the combination of the politics of wanting to impose these taxes, as well as the fiscal demands of the financial consequences of the pandemic, is increasing pressure on governments to act. “

Most participants want an international agreement rather than runaway unilateral measures, she said, “but the politics and tax demands mean that it is not possible to wait much longer than in June.”

There is disagreement in a number of important areas. An open question is whether technology companies should be singled out as digital technologies spread throughout the economy. Under pressure from the US, talks expanded to potentially other types of consumer-oriented companies that also make profits across borders, such as luxury brands.

Barbara Angus, global leader in tax policy for professional services company EY, said the question of who the new digital tax applies to is “the biggest political problem to be resolved” during the discussions.

“If you bring in other consumer-facing companies, the US as a major market would receive tax revenue from some of those foreign consumer-facing companies serving the US market, while potentially losing some tax rights on digital companies headquartered in the US,” she said.

Karan Bhatia, Google’s vice president for government affairs and public policy, said in a blog post that the need to update the international tax system “is not limited to the technology sector. Almost all multinational companies use data, computers, and Internet connectivity to support their products and services. power. “

Bhatia said Google “strongly supported” the work of the OECD and opposed “discriminatory unilateral taxes.”

FacebookMark Zuckerberg has said the company wants the OECD process to succeed “so that we have a stable and reliable system in the future.” Amazon said in a statement that “we continue to strongly and consistently support and contribute to the work of the OECD” and called for a comprehensive international agreement that would limit “disruptive unilateral measures.”

Apart from this, the OECD discussions also aim to establish that multinationals pay at least a minimum amount in tax. That part of the talks seems less controversial.

The digital tax could transfer tax rights up to $ 100 billion on profits to market countries, according to OECD estimates, leading to a modest increase in tax revenues. Taken together, the digital tax and the global minimum tax could increase global tax revenues by $ 60 billion – $ 100 billion, or an increase of 4%. Both are part of ongoing international efforts to reduce incentives for large companies to shift profits to low-tax countries.

New Treasury Secretary Janet Yellen, who was asked about the discussions during her Senate confirmation hearings, did not take a detailed position on the major undecided issues. She said the Biden government through the OECD is “committed to the multilateral effort” and “wants to stop the race to the bottom on corporate taxation.”

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