When it comes to taxing tech giants, America is out, France is in, Canada and Indonesia are going their own way
- Reference: 1606897750
- News link: https://www.theregister.co.uk/2020/12/02/world_digital_tax/
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After decades of creative accounting, offshore tax havens and special government deals, the world seems to have decided that 2021 is the year Google, Facebook, Amazon, Twitter et al will have to cough up their fair share of taxes just like the rest of us.
Despite [1]years of negotiations between European Union members, G20 economies, OECD countries, and a number of other congregations of nations, however, there is still no consensus about how to do cross-border taxes for digital companies that largely exist outside of borders.
In October, the [2]OECD was [3]forced to abandon [PDF] its goal of new rules by the end of 2020 and push it back to July 2021 – in large part because the Trump administration refused to agree to anything before this year's presidential election was held. That sparked a flurry of diplomatic activity that has blown up this week with both France and the United States threatening one another, and Canada and Indonesia asserting they will simply go their own way: no more delays.
The France/US contretemps is the noisiest aspect of this global disagreement. In order to put pressure on talks, and bring in some cash, France [4]passed its own digital tax in 2018 – slapping a three per cent digital revenue levy on companies with sales of 25 million euros within French borders, and/or 750 million euros globally – and said it would start charging from January 2019.
Here comes Trump and his tariffs
That did not go down well in America, with US President Donald Trump immediately threatening trade tariffs. And in that first fight, Trump won, with French President Emmanuel Macron somewhat embarrassingly [5]forced to back down and say he would suspend the tax while negotiations continued.
But then Trump [6]announced tariffs anyway , promising a massive 25 per cent surcharge on 21 categories of three types of French product: cosmetics, soap, and handbags – worth, collectively, over $1bn in trade. The US president held off on adding French wine to the list however, after he was advised it would almost certainly result in a massive trade war. The tariffs won’t kick in until January 2021 – the same month Trump will now be [7]booted out the White House. And that has again changed the game.
France has said it intends to finally place its tax on Big Tech this month, and has sent out notices to Google and friends telling them they need to start paying. This week, French finance minister Bruno Le Maire [8]pressed that point. He warned that if the new US tariffs do come into effect in January, “we will immediately seek a riposte at the European level,” which sounds like the sort of thing only a French minister would ever say, yet its meaning was clear: a potential trade war.
It’s a high-stakes game, with the French clearly setting out to embarrass Donald Trump by making the most of his lame-duck status. But it is also an effort to put pressure on the incoming Biden administration, which has yet to say what it plans to do over global digital tax plans.
Big Tech’s Asian lobby says nations shouldn’t go it alone on tech taxes [9]READ MORE
Meanwhile, Indonesia has also seen an opportunity, and said that it will now start collecting a 10 per cent tax that it introduced in the middle of 2020. Previously it said that it would hold off collecting the levy until there was a global agreement. France has said pretty much the same thing: it will end its tax when global consensus is reached.
Going to collection
Indonesian finance minister Sri Mulyani Indrawati [10]told a press conference this week: “Of course we hope for a global taxation agreement… But it does not mean we cannot collect the taxes.”
And then, adding further to the pressure, the Canadians also jumped off the “wait until there is consensus,” boat and said they will impose a digital tax from 2022 that will stay until there is global consensus.
“Canadians want a tax system that is fair, where everyone pays their fair share,” finance minister Chrystia Freeland [11]told lawmakers in a speech. “Canada will act unilaterally, if necessary, to apply a tax on large multinational digital corporations, so they pay their fair share just like any other company operating in Canada.”
Taken all together, the message is very, very clear: now that bull-in-a-China-shop Trump is out, the rest of the world wants its money, and it isn’t going to be put off any longer.
The calculus, of course, is that President Joe Biden won’t be willing to resort to Trump’s tit-for-tat tariffs as a way of throwing his weight around. And by acting now, those countries don’t give Biden’s trade people an opportunity to find others ways to exert pressure until the money has started flowing.
Whether this approach will hold up once the new president is in power is unclear but it will be one more headache that Joe Biden will have on day one of entering the White House.
As for the UK: it [12]passed a digital tax (two per cent) this time last year that was supposed to come into force in April and, again, would only hold until there was global consensus. But, as with everyone else, no money has yet to change hands, and the UK is in a dangerously weak position given the financial risk of Brexit at the end of the year, coronavirus costs, and the need for a US trade deal.
Regardless, Google, Facebook, and pals had better start setting aside some cash starting now. ®
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[1] https://www.theregister.com/2018/12/03/eu_tech_tax_oecd/
[2] https://www.oecd.org/about/members-and-partners/
[3] https://www.oecd.org/tax/beps/cover-statement-by-the-oecd-g20-inclusive-framework-on-beps-on-the-reports-on-the-blueprints-of-pillar-one-and-pillar-two-october-2020.pdf
[4] https://www.theregister.com/2019/07/12/france_us_trade_war/
[5] https://www.theregister.com/2018/12/18/digital_sales_tax_france/
[6] https://www.theregister.com/2020/07/14/america_france_tariffs/
[7] https://www.theregister.com/2020/11/07/us_presidential_campaign/
[8] https://www.bloomberg.com/news/articles/2020-12-01/french-digital-tax-to-raise-around-480-million-from-tech-firms?srnd=markets-vp
[9] https://www.theregister.com/2020/10/14/asia_internet_coalition_tax_argument/
[10] https://www.reuters.com/article/indonesia-tax-digital/indonesia-considers-digital-tax-even-without-world-consensus-idUSL1N2IH0QU
[11] https://www.reuters.com/article/us-canada-budget-tax/canada-plans-digital-tax-in-2022-on-global-tech-giants-such-as-facebook-google-idUSKBN28A2ZM
[12] https://www.theregister.com/2018/11/12/uk_digital_sales_tax_consultation/
[13] https://whitepapers.theregister.com/
Re: With Covid emptying States' coffers, and those companies seeing increasing revenues....
trying to raise taxes on people and local companies already hit by the situation won't be wise.
Those are the people, who'll get hit anyway. If France decides to tax Amazon at 2%, who do you think will end up paying, Amazon customers or Amazon shareholders?
Re: With Covid emptying States' coffers, and those companies seeing increasing revenues....
If Amazon could get away with increasing its prices by 2%, it would do so anyway - they're not a charity.
Re: With Covid emptying States' coffers, and those companies seeing increasing revenues....
Well, that's going to depend. With every customer base, there is a breaking point where the customer goes, "That's Too Much!" and walks away. With both customers and shareholders, a company needs to be careful not to hit that point, and the question becomes, "How Much is Too Much?"
Re: With Covid emptying States' coffers, and those companies seeing increasing revenues....
"who do you think will end up paying, Amazon customers or Amazon shareholders?"
In the first case who do you think the customers will blame, Amazon or government?
In the second, how many Amazon shareholders vote in French elections?
Re: With Covid emptying States' coffers, and those companies seeing increasing revenues....
In the first case who do you think the customers will blame, Amazon or government?
Oh, when the order has:
Total xxx
VAT yyy
2% GAFA tax zzz
I think they'll know exactly who to blame.
"Meanwhile, Indonesia has also seen an opportunity, and said that it will now start collecting a 10 per cent tax that it introduced in the middle of 2020. Previously it said that it would hold off collecting the levy until there was a global agreement. France has said pretty much the same thing: it will end its tax when global consensus is reached."
Those two things are actually the opposite of each other, not similar.
"The calculus, of course, is that President Joe Biden won’t be willing to resort to Trump’s tit-for-tat tariffs as a way of throwing his weight around. "
Not unless someone starts investigating his son for corruption at least...
Global consensus might simply amount to everyone except the US.
Conceptually not bad but ...
While there's no international consensus and uniformity, this is not going to work as well as it might. The disparities of approach will still allow jurisdiction shifting by the canny accountants of the mega-corps. What's really needed is a uniform approach so there's nowhere it's advantageous to shift to, but that would need two things that are probably not achievable:
[1] All countries to implement the same rules
[2] All countries to agree to set the same rates
Unfortunately, as was found out in Ireland, national commercial advantage will always come first.
It's the same problem as faces cyber security. Hence the 2016 "US Commission on Enhancing National Cybersecurity (Presidential Executive Order 13718)". As a practicing cyber security professional I'm not at all sure how it can be "national" considering how interconnected all countries are.
The bottom line is that the economic prosperity of nations is to a certain extent inevitably a zero sum game played by countries against each other. The transnational behemoths, not surprisingly, take advantage of this.
Amazon just added an additional 2% fees to the 3rd party sellers in the UK that use Amazon to sell their goods, and so through the backdoor lots of small companies with turnovers ways lower than the threshold are now paying this 2% tax for Amazon. So once again its clear that Amazon will do whatever it takes to reduce their tax liability, as they know since the pandemic no amount of bad publicity it stopping people from using them
Not really.
If you levy a tax where shops can compete, then they may find they have to absorb some of the costs.
The location of the buyer is what matters. The idea is to level the playing field a bit between UK based sellers who already have to pay UK taxes and those logically in low earth orbit in the Amazon Cloud
I am sure it is too simplistic, but mandating a minimum tax bill as a percentage of turnover, not profit, in each jurisdiction would seem to reduce the ability to game the cost structure to make the 'profits' appear in a tax haven.
The logic would say that if you do business here, you pay tax here like anybody else, like any SME for instance. Closing the loopholes enabling multinational companies to do creative accounting could be more efficient than a dedicated tax, but it seems that the 'lobbying' (in other words 'corruption') made by these companies towards lawmakers forbids that option. It enables those megacorps to practice unfair competition to the detriment of small businesses, and their bosses to get richer and richer every year.
How does it work?
The problem as I see it is reflected in an order (that is running stupidly late!).
I order a thing from Amazon UK, it is fulfilled by Amazon Eu sarl, the "in stock" goods are "received" in Marseille (from where I don.t know, they were in stock). It is then dispatched from "Provence-Alpes-Côte d'Azur" (which I believe is also Marseilles) and sent somewhere ... It's currenlty in the aether ...
Who does the UK Government tax? Amazon UK obviously ... except Amazon UK made no profit out of the transaction (in fact it made a loss after paying Amazon Luxembourg it's seller IP and warehouse distribution royalties and purchase from Amazon EU). So Amazon UK pays no tax but France can obviously tax Amazon EU ... unless the goods were sourced from Amazon.br and Marseille is a WHO freeport and the goods are coming "into the country" via a WHO freeport in which case the tax will only be applied if the purchase actually crossed the border rather than being shunted around in the French dock ... But of course Amazon EU paid Amazon.someone for IP rights etc and didn't make a profit which means France can't get tax ... But if tax isn't being sought by France maybe the US will ... oh no because the funds never crossed the US border but are sitting in the Cayman Islands the US can't get their paws on it either ... here we go again.
If the Governments impose a 2% turnover tax (for instance) rather than trying to chase the tails of the profit then Amazon will run to the WHO and claim poverty and unfair treatment compared to other multinationals who do pay tax through their profits and, probably rightly so, the WHO will concur.
The tax system is a complete mess. The holes were baked in to allow tax avoidance by the super rich and it's now biting the arses of the politicians who always profited from the system who on the one hand don't want to close the loopholes but on the other hand want to be seen to get their fair share of tax money.
In the long run all this "we're going to tax" is crap and won't happen unless the companies decide to do a deal which suits *them* as they can use the tax avoidance system better than those who built it.
With Covid emptying States' coffers, and those companies seeing increasing revenues....
.... it's quite clear politicians can no longer allow them to shuffle money around until they disappear.
Fiscal revenues will decrease, and trying to raise taxes on people and local companies already hit by the situation won't be wise.