JAKARTA (TheInsiderStories)– The Group of 20 (G20) minister of finance aimed to collect taxes from giant tech companies like Google and Facebook, according to a draft of a joint statement released on Saturday (06/8). Finance ministers from the world’s largest economies said they aimed to agree on new rules by 2020.
The proposals will lead to higher tax bills for some of the world’s most valuable companies and transform the basic tenets of international tax for a world where economic value comes from flows of ideas and data rather than physical goods.
Some countries assessed that large technology companies have imposed taxes because they cut their tax bills by posting profits in low tax countries, regardless of the location of the final customer.
On the other hand, the agreement is detrimental to countries that impose very low corporate tax rates such as Ireland, as part of their effort to attract foreign investors. Ireland and similar countries are forced to comply with this agreement and will impose the rule in their countries.
“We welcome the recent progress in overcoming the tax challenges arising from digitalization and supporting ambitious programs consisting of a two-pillar approach,” said the draft communique. “We will double our efforts for consensus-based solutions with the final report in 2020.”
Countries that propose the most vocal proposals such as Britain and France to tax large technology companies that focus on making it more difficult to shift profits to low tax jurisdictions, and to introduce minimum corporate taxes.
“We have a new economic model based on digital activity and are based on massive sales and exchanges and data usage,” said Bruno Le Maire, France’s finance minister. “For now there is no fair tax for this new economic model.”
Digital companies provide their services across borders and can often choose to book sales in a low-tax jurisdiction. Countries may have no way to tax profits from internet advertising, for example, even if the adverts are bought by their citizens and shown to their citizens.
Britain and France are both bringing in digital services taxes based on the local sales of search engines and digital marketplaces. Because they target sales and not profits, however, there is a risk of double taxation.
“The US has significant concerns with the two current taxes that are being proposed by France and the UK,” said Steven Mnuchin, the US Treasury secretary. He said the European taxes had “created an urgency for us to deal with this issue”.
Le Maire and Philip Hammond, the Britain chancellor, both vowed to scrap their digital taxes as soon as there was an agreed G20 approach.
The G-20 debate on changing the tax code focuses on two pillars that can be a double blow for some companies. The first pillar is to divide the right to impose a tax on companies where goods or services are sold even though they do not have a physical presence in the country.
If the company can still find a way to record profits in low taxes or shelter abroad, the country can then implement the global minimum tax rate that will be agreed under the second pillar.
The road to the final agreement is still full of difficulties due to disagreements on the general definition of digital business and about how to distribute tax authorities among various countries.
Despite disputes over the form and scope of the new tax rules, the G20 ministers signaled there was no alternative to reform. “It sounds like we have a strong consensus,” said Mnuchin. “So now we need to just take the consensus . . . [and] turn this into an agreement.”
Following their discussion on the global economy, the G20 ministers declared that “trade and geopolitical tensions have intensified”, while growth is low and “risks remain tilted to the downside”.
With the US and China locked in a trade war, persuading them to agree on a communiqué is a positive sign ahead of the G20 leaders’ summit in Osaka at the end of the month. However, the finance ministers offered no new policy pledges to reduce trade tensions or tackle risks to the economic outlook.
Written by Willy Matrona, Email: Kehicapflores16@gmail.com