Japan Press Weekly

Tweet

2020 February 5 - 10 [ECONOMY]

International rules on digital tax necessary to have tech giants pay their fair share of tax

Akahata editorial (excerpts)

International discussions on how to levy taxes on the huge profits of tech giants and other multinationals is approaching a milestone. On January 31, 137 countries and regions, including Japan, broadly agreed on new taxation rules proposed by the Organization for Economic Cooperation and Development (OECD). They seek to reach a final agreement by the end of this year, but the United States, where many IT giants are based, is trying to water down the proposed rules. It is necessary to establish an effective international taxation system.

The current taxation rules cannot cope with the rapid advance of the globalization and digitization of economies. Many multinationals evade paying taxes by shifting their profits to their subsidiaries in tax havens—countries or regions where corporate tax rates are very low. The four mammoth IT corporations known as “GAFA”—Google, Apple, Facebook, and Amazon—have made profits in many countries all across the globe, but paid no tax to the countries by insisting that they do not have permanent facilities there.

Tax evasion by multinational corporations damages governments’ financial resources to implement measures essential to people’s daily lives, such as social welfare programs, which leads to higher financial burdens for citizens. The urgent need now is to close tax loopholes and create fair international taxation rules.

Under the OECD-proposed rules, a multinational and its overseas subsidiaries are regarded as one group and the group’s profits above a certain level will be distributed to countries in accordance with its sales there, including the countries where it has no permanent facilities. The government of each country will use its own corporate tax rate to tax the distributed profit. The new rules will set a minimum corporate tax rate. Not just tech firms but also consumer business (BtoC) companies will be subject to the rules.

The OECD-drafted rules have yet to be finalized, but the U.K., France, and some other countries already started considering their own digital taxation system. The international trend is toward tax rules which require multinationals to pay their fair share of taxes.

Past related articles:
> OECD seeks to tighten taxation rules on IT giants [October 9, 2019]