G20 plans digital tax on tech giants

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Last year Amazon made a profit of US$11.2 billion, it had to pay $0 as federal corporation tax. Similarly, the other tech giant Google saved itself more than $3.7 billion by shifting its billing and money between Ireland, the Netherlands and Bermuda. And, the secretive Apple is reported to have moved two of its subsidiaries from Ireland to Jersey after pressure from the European Union (EU) compelled Ireland to close some of its tax loopholes.

These are just some of the whooping profits that tech companies and other multinationals make by gaming the tax system in various countries. But all that could change if the EU, the G20 and other finance monitoring entities have their way and launch digital taxes on tech firms and other tax dodgers in the years to come.

The amount of tax being paid by the world’s biggest tech firms has long been a source of frustration for both the countries where they’re headquartered, and those where their end customers are based.

The annual meeting of the G20 this year will reportedly push ahead with plans to close international loopholes used by tech giants to lower their tax bills. A draft communique, obtained by media ahead of theG20 meeting at the end of June in Osaka, Japan, notes that the group will endorse the ‘ambitious’ two-pillar approach to a so-called digital tax, and that it will “redouble efforts for a consensus-based solution with a final report by 2020.”

The first of these two pillars is that countries are expected to tax companies based on where their goods and services are sold rather than where the company is based. The second is that they will enforce a global minimum tax rate so that even if a company shifts its sales to a country with lower taxes the benefits will be limited.

Though there is still a long way to go before a consensus can be reached on these regulations, it is laudatory that the G20 is finally putting teeth to what it had been grumbling about in the background for sometime.

Countries in the G20 group still remain divided on the digital tax. The US is concerned that any digital tax could discriminate against its home-grown tech firms, while members of the G7 reportedly disagree on the legislation’s second pillar. The plans will also need to define what a digital business is, and the problem of who has final say over a company’s taxes when it straddles multiple countries.

Earlier, plans by the EU to introduce a digital tax were thwarted by opposition from Ireland and Nordic countries. Separately, the UK has introduced its own plans for a ‘digital services tax’ due to be implemented in April 2020.