The G20 Takes on Big Tech

Photo by Macu ic on Unsplash

A group of 20 finance ministers that represent an international forum for the government and central banks of 19 different countries and the European Union, termed the G20, gathered in Japan to discuss the future of taxation for multinational corporations.

These 20 finance ministers agreed to compile a common set of rules to close loopholes that are exploited by global tech giants to reduce corporate taxes. The agreement is set to complete the list of rules by 2020. The new regulations will mean higher tax burdens for large multinational firms, while also making it harder for countries such as Ireland to attract foreign direct investment with promises of lower corporate tax rates.

These efforts are seen as an effort to stem a “race to the bottom” for lowest corporate tax rates in which no country wins. While the United States is the land of the tech giants founding and operation, much of their profits are reported overseas. Regardless of this, the United States has expressed concern that these internet companies are being unfairly targeted in a broad push to update global corporate tax code.

The United States has made an effort to recapture some of these funds through lowering the corporate tax rate. Europe on the other hand, has been skeptical of the tech titans and the good they do for the country both socially and financially. As such, the European Union has erected higher regulations and taken Google, Amazon, and Facebook to court.

Closing Session G20 2019. G20 photo archive

The EU Commissioner for Economic and Financial Affairs, Pierre Moscovici, released an op-ed that relates the frustration of EU member states about the harsh reality of tax evasion by global tech giants.

In the op-ed, Pierre Moscovici tries to convey how tax avoidance hurts everyone saying, “ businesses today operate in a truly global environment — and so do tax evaders and avoiders. As such, a fair tax agenda cannot be confined to within one country’s borders.” Members of the EU and the G20 more broadly are hoping for a system where tech giants (mainly Google, Amazon, Facebook, and Apple) pay their fair share of taxes where they create value and profits.

As such, the agreement focuses on two pillars on which to base the new tax code. The first pillar aims to take the problem of shifting profits head on by dividing up the rights to tax a company where its goods or services are sold, even if it does not have a physical presence in the country. The second pillar sets a global minimum tax rate that would be applied on any profits that can’t be attributed to a specific country, or are in offshore havens.

There is still a long way to go for a formal agreement however, because there is still few details on what the minimum tax would be or how the profits are shared.

Similar efforts to form a global tax solution for multinational tech operations broke down earlier this year after Irish and Nordic bloc opposition. However, it is unlikely this issue will go away as public sentiment across countries turns against large tech companies and their unwillingness to pay taxes despite their large earnings.

Indeed, countries are taking measures into their own hands. The UK is hoping to introduce a digital service tax after frustrations with the slow rate of progress with OECD countries to reach consensus. Australia likewise is legislating a “Diverted Profits Tax (DPT)” which intended to prevent the practice of multinational organizations from shifting profits made in Australia offshore.

It is clear that efforts to solve the problem of tax avoidance from large tech companies will continue. It is likely that collective action will need to be taken since as Pierre Moscovici said, “ Tax evasion and avoidance affect us all. They eat away at public revenues, disrupt the level playing field for businesses and undermine the basic concept of fairness in our societies.”

As always, thanks for reading. Please let me know what you think about taxing the increasingly ubiquitous tech giants, and tax evasion more generally. I don’t pretend to have all the answers, and always appreciate the feedback.