G20 countries are discussing new procedures to increase taxation pressure on Internet-based giant companies that avoid taxes.
During the Ministerial Symposium on International Taxation being held in Fukuoka, Japan, the Group 20 (G20) finance ministers and central bank governors agreed to define rules to create a common taxation system on large digital corporations such as Amazon, Google or Facebook.
This ambitious initiative known as the "digital tax," is being outlined by the world's most industrialized and emerging countries, the G20s, which want to see a common tax reform for digital product companies by 2020.
“We welcome the recent progress on addressing the tax challenges arising from digitization and endorse the ambitious program that consists of a two-pillar approach,” a G20 draft communique read. “We will redouble our efforts for a consensus-based solution with a final report by 2020.”
The Organization for Economic Cooperation and Development (OECD) Secretary-General Angel Gurria explained that the "digital tax" is aimed at eliminating tax competition among member countries by ending some tax procedures that are based on where companies have a physical presence.
These century-old rules are obsolute in this digital era as multi-billion dollar Internet and software companies are basing their fiscal headquarters in low-tax territories in order to avoid paying their fair share of taxes from where they do business.
Extravagantly wealthy people cheat on their taxes. Regularly. Our super rich are stashing vast chunks of their personal fortunes in offshore tax havens, generating billions annually in new income that — to their governments — goes unseen and untaxed. https://t.co/4rNA2RqVd8— Dr. Bryan Harnsberger, Psy.D (@PSYCH_HYPE) June 8, 2019
In the future, the tax burden that a company must comply with will be defined according to where it has a "significant economic presence" and user presence, giving governments "more fiscal rights" and incomes, Gurria said during his speech.
French G20 Minister Bruno Le Maire and U.K. Minister Philip Hammond reported that their countries are already applying this type of fiscal policy, though they will withdraw them when the G20 multinational framework is agreed upon.
At the G20 meeting, the European Commission (EC) proposed to create a "Google tax" at the community level. This idea was shot down by Ireland and Luxembourg though, two countries whose "appealing" taxation systems have turned them into European headquarters of companies such as Facebook or Amazon.
Both Hammond and Le Maire pointed out the need to create a fair and non-discriminatory system that takes into account the different business models of Internet-based companies.
China's G20 Finance Minister Kun Liu, pointed out the "fragile moment of growth" in the Internet system and cautioned not harm economic growth. The ministers also agreed that new taxation procedures must be implemented in a coordinated manner to prevent companies from fleeing countries and to avoid governments from competing with each other by lowering their current taxation levels.
Members are disagreeing though still on how a digital business should be defined and how tax authority should be distributed among different countries. G20 members are about two-thirds of the world’s population and 85 percent of the global production of good and services.
Its members are Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Republic of Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the U.K., the U.S. and the European Union.