The G7 is determined to tighten the tax noose on tech giants


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San Francisco: The G7 countries are close to activating an ambitious tax reform that will impose more fees on American tech giants, Google, Apple, Facebook and Amazon, without ensuring that their concerted efforts, more than ever, will lead to significant revenue for the United States.

The G7 countries (France, Germany, the United Kingdom, the United States, Canada, Japan and Italy) confirmed that they want to impose a global tax rate of at least 15 percent on companies, and a more equitable distribution of the profit rights of multinational companies located in different countries.

Meanwhile, President Joe Biden also wants to raise the US corporate tax rate in general and target companies that make big profits but pay very little tax.

Tech giants are facing growing criticism in Europe and the United States over fears that they have monopoly power.

“The pressure has been building for years,” said Lillian Faulhaber, a law professor at Georgetown University.

“But with the pandemic and its economic consequences, countries are finding it more difficult than before to balance their budgets (…) while voters are increasingly disenchanted with these companies that make huge profits and seem to pay little tax,” she added.

Not to mention the mounting anger at the accumulating power of digital platforms. Actions are increasing in Europe and the United States against giant technology companies accused of anti-competitive practices.

“Tax evasion and market dominance are two different topics, but resentment toward one can influence the other,” said Alan Auerbach, a specialist in global taxation at the University of Berkeley.

The rules currently under negotiation are supposed to address the issue of combating tax avoidance, which these companies ideally practice.

In the United States, these companies take advantage of opportunities to obtain tax breaks through investments or employment. Elsewhere, companies use legal strategies to shift profits to countries with low tax rates and transfer losses to places where taxes are high.

“These companies are not ‘bad’ from an ethical or moral point of view as they take advantage of the advantages we offer them,” Auerbach said.

He added, “The international tax system was designed for an earlier stage when companies had a clear headquarters and were produced in one place (…) Using a tax law that was applied in the nineteenth century in the economy of the twenty-first century may be a failure.”

Part of the reform plan put forward by the Group of Seven includes taxing multinational companies where they earn their money rather than where they are based in their offices and factories.

“It’s about defining the role of people who use the service but do something,” Lillian Faulhaber explained, referring to the audience that Internet companies that rely on digital advertising benefit from.

In Europe, this change in tax law will be felt in Ireland, which has adopted lighter tax policies to attract companies like Apple.

But it remains uncertain whether the G7 will achieve its goal.

There are many questions to be answered, including whether countries can attract companies by continuing to give them rebates or tax breaks, what parts of profits should be taxed, and what will happen to the digital taxes imposed in countries such as Britain, France, Italy and Spain?

These questions will have to be discussed, and then it will be necessary for each country to decide how to equitably implement the potential agreement.

“In the end, it’s just a prick, nothing more,” said Dan Ives, an analyst at Wedbush Securities, “because the global tax structures of big tech companies are ultimately some of the most complex in the world.”

For example, Amazon e-commerce relies on physical warehouses and currently has a profit margin of about 6 percent instead of the 10 percent set by the Group of Seven for new registration rules.

But the Seattle-based company should be subject to a tax on AWS (Amazon Web Services), a very profitable cloud-computing subsidiary.

“Saying that Amazon is not a technology company is like saying that (Lionel) Messi does not play football,” Efes concluded sarcastically.


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