News ID: 238361
Published: 1155 GMT February 03, 2019

Tech giants won’t like it, but digital tax must become reality

Tech giants won’t like it, but digital tax must become reality
JOSH EDELSON/AFP

Tax authorities across Europe are increasingly asking themselves why, in the digital age, an ordinary citizen would pay tax if they could avoid doing so.

Amazon, Facebook, Uber, eBay and Google do all they can to avoid tax. They employ thousands of staff to check every loophole, theguardian.com wrote.

They also retain the services of the big accounting and global law firms with the sole aim of driving down the effective rate of tax they pay wherever they operate.

So why wouldn’t everyone else do what they could to play the same game? It’s a question that has leapt up the list of pressing issues for tax authorities across Europe.

Last week, the Organization for Economic Co-operation and Development (OECD), which is attempting to standardize tax rules across the world’s 34 richest nations, said that its members had agreed to consider benchmarks for taxing digital services.

“Countries and jurisdictions will step up efforts toward reaching a global solution to the growing debate over how to best tax multinational enterprises in a rapidly digitalizing economy,” it said.

It might not seem like much of a victory. The 34 nations in question, ranging from the UK, US and France to Mexico, South Korea and Slovakia, look like climbers that have just reached base camp on their way to conquering Everest.

For Pascal Saint-Amans, the OECD director’s of tax policy, it is an obvious move now that digital businesses are viewed by many voters as undermining the very fabric of the tax system.

That may be true, but his scheme has become attractive because it represents the slowest route to the summit. Other proposals get there more quickly, and much more painfully for the jurisdictions that play host to tax avoiders — for example Ireland, Luxembourg and the Netherlands.

To all the EU countries involved, it is a better option than the more draconian rules proposed by Brussels. Just before Christmas, the European commission reheated plans to adopt majority voting for tax rule changes with a view to implementing a new digital tax.

This tax, which would tackle corporation tax and VAT avoidance by companies based in Ireland and Luxembourg, is likely to stay tethered to its moorings all the time unanimous voting governs tax issues.

Take the case of Ireland. There are corporation tax receipts in its budget, but they are small relative to the number of wealthy companies in Dublin and Cork. The tax-to-GDP ratio in Ireland has decreased from 30.8 percent in 2000 to 22.8 percent in 2017.

The Irish have already suffered an adverse tax judgment courtesy of the European court of justice, which ruled that it had allowed Apple to avoid €13 billion of tax, which must now be collected. The last thing Irish officials want is a switch to majority voting on tax that would trigger a wider clampdown.

Britain, in or out of the EU, has promised to press ahead with a modest digital tax. The chancellor of exchequer, Philip Hammond, said he will join the OECD scheme when it comes to fruition but can’t wait for that moment without making a move.

It is a measure of the way digital companies have destroyed a sense of fair play on tax that a Tory government that presides over a financial center built largely on clever wheezes to avoid tax has stepped forward with a plan in advance of Brussels and the OECD.

Hammond knows there is more to gain from righting a wrong on tax than he could lose by upsetting major digital businesses. Other countries should follow his lead.

 

 

 

   
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Resource: theguardian.com
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