As a result of the pandemics, the technological companies’ extraordinary profits, the worldwide economic catastrophe and the end of a long consensus process, the Organization for Economic Cooperation and Development (OECD), set in Paris (France) is willing to create during 2021 a global digital tax or, at least, one for all its country members.
Therefore, multinational technological companies shall get taxed in their operating countries.
This is a challenge to be faced by Mathew Cornmann, the new OECD General Secretary, who will take office on June 1st.
Angel Gurría, the outgoing Secretary General, sailed these waters which represent his legacy. But how did we get here? Let’s explore…
It all began with the Google Tax forethought by the European Union (EU) without success aiming at unifying its members by a digital economy joint tax.
It was discussed at the European Commission in Brussels until exhaustion during the latest years raising the United States’ opposition, which threatened to levy 25% on European imports should the former get passed.
Most of these digital companies are American and a great source of economic and political power.
Although there are no validated numbers in Brussels, the European Union had calculated during 2020 that the prospective tax could collect over 6 billion Euros annually.
The digital services tax fundamentally targets the digital economy behemoths (Google, Apple, Facebook, Amazon among others) which could be taxed 3% on their profits aiming at a global digital tax under consideration by OECD.
The definite push was a G20 decision reached at Ryad, Saudi Arabia, in February 2020. Germany, Spain, France and Italy united with the clear goal of reaching consensus to make companies pay a standard digital tax wherever they operated and a corporate tax under the OECD umbrella.
“Most of these digital companies are American and a major source of economic and political power.”— Liliana Bein —
For that purpose, they requested European Economy Ministers to support the measure. They got a positive response (Reuters) to set a minimum tax despite the opposition of Donald Trump, former USA President.
Under these circumstances, OCDE had committed to reaching an agreement by the end of 2020 but in October Angel Gurría, its Secretary General, rolled over its implementation opportunity until mid 2021. He cited “political differences among the countries”, even though he recognized “substantial progress” in 137 countries.
The Director for OCDE Fiscal Policy Center, Pascal Saint-Amans, said the “the glass is half full but a political agreement is missing”.
Which are some of these differences? Ireland and Denmark, originally opposing, now accept a digital tax but with a more favorable fiscal treatment. France and Germany mainly wanted to tax online advertising exclusively. Spain has already passed its own regulation and England does not want to tax information sale.
The advertising under tax consideration is called “directed advertising” and its feature is its ability to catalogue users visiting digital pages by profiles and favorites and it’s not related to products’ sale.
According to Angel Gurría, said implementation has been put off until 2021 first semester.
Due to the USA incumbent administration, its current Treasury Secretary, Janet Yellen, has stated USA has changed its position when saying at the G20 summit that Joe Biden’s government has put aside his predecessor’s proposal thus sending a clear sign America is open to discuss a global tax.
Encouraged by Angela Merkel’s support, who is retiring, world leaders have spearheaded this measure explaining the infrastructure, health and education investment it represents.
Let’s dig into the pros and cons this tax poses on different users.
The mostly used pro argument is that the Google Tax (also called GAFA tax, acronym for Google, Apple, Facebook, Amazon) does not burden the final consumer though nothing prevents large platforms from raising the entry bar for other projects thus reducing incentives for new initiatives.
What would happen if consensus is not reached? Something very important to be considered. According to Gurría, there could be a “trade war unchained by unilateral taxes on digital services worldwide”.
This important Mexican politician said that “failure entails the risk that fiscal wars unleash trade wars in a moment the world economy is suffering enormously”.