During the past few days, the governments of the UK, Australia and South Korea reiterated their intentions to implement a digital tax on large US multinational tech companies.
Earlier this week, the UK’s Chancellor of the Exchequer Phillip Hammond said the UK might proceed with the establishment of a digital tax on its own if the rest of the world fails to agree on a preferred method to tax these companies.
Hammond said: “The best way to tax international companies is through international agreements but the time for talking is coming to an end and the stalling has to stop.”
“If we cannot reach agreement, the UK will go it alone with a Digital Services Tax of its own,” he added.
Ultimately, Hammond believes an international agreement will be difficult to be reached.
“I have to say my prognosis is that it is quite unlikely that we will be able to achieve international agreement in anything like a sensible time scale because the U.S. isn’t frankly onside with this agenda,” he concluded.
The Coalition for a Digital Economy’s Dom Hallas, however, thinks a digital tax would only hinder local UK tech startups.
Hallas said: “The tech giants Hammond claims to be targeting are in fact best placed to deal with an increased tax burden. The true cost will be in hurting innovative British companies who want to develop at home then grow globally.”
Furthermore, Hoxton Ventures’ Rob Kniaz, who backed UK companies like Babylon, Deliveroo and Darktrace, agreed: “It seems unwise to introduce additional headwinds to the UK technology sector in these uncertain times...Now is not the time to rock the boat whilst we've so many other challenges.”
As reported by Reuters, this UK tax would be solely directed at companies that fall above a certain threshold in terms of revenue.
Additionally, the tax would be calculated based on “the content and data of British consumers as a share of the firms’ overall value” and the “proportion of the business [that] is based in the UK.”
According to The Register, the EU is currently working on a digital tax on tech giants, which “would charge a 3 per cent levy on firms with a global annual turnover of €750m and annual EU revenue of at least €50m, affecting around 200 companies and boosting member states' coffers by about €5bn.”
Is Australia Also Moving Ahead with a Digital Tax?
In a Treasury discussion paper released this week, the Australian government suggests it will follow the lead of the European Commission and apply a similar tax on large multinational tech companies.
Bob Deutsch, the Tax Institute's senior tax counsel, believes that Australia has to move unilaterally despite efforts by the OECD to provide the world with better ways to tax tech companies.
Deutsch said, “Looking realistically at the developing digital economy, Australia does not have the luxury of waiting for a multilateral response. We will inevitably need to introduce some interim measures.”
Treasurer Josh Frydenberg shares this sentiment, stating that, "while digitalisation has delivered significant benefits for Australian consumers and businesses, the Government remains concerned some very profitable, highly digitalised companies pay very little tax in the countries in which they do business.”
The Sydney Morning Herald reports that several proposed methods to determine the “taxable value” for tech giants are currently on the table.
One option looks to “split the profits of multibillion-dollar companies according to the number of users or data collected in each country,” while a second one “would compare the ratio of expenses to revenue derived from a country,” which “would increase taxes on those who did not invest in Australian workers or research to generate their profits.”
According to Australia’s ABC News, this report, however, “warns such a tax — which would be a radical reversal of long-held international tax policy by applying tax based on a company's revenue rather than profit — could discriminate against American technology companies, and those companies may decide to pass on the cost to consumers by hiking their prices.”
Ernst & Young’s Tax Leader in Australia, Alf Capito, agrees that this sort of tax could lead to counter measures by the United States, saying that “if a particular country imposes a tax for doing business in that country, a company can either wear it, to the detriment of its shareholders, or attempt to pass it on."
South Korea Also Mulling Over a Digital Tax
It seems like South Korea is also joining the group of jurisdictions looking to impose a digital tax on US companies like Google, Apple and Facebook, among others.
South Korea’s National Assembly will invite Apple, Google and Facebook representatives to testify before the science and technology committee on their tax commitments in the country.
Rep. Park Sung-joong, for instance, has emphasized the need for the government to impose a digital tax on these tech giants, mentioning the fact that Google, despite raking in more than 4.5 billion dollars in revenue in South Korea, does not pay its fair share in taxes.
Jeong Ho-chul, who works for the Citizens' Coalition for Economic Justice, agreed with Rep. Sung-joong, stating, “Google and other foreign tech companies pay very little tax compared to their revenues. For instance, Google does not pay tax on ad revenues, even though it makes a lot of money through YouTube.”
Keeping tabs on the tax obligations of these tech giants is not easy in South Korea.
According to The Korea Herald, “it is difficult to track down tax-payment histories” since these types of companies, which are registered as LLCs, “are not obliged to disclose their sales figures to the public” in the country.
Furthermore, the regulations dealing with VAT are not crystal clear.
Kim Bitmaro, a researcher at the Korea Institute of Public Finance, said: “In the law, it is uncertain whether companies engaging in the online advertising business need to pay value-added tax. The range of digital services in the law includes games, audio, video and software only.”
What’s in store for digital taxes throughout the globe? Share your thoughts with us below!