Not yet from the whirlpool of US antitrust investigations, Google, Facebook and other technology giants are facing global “encirclement and suppression.”

At the meeting of the G20 finance ministers and central bank governors on June 9th, the G20 finance minister agreed to prepare common rules by 2020 to fill the global technology giants such as Facebook to reduce corporate taxes. Vulnerabilities.

According to the announcement issued after the meeting, the details of how to tax the technology giants have not yet been determined, but will be gradually improved through the revision of the “two pillars” of the link and profit distribution rules and the global anti-tax base erosion proposal.

The finance ministers pointed out in the G20 communique, “We welcome the recent progress in addressing the tax challenges of digitization and endorse this ambitious plan, which includes two pillar programs.”

Japanese Finance Minister Taro Aso said in an interview after the meeting, “We have two pillars at the moment, I think we need to support two pillars at the same time.” “These recommendations (currently) are still a bit vague, but they are gradually forming. ”

If the loopholes in taxation are filled, large-scale technology companies such as Google will face an increase in tax burden. In the context of anti-monopoly investigations of large technology companies in the United States, large technology companies such as Google are facing the enemy. As of press time, Google and other companies have not responded to further questions from 21st Century Business Herald reporters.

Tech giants will face tax setbacks

Ministers of the G20 said in the statement, “We welcome the recent progress in addressing the tax challenges brought about by digitization and endorse the ambitious work plan consisting of two pillars.” “We will redouble our efforts to achieve A consensus solution and a final report by 2020.”

Revising the link and profit distribution rules and the global anti-tax base erosion proposal are the “two pillars” on which the finance ministers depend. Simply put, even if the company does not have a physical business in a certain country or region, the country will still tax the company according to the service of a company or the place where the goods are sold. If the company is still able to pass the offshore tax haven or Tax avoidance is achieved in countries with low tax rates, so countries can apply the global minimum tax rate to achieve a “tax haven” in disguise.

European countries such as France and the United Kingdom have strongly supported the imposition of a “digital tax” on large technology companies. As French Finance Minister Lemaire said at the G20 finance ministers and central bank governors meeting, we have a new economic model based on digital activities. Sales and exchanges and use based on large amounts of data, but there is currently no fair taxation on this new economic model.

In addition, there is no consensus on how to tax digital multinationals on a global scale. Countries including the United Kingdom and France have chosen to introduce their own taxes on digital services. In the United Kingdom, the “Digital Service Tax” was introduced at the end of 2018. For companies that meet the standards, the company’s operating income in the UK is taxed and a 2% tax is imposed. France passed a draft in May 2019 to impose a 3% digital tax on eligible Internet companies. France expects this new tax to generate 400 million euros in tax revenue in 2019.

Since the “digital tax” in the UK and France is aimed at operating income rather than profit, this puts the risk of double taxation on the tax.

U.S. Treasury Secretary Mnuchin said at the meeting of G20 finance ministers and central bank governors that the United States has major concerns about the two current taxes proposed by France and the United Kingdom. European taxation forces us to deal with this issue.

Although the current form and scope of the new tax rules is still controversial, the G20 finance ministers believe that there is no choice but to reform. Mnuchin also said, “It sounds like we have a strong consensus, so now we need to reach a consensus and (and) turn this into an agreement.”

Lemaire and British Chancellor of the Exchequer Hammond said that if there is an agreed G20 plan, the national digital tax will be abolished.

“I see the high willingness of all parties to cooperate on this issue, which was rarely expected a year ago,” EU Economic Affairs Commissioner Moskovsky praised the consensus of the finance ministers. He said, ” We really believe that technology giants — not just GAFA (referring to Google, Amazon, Facebook, and Apple) — must pay fair taxes in places where value and profits are created.”

Tax avoidance, the advancement of technology giants

In fact, as early as 2012, technology giants such as Apple, Amazon and Google had caused public outrage due to tax evasion scandals. This made an important issue at the G20 summit that year was to promote multinational corporations to pay “tax payable”. This also promoted the development and implementation of BEPS (tax base erosion and profit transfer).

According to the definition of the Organisation for Economic Co-operation and Development (OECD), BEPS refers to the tax avoidance strategy that artificially transfers profits to low-tax or non-tax locations using gaps and mismatches in tax rules. But BEPS failed to address the root cause of the problem – companies can still take advantage of low-tax jurisdictions to transfer profits to wherever they want to achieve tax avoidance.

Large technology companies make money primarily by selling their products and services on a global scale, most of which lies in all types of IP (intellectual property). By artificially positioning IP’s intermediate legal ownership in tax-friendly jurisdictions such as Ireland, the Netherlands, Luxembourg, and Switzerland, multinational technology giants can avoid paying royalties in European countries such as the UK and France.

This makes the problem even after BEPS is released. In 2017, Google transferred $22.7 billion to Bermuda through a Dutch shell company. In the same year, Facebook paid only 7.4 million pounds (about 65.52 million yuan) in corporate tax in the UK, even though the company earned 1.3 billion in the UK. Sterling (about RMB 11.5 billion).

In Google’s case, for example, almost all of its revenue comes from online “auctions” and mixed sales of advertising space. After a few moves from the Irish subsidiary, the Dutch subsidiary and the Bermuda subsidiary, Google’s actual tax burden in the UK. very low.

“Whether the vast majority of the profits of multinational technology giants really come from IP, or whether the royalties associated with UK sales that are ultimately paid to Bermuda companies are beyond the current scope of UK income tax, there is controversy.” Director George Turner told 21st Century Business Herald that the first point of the BEPS action point is to tax the digital economy, but when the proposed reform of BEPS is finally reached, how to levy taxes on the digital economy has become impossible for countries. In an area, the action has been postponed.

According to tax observation research, Apple, Google, Facebook, Cisco and Microsoft have revenues of approximately 23.4 billion pounds (about 207.2 billion yuan) in the UK in 2017, generating profits of roughly 6.6 billion pounds, according to the current UK tax rate. The tax burden is 1.26 billion pounds (about 11.16 billion yuan), but in fact these companies in the UK comprehensive tax burden is about 191 million pounds (about 1.69 billion yuan).

George Turner said that although governments around the world have been discussing for many years to take action to combat tax avoidance measures of multinational corporations, large technology companies still operate as usual, only paying punitive tax rates such as “Google Tax” from time to time – compared to In terms of revenue, it’s a slap in the face.

GAFA troubles constantly

The “out of favor” of technology giants such as GAFA in the United States may be the reason why Mnuchin can reach a consensus at the G20 finance ministers and central bank governors meeting. Recently, four major technology companies, including Facebook, have been investigated by US competition regulators. The US House Judiciary Committee recently announced whether it will need to tighten the anti-monopoly law in the United States to respond to the investigation of technology giants.

Li Junhui, a special researcher at the Intellectual Property Research Center of China University of Political Science and Law, analyzed the 21st Century Business Herald reporter. At present, Google and other technology giants have taken advantage of similar tying or compulsory bundling to expand other businesses in the case of a dominant position in the main business. The fair competition order of the market. This is also the main reason why companies such as Google have been litigated and fined in the EU in recent years.

The monopolistic behavior of these technology giants in the United States seems to have accumulated grievances for a long time. Paul Roemer, winner of the 2018 Nobel Prize in Economics, wrote that the taxation of large technology companies can change them.

Paul Romer proposed taxing the sales of targeted digital advertising to the key to the operation of companies such as Facebook and Google. Because the current antitrust law is mainly aimed at the harm of price fraud, rather than the other hazards caused by these platforms, using the tax law to punish technology companies is a strategic advantage.

In the view of other analysts, although the global taxation of technology giants has reached a consensus on the G20, how to implement it will be a problem.

Tim Worstall, a researcher at the Adam Smith Institute in the United Kingdom, told 21st Century Business Herald that the international tax system is actually based on the idea of ​​taxing the added value of economic activities, such as the UK and France. Although the method does not violate local laws, it is also controversial.

“Europe is currently experiencing huge technology taxes, and Trump is also addressing this issue,” said Tim Worstall.

This also gives a variety of options for how to collect taxes on digital companies on this G20. One way is to calculate the “unconventional” profits of digital companies, and the other is to use existing profit calculation methods and then redistribute some of the profits to different countries. The third possibility is for any given country. Marketing and distribution specify “baseline profits.” In addition, the new system requires a set of rules to determine when a digital company actually participates in the national economy.

Hammond said that global tax rules should still be based on where the business creates value, not just on the place of sale.

“We need to ensure that the reformed international tax system continues to reward countries that create an attractive business environment,” Hammond said.