A fair digital taxation system

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US tech giants such as Google and Amazon are facing growing criticism globally for evading taxes. afp

Negotiations over digital taxes that require information technology giants to shoulder an appropriate tax burden have stalled. Countries should work together to create fair rules that are in line with the changing times.

US tech giants such as Google and Amazon operate beyond national borders, offering services such as e-commerce, search and video streaming.

Under the current taxation system, if companies do not have factories, offices or other bases in a country’s jurisdiction, the country cannot levy corporate taxes, in principle. Even if goods and services are provided to Japanese consumers online, it can be difficult for the Japanese government to collect appropriate taxes.

US tech giants are facing growing criticism globally for evading taxes through such means as transferring intellectual property rights to countries with low corporate tax rates.

E-commerce and search engines are important infrastructure in everyday life. Tech giants that earn huge profits should be required to pay taxes commensurate with this situation.

It is worrisome that conflict is growing among countries over the establishment of international rules.

Financial ministers and central bank governors of the Group of 20 major economies discussed digital taxation earlier this month, but no progress has been made. It appears it will be difficult for them to meet the goal of reaching a final agreement by the end of this year.

The Organisation for Economic Cooperation and Development, which is coordinating discussions on this issue with the G20, announced in January that countries concerned had reached a broad agreement on introducing a system that would enable them to impose taxes on companies according to their sales, even if they do not have bases in these countries.

However, the administration of US President Donald Trump, which wants to protect companies in its own country, reportedly made a proposal that would allow companies to decide for themselves whether to follow the envisioned system.

In June, the administration suggested a pause in the discussions. It claimed that this was so priority could be given to efforts to deal with the Covid-19 pandemic, but was likely meant to put pressure on Britain, France and other European countries that are considering their own taxation plans. The Trump administration’s disregard for rule-making is unacceptable.

There is also strong dissatisfaction with tax evasion by tech giants in the US. A fair taxation system would surely benefit the US as well.

It is not surprising that Europe and other countries oppose the US proposal for allowing companies to choose whether to follow the envisioned digital taxation system, claiming that such a stance would water it down. In addition to European countries, Brazil and other emerging economies have made moves for their own digital taxes.

The US is hinting at imposing punitive tariffs on these countries. If economic friction develops, it could deal a further blow to the world economy, which is already suffering from the pandemic. European and emerging economies are also urged to focus on international cooperation rather than taxation systems that put their own interests first.

Should the international talks fall apart, Japan would also lose tax revenue that would be generated under the envisioned system. The government must make every effort to move the discussions forward.

Editorial/THE YOMIURI SHIMBUN (JAPAN)/ASIA NEWS NETWORK