Washington: The United States on Wednesday criticized the taxes imposed on technology companies by Italy, India and Turkey, but held back from hitting those countries with punitive tariffs.
That US Trade Representative (USTR) said the Digital Services Tax adopted by the three countries “discriminates against US companies, inconsistent with applicable principles international taxation, and burdens or restricts US trade. “
However, “USTR is not taking any specific action in light of the current findings, but will continue to evaluate all available options.”
The decision was taken on the same day that a 25 percent tariff on $ 1.3 billion worth of French goods, including cosmetics and handbags by high-profile brands, will go into effect in retaliation for tech firms targeting the country’s taxes.
France has yet to back down from its plans to tax online giants including Google, Amazon, Facebook and Apple.
France and other European countries imposed levies after intense public pressure to make US multinationals pay a larger share of their income in taxes in the countries in which they operate.
WASHINGTON: The digital services tax adopted by India, Italy and Turkey discriminates against US companies and is inconsistent with international tax principles, the US trade representative office said on Wednesday, paving the way for potential retaliatory tariffs. USTR, releasing the findings of its “Section 301” investigation on digital taxes, said it was not taking specific action at this time, but “will continue to evaluate all available options.” The probe is among several USTR Section 301 investigations still open that could lead to tariffs before President Donald Trump leaves office or at the start of President-elect Joe Biden’s administration. Among them is a further investigation into France’s digital services tax. The USTR has set a January 6 deadline for imposing a 25% tariff on French cosmetics, handbags and other imports worth an estimated $ 1.3 billion per year in retaliation for French digital taxes. But it was unclear on Wednesday evening whether the collection of the duties would begin as scheduled. Spokesmen for USTR and Customs and Border Protection, the body responsible for tariff collection, did not respond to multiple requests for comment. The USTR concluded that the digital taxes imposed by France, India, Italy and Turkey were heavily discriminatory US technology company, such as Google, Facebook, Apple, and Amazon.com. In the latest report, it also said the Indian, Italian and Turkish taxes “make no sense” because they are “inconsistent with international taxation principles, including because of their application to income rather than income, extraterritorial application, and failure to provide tax certainty.”
A plan to raise US $ 100 billion ($ 155 billion) more globally by more aggressive giant digital companies such as Google, Apple, Facebook and Amazon is unlikely to be implemented until the end of next year, but in the meantime Google has continued its long term. the practice of calculating income in Singapore with low taxes.
Google has continued the old practice of calculating profitable advertising revenue abroad
It is this practice that the OECD, together with the G20, wants to overcome with ‘digital taxation’
But the coronavirus pandemic has pushed the timeline for the plan, and there are fears the government will start charging domestic taxes on multinational companies.
Google Australia’s latest financial account shows it paid nearly $ 100 million in taxes in 2019, which is far higher than in previous years.
But the tax paid on profits needs to be considered in the context that the company does not locally calculate $ 4.8 billion in gross revenue, mostly from advertising.
A Google Account states that the majority of this revenue is still ordered overseas in Singapore, under “Google Asia Pacific”.
“This group recorded gross revenues of $ 4.8 billion (2018: $ 4.2 billion) in 2019, of which $ 4.3 billion (2018: $ 3.7 billion) was related to advertising and other reseller revenues,” said financial statements.
His statement also showed other gross revenues flowing abroad including $ 333 million in “service revenue” and $ 179 million in “hardware” sales.
The tougher Federal Government’s anti-avoidance laws, which aim at returning more taxes from multinational companies, see a number of multinational companies previously restructuring their tax affairs to pay more taxes locally than in previous years.
However, these laws have not been able to stop corporate law practices such as Facebook and Google from channeling large amounts of advertising revenue through low tax countries such as Singapore.
This is why the OECD, together with the G20, has worked on plans to tax digital companies.
But the work has been delayed because of the coronavirus pandemic, and there are fears it could take years before the government approves, and implements, a solution.
This delay has resulted in some countries already turning to digital company sales tax, rather than their profits, in large deviations from the old tax principle.
Google Australia says it’s only an ‘agent’
Google has long thought of itself only as an “agent” that facilitates sales locally.
This means that although Google Australia calculates the commission it generates from the sale of its profitable advertising as revenue, the majority is attributed through Singapore.
To use words in a Google financial account:
“The group reports revenue from advertising and other service sales after deducting related direct sales costs, because the performance obligation is to facilitate advertising sales between Google Asia Pacific and advertisers, for which the group gets a commission.
“In making this decision, the Group noted that it was an agent in the transaction because it did not control advertising inventory before being transferred to advertisers.”
Google Australia’s account shows its local revenue last year was $ 1.24 billion.
The company received a $ 58.7 million tax bill last year, but also noted an “adjustment” for taxes in previous years which cost an additional $ 50.6 million.
His account shows a small downward adjustment under “deferred tax”, bringing the final income tax bill to $ 100 million. This is up from $ 26.5 million in 2018.
A surge in income tax debt means post-tax profit for this year has fallen from $ 129 million in 2018 to $ 34 million in 2019.
In December, Google joined other technology giants such as Microsoft, Apple and Facebook in resolving disputes with the Australian Taxation Office (ATO).
Google paid nearly $ 500 million to the agency as part of the audit process since 2008.
Google Australia now employs more than 1,700 people locally and shows that most of its research and development is carried out in the United States, where it pays the most taxes.
OECD digital tax is delayed due to COVID-19
Governments around the world are expected to approve policies including a global minimum tax for multinational companies in early July.
But the director of the Center for Tax Policy and Administration at the OECD, Pascal Saint-Amans, said the coronavirus pandemic had pushed the timeline until October.
This means that implementation by governments around the world will not occur no later than next year, and it may take longer if the government debates who has the final taxation rights.
The OECD Plan, which impacts 137 countries, is led by a steering group of 24 countries including Australia, and involves two main pillars.
The first involves reallocating some of the benefits of multinational companies to market jurisdictions, under what is referred to as an “integrated approach”.
Australia first contemplating introducing your own digital tax, but Treasurer Josh Frydenberg said that the Government had been “actively involved” with the OECD, and would wait for multilateral plans before introducing domestic measures.
“With the increasing debt from JobKeeper payments, there will be no doubt for us to bring our own version [of a digital tax], “Said KPMG’s main tax partner, Grant Wardell-Johnson.
But he urged the Morrison Government “to stay on track” and refrain from introducing unilateral actions like other countries such as France.
“The stakes and prize size are high, and unilateralism will only place other obstacles in the process,” Wardell-Johnson said.
He said at present “the main points come from the US”, because his concern was that the proposed steps could cause double taxation.
“This will be a very bad outcome with … more disputes and countermeasures and negative impacts on cross-border trade,” he said.
“This is not what the world needs when we see a difficult post-crisis recovery.”
He also noted that from an Australian perspective, it was likely that extractive industries, commodities and financial services would be exempt from planned action.
“The limits of this exception have not been resolved, but it will be very important,” Wardell-Johnson said.
Google maintains its tax position and warns of trade war
Google’s vice president, government affairs and public policy, Karan Bhatia, believes the technology giant is supporting a step towards a new global framework on how multinational companies are taxed.
In July, the French Senate approved a 3 percent levy that would apply to revenues from digital services obtained in France by companies with more than 25 million euros in French revenues and 750 million euros worldwide.
The tax, widely referred to as the GAFA tax, which stands for Google, Apple, Facebook and Amazon, is expected by the French Ministry of Finance to increase 500 million euros per year.
France’s unilateral move drew a strong reaction from the US, with President Donald Trump threatening America to retaliate by charging tariffs on French wine.
Mr Bhatia around that time had raised concerns about the fact that “some countries are considering doing it themselves, imposing new taxes on foreign companies”.
He said Google’s overall global tax rate has been more than 23 percent over the past 10 years and that “most of this tax is due in the United States, where our business originates, and where most of our products and services are developed”.
“The rest we pay in about 50 countries around the world where we have offices that help sell our services,” he said in a statement at the end of June.
Bhatia also warned countries that impose “discriminatory” taxes on foreign companies. This will create a “race to the bottom”, bring new barriers to trade, slow investment across borders and hamper economic growth.
“A special tax on a handful of US technology companies will do a little more than the tax claims currently owed in the US, increasing trade tension,” Bhatia said.
Daniel Bunn from the Washington-based Tax Foundation also believes the OECD delay is increasing the potential for the government to move forward with unilateral steps.
“A tax and trade war driven by unilateral action will be very dangerous for the global economy,” Bunn said in a recent statement.
The OECD’s work is intended to provide “more productive channels for political pressure on digital corporate taxation”.
“Instead of taxes on gross income, new income tax rules and sharing mechanisms can be applied, but that will also create winners and losers,” he said.
The OECD’s initial economic analysis of the proposal shows that it can generate up to US $ 100 billion more in taxes paid by multinationals each year.
Most of this will be transfers from investment centers such as Ireland, Luxembourg, the Netherlands and Singapore.
But Mr Bunn said this was “relatively small in terms of the size of the fiscal response to the coronavirus crisis”.