- A lot of tech giants — such as the GAFA collective — have set up their offices in countries like Ireland and Luxembourg where the local governments provide them with ‘extreme tax benefits’.
- GAFA is an acronym that is used by many media outlets when talking about Google, Amazon, Facebook and Apple (as well as other tech players that have immense global financial clout and power).
G20 Reaches Important Decision
The G20 coalition recently came to an agreement (this past Sunday) to help “close out all of the existent loopholes” that were regularly being exploited by global tech giants such as Facebook, Google, Apple so as to minimize their corporate taxes.
As many of our regular readers may recall, the above-mentioned corporations have been facing severe criticism from many experts over the years because they regularly book their profits in low-tax countries — even though their end customers are located in developed nations that are spread out across North America and Europe.
Challenges Related to Attracting Foreign Direct Investment (FDI)
If new rules regarding this issue are introduced across the globe, not only will the tax burden for large multinationals increase quite substantially but it will also become much harder for countries like Ireland to attract foreign direct investment (FDI) — since the nation currently provides various big-name corporate clients with extremely low tax rates.
In regards to the matter, Taro Aso — the G20s current chairperson — was quoted as saying:
“At the moment we have two pillars and I feel we need both pillars at the same time for this to work. The proposals are still a little vague, but they are gradually taking shape.”
Internet Companies Unfairly Treated?
Over the years, Britain and France have opposed a number of proposals that have sought to make it more difficult for big-name corporate entities to shift their profits to low-tax jurisdictions.
In a similar vein, we can also see that the US has time and again claimed that their ‘internet companies have been unfairly treated’ by G20’s existing regulations.
Most large scale internet companies pay little tax in Europe by channeling their sales via a host of smaller nations such as Ireland and Luxembourg.
Tech Giants Need to Pay Their Share of Taxes
As per a communique issued by G20’s core member committee recently, they are making use of a “two-pillar” approach to address the various tax-related challenges that are arising due to global digitization.
The G20 seeks to initiate a plan that will
“divide up the rights to tax a company where its goods or services are sold”.
In this regard, it should also be pointed out that if companies are still able to find a way to book profits in low-tax havens, they should be made to pay a ‘global minimum tax rate.’
It's worth noting that Pierre Moscovici — European Union Commissioner for Economic Affairs — is highly optimistic that the G20 will be able to devise a plan that will force various tech giants to pay their
“fair share of taxes as-and-when they incur massive profits on the sales of their products”