BIG TECH: Is a ‘truly global’ Minimum Tax on the Horizon?
By Kunal Sawhney
Posted By: GEO´PRChannel Team – Gibraltar
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This is a fantastic piece by Kalkine CEO Kunal Sawhney and worthy of our audience and quite rightly identified by our AI macro-research protocols for inclusion in the GEO´PR Channel Roundup. (Ed.)
The global minimum tax accord reached by the seven wealthiest nations doesn’t automatically translate into the Digital Services Tax (DST) going away. The Group of Seven (G7) cannot alone shape up global tax, but the recent deal can guide how the Group of Twenty (G20) countries reach a consensus on the thorny issue of taxing multinationals. The global minimum levy is broader than the DST, which is presently levied by a handful of countries on tech giants such as Google and Facebook. It has been a bone of contention between the US and the countries levying it.
In the run-up to the G7 Summit this year, the US announced a 25 per cent tariff on imports worth US$ 2 billion from nations levying DST. These tariffs were, however, suspended in the wake of the upcoming G7 meet. But it set the stage for discussion around taxing US multinationals.
Pandemic, economic fallouts and tax revenues
The economic fallouts of the pandemic have shifted goalposts. The global minimum tax could have evaded the broad consensus had in the pre-pandemic world.
But the reality is different. The US, the UK, Canada and all other developed or emerging market economies have loosened the purse strings to lift their economies out of slowdowns. Employment figures are yet to reach the pre-pandemic levels, and price rise has breached permissible limits.
Central banks, including the Fed and Bank of Canada, have repeatedly calmed nerves by saying that inflation is transitionary. The markets, however, have braced themselves for a sooner-than-expected rise in policy interest rates.
Taxing big tech firms that shift profits to other jurisdictions with relatively lower corporate tax rates is the easiest way to fill coffers without antagonizing the electorate. For example, levies on American tech giants can bring C$3 to C$4 billion in new tax revenue to Canada over five years if implemented at a 3 per cent rate from 2022. Besides, any hike in tax rates on domestic companies will translate into price rise for consumers, and governments across the world may want to avoid such a situation.
Hurdles to clear before going global
The global minimum tax has to overcome many hurdles before becoming a truly global tax regime.
First, it will be debated at the upcoming meeting of 139 countries negotiating tax rules under the Organisation for Economic Co-operation and Development (OECD) framework. Keeping aside the differences between the US and other nations over DST, the OECD/G20 Inclusive Framework has long been debating on tax challenges due to the digitalization of the global economy.
After discussion on this forum, the G7 tax proposal will need an endorsement from G20 finance ministers. India, a member of G20, already levies DST, and others, including Russia and Indonesia, plan to boost revenues by taxing foreign digital companies.
The G20 comprises the world’s largest economies, and the upcoming July meet in Venice can translate into a global tax with genuine international impact. The stumbling block can be nations like Ireland, Netherlands and Switzerland that offer attractive tax rates to multinationals. In Ireland, for example, tech multinationals like Apple and Google account for nearly 80 per cent of corporate tax revenue for the government.
Separately, Republican Senators have also mounted a challenge to the G7 tax proposal citing the deal as anti-competitive and harmful for the US economy, which is already reeling from pandemic-induced fallouts that have resulted in alarming debt-to-GDP ratio. They also fear that the global minimum tax of at least 15 per cent may take away revenues from the US. Moreover, to implement it in spirit, the US may have to enact a new international tax treaty that would require two-thirds of Senators’ approval.
Is a broader consensus possible?
Despite hurdles – including the OECD framework, a consensus among the G20 nations on taxing tech giants, and US Republicans opposing any likely shift of revenues – the global minimum tax accord can become a reality soon and replace DSTs levied by individual countries. This argument is backed by the economic conditions prevalent created by the pandemic.
An amicable solution to the never-ending DST dispute lies in global minimum tax that can pave the way for levies on drug patents, royalties on intellectual property rights (IPRs) and other intangible sources of revenue. American tech giants shift revenues from their operational nation to tax-friendly geographies, and so far, DST was the only remedy available.
However, the US has unequivocally disputed DST as anti-competitive and imposing retaliatory tariffs on imports from levying countries. At this time, when government revenues are already subdued, a dispute over taxation may not translate into better prospects. Instead, it can damage international trade relations with countries resorting to tariffs and other trade barriers.
Countries in the OECD framework and G20 economies are familiar with this. Hence, in the coming months, we may see wider adoption of global minimum tax and a consequential going away of DST
About Kunal Sawhney
Kunal Sawhney: Entrepreneur with revolutionary ideas; financial professional with wealth of knowledge in Equities, aiming to transform the delivery of equity research through tech-driven digital platforms.
With his knowledge, skillset, and overarching vision, Kunal established one of the fastest growing equity market research firms across Australia in year 2014; and subsequently, in other emerging & developed markets – Kalkine – A business that is based on Digitally Powered Architecture and Extensive Data Science led Premium Research. Kunal’s entrepreneurial and commercial skills backed by the passion to establish a tech-empowered research platform, helped in building Kalkine’s global presence across diverse geographies – Australia, New Zealand, Canada, and the United Kingdom.
Further, the plans for the US launch in 2021, have set the premise for attaining an all-encompassing client reach for Kalkine’s Subscription and Media Operations. With a Master of Business Administration degree from University of Technology, Sydney; Kunal’s business acumen has enabled his brainchild, Kalkine, help clients navigate through equity related matters in a proficient and seamless manner. Kunal is featured regularly on CNBC, Sky Business, Biz News, Daily Mail, Yahoo Finance, KCBS Radio (Audacy), Bloomberg, Sydney Morning Herald, Global Banking and Financial Review and many more.