G-20 ministers agree to tax tech giants

Japanese Vice Minister for Finance Masatsugu Asakawa addressing delegates at the G-20 finance ministers meeting in Fukuoka, Japan. (Bloomberg Photo)

Finance Ministers from the Group of 20 nations (G-20) agreed they need to find a common method to tax technology giants, whose digital business models have grown exponentially faster than systems to tax them.

“We agreed on a need to redouble our efforts to reach consensus by 2020,” Japanese Vice Minister for Finance Masatsugu Asakawa said Saturday following a G-20 symposium on international taxation that brought together finance ministers from nations including the United States (US), China and France. “Should we fail to meet our commitment, we will see more and more unilateral actions and the fragmentation of the international tax system.”

G-20 officials gathered in Fukuoka, Japan, at the weekend sounded growing alarm about the world economy and signalled a willingness to increase stimulus. At the same time, they made little progress in addressing the main threat of trade tensions.

While the talks opened with some rare good news as President Donald Trump reversed his plans to hit Mexico with tariffs, the US-China impasse showed no signs of easing. Officials recognised that in their concluding statement by noting that trade tensions have "intensified."

Finance officials have been discussing whether to endorse a plan from the Organisation of Economic Co-operation and Development (OECD) that would impose higher tax rates on multinational companies, including tech giants such as Facebook Inc. and Alphabet Inc.’s Google.

“For the time being there is no fair taxation of this new economic model,” said French Finance Minister Bruno Le Maire. He said businesses within the new economic model focused on the use of data are the most efficient in “creating a lot of profits without a fair taxation.”

Le Maire said Group of Seven countries (G-7) will seek a compromise on digital taxation at their next meeting in July in France, which could form the basis of a system for other G-20 countries. Once there is a new system, France will scrap its own digital tax, which is based on turnover, taxing the exchange of data and advertising.

But reaching consensus won’t be easy.

‘Complicated issues’

"These are complicated issues in a changing environment and something I am sympathetic to," said US Treasury Secretary Steven Mnuchin. He agreed on the urgency of addressing the matter but not all the ideas being suggested by his counterparts.

The European Commission says that while the average effective tax rate paid by companies with traditional business models is 23 percent, digital firms’ taxation rate is 9.5 percent. Several European states have already taken steps to tax digital firms.

At the panel on Saturday, Chancellor Philip Hammond said the United Kingdom (UK) introduced an interim digital services tax in the hopes that it will "light a fire" in the overall process for building an international agreement on taxing the digital economy.

Three proposals are being debated as a new system of digital taxation, commonly referred to as schemes focused on "user participation," "marketing intangibles" and "significant economic presence."

“We must bring a spirit of compromise to find a solution,” Asakawa said in his concluding remarks. “Remember, united we stand, divided we fail.” - Bloomberg