The global tech giants, such as the FAANGS (Facebook, Amazon, Apple, Netflix, Google and Shopify) in the US and the BAT (Baidu, Alibaba, Tencent) in China are proving themselves to be “essential” in the fight against the COVID-19 pandemic by allowing people to stay connected, and public institutions as well as essential businesses to remain operational during times of social distancing requirements. They are also profiting handsomely during the pandemic while most other businesses are locked down. Attempts to tax these tech giants had intensified long before the COVID-19 outbreak. This is evidenced by the Digital Service Tax introduced in the UK and France, and similar levies introduced in other countries, as well as by the proposed measures known as Pillar 1 and Pillar 2 by the OECD through the BEPS Inclusive Framework (hence BEPS 2.0). BEPS 2.0 is intended to allocate new taxing rights to “market countries” (that is countries where the users and customers of digital businesses are located) while allocating global profits of digital businesses according to a unified allocation method (that is different from the existing arm’s length principle and transfer pricing rules). International consensus is key to the success of BEPS 2.0.
With the massive unprecedented COVID-19 economic emergency relief payments in Canada and other countries resulting in budget shortfalls, governments will be looking for more revenue sources after the COVID-19 pandemic is under control. Taxing tech giants would be a potential solution. However, both China and the United States are not keen on the proposals, for obvious reasons. Chinese commentators have publicly registered their opposition to the OECD proposals (click here to see the submissions by China's National Petroleum Corporation and China's International Tax Center/IFA China Branch). In addition, as recently as June 2, 2020, US President Donald Trump was reported to be determined to “pursue his ‘America First’ trade offensive against its trading partners, including the European Union, India and Brazil despite the coronavirus pandemic that caused the economy to grind to a halt and the worst social unrest in more than 50 years” for levying digital service taxes (Click here for the relevant reporting from the Washington Post).
So, is there any realistic chance of negotiating any global consensus on the taxation of digital businesses without the support of China and the United States?
Economic nationalism meets the digital era.
Very interesting to see the US-centric "fight" between Main St. and Wall St. over the last several decades turn into a fight between Silicon Valley and national governments around the globe.