The Debate Over Tech Taxes
The growth of digital services has resulted in a huge boost to national economies around the globe. What’s more, the expansion of digital services has meant that a great many people have access to a wide range of entertainment and leisure activities. The rise of digital companies has also presented a set of new problems for governments around the world seeking to properly tax digital technology companies. Recently, policymakers from various governments convened in Switzerland to discuss ways to create fair economic and tax laws in view of the growth of digital services. More discussions between national policymakers are expected to occur in the near future. These discussions are hugely important for big U.S. tech companies and for the United States economy as a whole.
In this post, we will go over the basics of the tech taxes debate which recently occurred in Switzerland. We will discuss the key issues which were tackled, and highlight the importance of creating new, workable taxation standards for the digital economy. The digital era has brought all kinds of delightful niceties for populations around the globe. The problem, though, is that governments are still unsure about how to properly tax tech companies.
The Basics of the Tech Taxes Debate
Tech giants, such as Google and Amazon, often provide internet, e-commerce, social media, and other digital services to countries in which they have very little (or no) physical presence. This interesting phenomenon has raised an important, novel question about the ability of governments to impose a corporate tax on digital service providers even when those providers may lack substantial physical contact with a country. The primacy of this issue has fostered a sense of economic cooperation and development between many governments that ordinarily do not see eye-to-eye on other economic issues.
For instance, the governments of Britain, France, Italy, and other countries in Europe have suddenly found common ground on the issue of taxing American companies. One of the big questions is whether governments impose their own taxes in accordance with their own needs, or whether there be a “global minimum tax” uniformly imposed across the globe? This is one of the big questions facing national policymakers in the recent conference held in Switzerland.
Governments Frustrated by Corporate Profit Shifting
Another topic raised in the Swiss conference is the matter of corporate profit shifting to avoid taxation. Both historically and currently, companies have resorted to “profit shifting” in order to shield profits from heavy taxation. Profit shifting usually involves setting up headquarters in a relatively low tax country. That avoids the heavier taxes of another country. Profit shifting can also occur without necessarily establishing a substantial physical presence in a certain area; in some cases, profits appear in certain places only “on paper”. That, though, is sometimes enough to shield them from heavier taxation. Many experts theorize that this sort of maneuvering occurs principally because of unfair or excessively heavy taxes on companies. If governments can collaborate and develop taxation plans which are more fair, this may have the effect of curtailing some of the more reprehensible profit shifting by Silicon Valley tech companies.
New Tax Standards for the Digital Age
Given the continued growth of tech companies like Facebook, eBay, and Amazon, the need for improved taxation standards is urgent. France and the U.S. have already engaged in a bit of an international tax tug-of-war. Last year, the French finance minister announced plans to impose a 3% tax on revenues generated from digital services provided to French users. This plan quickly drew heavy criticism from the United States. In consequence, the Trump administration swiftly responded by threatening to implement a trade war on French products if France went through with the measure. Other countries took note of France’s plan and have contemplated similar digital taxes. Clearly, there is a need for agreement and compromise between all countries in this debate.
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This is just a broad overview of the issues brought up at the recent Swiss conference. In the future, we will circle back and discuss these topics in greater detail. Many of the topics discussed in the conference deserve their own article. At Mackay, Caswell & Callahan, P.C., we work diligently for the benefit of our clients. This means gathering the best research and putting in the necessary hours to offer the best possible counsel. Many of these tech companies have offices in New York State. Accordingly, many local companies will be affected by the outcome of any new global tax standard. For more information, reach out to us. One of our top New York City tax attorneys is available to assist you.
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