Concerns Over Trade Retaliation
There are forecasts that the introduction of a global digital tax targeting US big tech companies will effectively fizzle out with a ‘Trump re-election.’
According to major foreign media on the 10th (local time), tax law experts predict that with a second Trump administration in power, the 138 countries currently discussing the establishment of a global digital tax will fail to reach an agreement due to concerns over retaliatory measures such as high tariffs on exports to the US.
The introduction of a global digital tax was first discussed in 2021 by the Organisation for Economic Co-operation and Development (OECD) and the Group of Twenty (G20) to prevent tax avoidance by multinational corporations. If a multinational corporation has a profit margin exceeding 10%, it must pay 25% of the excess profit to the country where the revenue is generated, known as Pillar 1, and Pillar 2 is designed to allow other countries to impose additional taxes if a multinational corporation’s effective tax rate in a specific country is lower than the minimum rate (15%). Both are on the discussion table aiming for implementation next year.
The digital tax is bad news for US big tech companies such as Google, Apple, and Amazon, which generate enormous profits worldwide. Nevertheless, the Biden administration, which values multilateral cooperation, had formed some consensus on the introduction of the global digital tax despite Republican opposition, raising expectations that ratification would be achieved.
However, with a second Trump administration in power, discussions on the global digital tax are expected to fail due to retaliatory measures, making a fundamental review inevitable. Wei Cui, a tax law professor at the University of British Columbia, said, “Because Trump is in power, governments will hesitate to discuss and apply the digital tax.”
Accordingly, for the time being, the global digital tax is expected to survive as digital taxes independently introduced by individual governments. However, these are likely to become targets of the second Trump administration. In fact, during Trump’s first term, investigations were conducted to impose tariffs on 11 countries that had imposed or planned to impose digital taxes.
Canada, which plans to introduce a digital tax starting next year, is on edge. The Canadian government decided to impose a 3% tax on sales generated in Canada for big tech companies earning more than 20 million Canadian dollars annually in Canada and exceeding a certain amount of global revenue, despite US opposition. It is analyzed that this is effectively targeting US big tech companies such as Google and Meta, the parent company of Facebook, which dominate the Canadian market.
European countries such as France, Italy, Spain, the UK, and Austria have already introduced their own digital taxes. Daniel Byrne, CEO of the US think tank Tax Foundation, predicted, “There will likely be potential retaliation against countries implementing the digital tax under the new US administration.”
Nevertheless, some parts of Europe are reported to have a firm will to impose digital taxes on big tech. EU Commissioner for Taxation policy in the next European Commission, Wopke Hoekstra, emphasized, “Since a global agreement on the digital tax cannot be reached, it is unthinkable not to impose a digital tax at the European level.”
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
