Introduction
Back in 2020, the world was on tumultuous grounds with Covid-19 and preparations on US presidential candidates election. While Trump was seeing the move of European regulators against Big Techs as a discrimination act against American firms, Biden’s administration was a strong proponent on putting a global tax on tech giants. An open question still remained: How to tax internet commerce? And there is still not a clear answer yet…
To recap the story: PSD1 was back in 2007 promising to fight and end the monopoly regime established by big banks. The payments service world saw a new bright future: Big Techs. PayPal was the first EU pioneer that obtained the e-money license and successfully entered onto the Luxembourg market. And the expansion only then began.
PSD2 went live in 2018, allowing non-bank entities to further expand and branch out on the payments sector. BigTechs fully took advantage of the opportunity and leveraged the old legacy systems that traditional banks took pride in, and expanded the horizons of clients: speed and easiness were the new norm. Alipay, Facebook and Google followed. The era of e-money licenses started, while the regular payment institution licenses suffered a downward spiral trend.
Luxembourg (Paypal, Amazon, ebay, Rakuten, Alipay) is ranking first in issuing big tech licenses, running up against Ireland (Facebook) and Lithuania more recently (Google). It is only expected and most likely inevitable that the number will steadily grow, due to further UK companies relocating to the EU in the light of Brexit.
In the light of Covid-19 and economic clashes across the globe, going beyond PSD2 and reinforcing regulations has been a top priority. A new perspective on how the tax system is working for Big Tech was given, since it can provide a great deal of revenue for the total pandemic budget. EU leaders are debating on new frameworks for Big Techs that would make it easier for countries to get the revenue generated within their borders rather. In the current political landscape, still recuperating from the Covid-19 repercussions, EU countries are acting on an individual basis when it comes to act upon digital services taxes.
US & Big Techs
In the United States, the position of regulators when it comes to Big Tech has changed under Biden’s administration, focused on boosting taxes on earnings stashed overseas. Technology giants led by Apple Inc. and Microsoft Corp. disclosed more than $100 billion in profit outside the U.S. in their last fiscal years, making them first targets under the new proposal. Biden has also proposed a 15% minimum tax on book income “so that no corporation gets away with paying no taxes,” according to his website.
However, this does not necessarily mean the United States will stop pushing back on digital taxes already in place, especially where there is a potential of double taxation in sight.
EU & Big Techs
As mentioned in the beginning, Covid-19 has proved to be in many ways a facilitator for change. The EU took it upon themselves to start formulating and implementing a regulator procedure to tax Big Techs. And while an unionized plan of action was expected, EU countries have started to take matters into their own hands.
French President Emmanuel Macron was among the first to support the broader OECD process and has seen the matter of Big Techs to pay more tax as a duty and social justice. France has set up the first strike, imposing 3% of Big Tech’s French revenue to be paid in taxes. Italy, Turkey, and India have followed France in levying a tax on foreign digital goods leading to further investigations by the United States.
And now, moving to the present story… Recap: The EU demanded $14.4B in back taxes from Apple, which has come under appeal and counter-appeal since. However, Apple argued against the accusations and welcomed tax reforms across Europe.
New developments: The Luxembourg-based General Court, the second highest in the bloc, announced this May that the EU failed to prove Amazon received special treatment, throwing out the tax bill.
Asia & Big Techs
Vietnam is among the Asian countries already looking for implementation to pursue Big Techs such as Alibaba or Google to adhere to new tax regulations that would offer the government more potential and reach in a rapidly growing economy. As a first initiative, Vietnam would grant state inspectors access to an e-commerce site’s internal data on merchants, while the second initiative would introduce a tax collection regime deemed “onerous” and “concerning” by a trade group funded by the likes of Apple and Japanese e-commerce giant Rakuten.
On the shores of China, many developments are already in place, with regulators issuing earlier this April a US$2.8 billion fine on Tmall owner Alibaba Group Holding for antitrust violations. China’s regulators – including antitrust watchdog the State Administration for Market Regulation (SAMR), internet regulator the Cyberspace Administration of China (CAC), and the State Taxation Administration, are pursuing strong restrictions and warnings on 34 of the country’s biggest tech companies.
Lawyers and regulators are already moving into setting up a new set of rules that will help with the implementation of existing requirements, such as online merchants having to pay taxes under China’s existing legal frameworks, including the e-commerce law and tax laws.
How are big techs fighting back?
“We want a global tax regime”… That’s according to Big Techs.
Corporations are also mainly agreeing with the regulators, but however they emphasize the need for global tax rules. They argue that a stable and reliable system should be the priority, rather than piling on compliance costs and the political battles that would inevitably follow.
