Efforts needed to create a fair playing field

Friday, 2021-07-30 10:38:21
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An order processing centre of Amazon in the United States. (Photo: Bloomberg)
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NDO – Tightening tax management over multinational digital platforms is no longer a new story on the global scale. In the context of these companies seeking to shift their revenue and profits to “tax havens” to pay far less taxes than the profits they earn, accelerating the reform of global tax systems towards the goal of creating a “fair” playing field is now an urgent need.

According to the Tax Justice Network (TJN), a global research network on tax issues, businesses’ tax avoidance in general costs the world about US$427 billion a year. This figure is equivalent to the annual salary of nearly 34 million nurses globally. Europe and North America are the regions that suffer the most from tax dodging. However, TJN also pointed out that poor countries are more severely affected by tax avoidance. While annual tax losses in high and upper-middle income countries (as classified by the World Bank) represent only 8% of the total public health budget, the proportion is approximately 52% in low and lower-middle income economies.

Tax dodging occurs in many areas, but analysts say that multinational digital platforms have fully taken advantage of legal loopholes to “avoid taxes”. Tech giants such as Google and Facebook pay very low tax rates in “tax havens” like Ireland, while not paying taxes in the countries that bring them profits. According to a report recently released by the tax transparency advocacy group Fair Tax Foundation, the six giant US tech firms of Facebook, Alphabet (Google’s parent company), Amazon, Netflix, Apple and Microsoft avoided paying US$149 billion in taxes between 2011-2020.

This shows that the reform of management mechanisms over global enterprises’ operations has now become an extremely urgent matter. In such context, the agreement to impose a minimum corporate tax on multinational corporations is being welcomed by public opinion. It is expected to serve as a useful tool to deal with the painful tax dodging problem, creating a fair playing field for businesses and encouraging competition on a positive basis, thereby boosting global economic growth. The agreement also brings about significant financial resources to countries. French Finance Minister Bruno Le Maire estimated that France could earn billions of additional euros each year thanks to the agreement.

Currently, the world is struggling to cope with the negative impacts of the COVID-19 pandemic and striving to bring the economic ship back on the growth trajectory. Analysts say that the fight against tax fraud will generate significant revenue, offering governments more financial resources to build hospitals and schools, improve infrastructure and overcome the consequences induced by COVID-19. Tax regulations related to the digital economy also should also be further tightened, in the context that the pandemic is fuelling a boom in online shopping.

The agreement on global corporate tax reform has been hailed by the G7 Finance Ministers as a “world-changing” landmark. However, to put this agreement into effect, countries must continue to negotiate on detailed terms, in which the most difficult task is to find a common voice on a global minimum corporate tax rate.