THAT tech giants, most of them from the United States, avoid paying taxes is common knowledge.
But how much have countries around the globe been denied access to such corporate tax has been a subject of debate. Until now, that is.
The Fair Tax Mark, a United Kingdom tax certification scheme, says in its December 2019 report — The Silicon Six (Facebook, Apple, Amazon, Netflix, Google and Microsoft) — that the figure is an astounding US$100 billion. An Organisation for Economic Cooperation and Development (OECD) estimate puts it even higher — US$240 billion.
Little wonder why OECD has been leading the push for a new global tax law. How come countries are losing out on so much? Blame it on the nature of the world we inhabit.
In the brick-and-mortar world, only companies with physical presence were taxed. Company lawyers had a phrase for it: permanent establishments. The less lawyerly called them branches. This old world is fast disappearing, but not so the tax laws. There is yet another peculiarity in this digital world. Even assets have become intangible. Intangibility means close to zero traceability. This works out very well for tech giants who “park” their assets in tax havens.
But the world is beginning to say “enough is enough”. But approaches seem to differ, if the World Economic Forum in Davos, Switzerland, is anything to go by. Britain and France are keen on digital services tax, while the US prefers the corporate tax route. This may not be creating a level playing field.
A better approach would be a global agreement on digital taxes, one in which developed, developing and emerging economies benefit. And one in which tech giants are prevented from “shifting” their intangible assets to tax havens.
Economists, such as Thomas Piketty, Nobel laureate Angus Deaton and Jeff Sachs, have in the recent past called on world leaders to put an end to tax havens. They offered a number of reasons, which remain valid still.
One, tax havens do not add to overall global wealth or wellbeing. Two, they serve no useful economic purpose. Three, while these jurisdictions undoubtedly benefit some rich individuals and multinational corporations, this benefit is at the expense of others. A 2016 estimate says poor countries lose US$170 billion of taxes every year to tax havens. Four, they perpetuate inequality. OECD’s approach may have much going for it.
The proposal considers a proportion of sales in a consuming country to be a taxable right of the country against the foreign-based companies. Being a proportion of sales, a global minimum needs to be agreed upon. But because most of these tech giants are American, expect the US to negotiate to the advantage of its Silicon Valley dwellers.
Malaysia, like South Korea and India, is taxing digital trade as part of its consumption tax. This is unlike France’s digital tax regime, which taxes revenues from certain digital businesses.
While the French model can rake in an estimated US$567 million from tech giants, Malaysia’ consumption tax bill is paid by Malaysians.
Tech giants like Google escape unhurt. According to one media report, Google and Facebook make RM2 billion from Malaysian advertisers. This is argument enough to join the rest of the world in exercising Malaysia’s taxing right.