France and the U.K. are edging closer to establishing a system to tax tech giants like Amazon.com Inc. and Alphabet Inc.’s Google, even as the OECD tries to reach global consensus on its efforts to rewrite international tax rules.
These countries and several others, including New Zealand, Italy, Austria, and India, have pushed forward with digital tax plans—with France poised to act as early as April.
Australia has abandoned its plans to launch the tax and said it will instead focus on multilateral efforts at the Organization for Economic Cooperation and Development.
The uptick in digital tax proposals, which most jurisdictions indicate are temporary measures, makes it clear what’s at stake if efforts to find a global consensus at the OECD fail, tax practitioners warned.
“There is general acknowledgment that a coordinated global response to challenges posed by digitalization of the economy is preferred, and that the OECD is the right body to lead those efforts,” said Ross Robertson, a tax partner at accounting firm BDO LLP.
The OECD is working toward a global solution by the end of 2020 and will develop a working plan for next steps by spring 2019. Its work is spurred by concerns many countries have about multinationals not paying enough tax, or not paying it in the right places.
“What we need is an OECD approach that that will mean companies do not have to come up with completely different systems to comply with all these unilateral taxing measures,” said Giles Derrington, associate director of policy at TechUK, a tech industry group.
The EU proposed a digital services tax in 2015, but talks have stalled as some countries, including Ireland and Finland, remain staunchly opposed to it.
French lawmakers are set to debate and vote on the new tax April 7-10; it is expected to pass.
Tech giants could then have just six months to prepare for the first payment of France’s 3 percent digital tax due in October.
The time frame for the tax’s application and first payment was set out in a bill presented to the country’s cabinet March 6 by French Finance Minister Bruno Le Maire.
Dubbed the GAFA tax—after Google, Amazon, Facebook Inc., and Apple Inc.—the levy would apply to companies with at least 750 million euros ($848 million) in worldwide digital revenue and 25 million euros of French digital sales.
The U.K. government indicated in its March 13 Spring budget that in coming weeks it will publish the results of a consultation into its proposed digital services tax, which closed in February.
The country proposed a 2 percent tax on the digital revenue of companies that generate at least 500 million pounds ($653 million) of global revenue and U.K. digital sales of 25 million pounds.
After the government publishes the results, it aims to include the tax as part of the Finance Bill 2019. If passed, the tax would be enacted into law in January 2020 and become effective from April 2020.
Australia has abandoned its plans to launch a digital services tax, Josh Frydenberg, the country’s treasurer, said in a March 20 news release, citing overwhelming negative response to a public consultation on the issue.
The government said it will focus instead on multilateral efforts at the OECD.
“Australia’s ongoing commitment to the multilateral process complements the strong action we have taken to strengthen the integrity of Australia’s corporate tax system and prevent multinational tax avoidance,” he said.
New Zealand said Feb. 18 that it was considering launching a digital services tax.
Finance Minister Grant Robertson and Revenue Minister Stuart Nash said at the time the government expects to publish a proposal in May .
“Highly digitalized companies, such as those offering social media networks, trading platforms, and online advertising, currently earn a significant income from New Zealand consumers without being liable for income tax. That is not fair, and we are determined to do something about it,” Robertson said.
Italy first proposed a domestic digital tax in 2017.
The Italian parliament approved a 3 percent tax in the 2018 Budget Law. But the Ministry of Finance will need to issue an implementation decree, which tax advisers said could be published April 30. The tax will take effect 60 days later.
Unlike the EU’s proposed tax, Italy’s 3 percent tax hits buyers of the service rather than the sellers.
Any businesses that make more than 3,000 business-to-business digital transactions in Italy during a calendar year would be liable for the tax. Companies can’t use the tax to offset Italian income tax.
The Austrian Chancellery proposed a 3 percent tax Jan. 10 that would be paid by sellers of online advertisements, like Facebook and Google.
The tax would be levied on any company with at least 750 million euros in worldwide revenue and 10 million euros in online advertising revenue in Austria.
The proposed tax is being reviewed by a government-appointed task force, whose findings are expected in the coming weeks.
Tech companies with users in India will have to wait several months to learn if they’ll be on the hook for the 40 percent tax rate that is already applied to foreign brick-and-mortar companies in the country.
The “significant economic presence” rules for the tax, set to take effect in April, will apply income tax to digital-business profits deemed to be derived from India.
Details of the thresholds have yet to be published and may now come after elections to be held in May or June of this year as a result, practitioners warned.
—With assistance from Matthew Brockett in Wellington, New Zealand (Bloomberg).
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