G20 agrees to push ahead with digital tax

Not everyone is unhappy about the trade war: US garlic producers have welcomed the tariffs as Chinese exporters have all but wiped out garlic growers across the country. (AFP)
Updated 09 June 2019

G20 agrees to push ahead with digital tax

  • Washington is concerned the tax would target US Inernet companies unfairly
  • Many feel low tax burden for big tech firms is unfair

FUKUOKA, Japan: Group of 20 finance ministers agreed on Saturday to compile common rules to close loopholes used by global tech giants such as Facebook to reduce their corporate taxes, a copy of the bloc’s draft communique obtained by Reuters showed.

Facebook, Google, Amazon, and other large technology firms face criticism for cutting their tax bills by booking profits in low-tax countries regardless of the location of the end customer. Such practices are seen by many as unfair.

The new rules would mean higher tax burdens for large multi-national firms but would also make it harder for countries such as Ireland to attract foreign direct investment with the promise of ultra-low corporate tax rates.

“We welcome the recent progress on addressing the tax challenges arising from digitization and endorse the ambitious program that consists of a two-pillar approach,” the draft communique said. “We will redouble our efforts for a consensus-based solution with a final report by 2020.”

Britain and France have been among the most vocal proponents of proposals to tax big tech companies that focus on making it more difficult to shift profits to low-tax jurisdictions, and to introduce a minimum corporate tax.

This has put the two countries at loggerheads with the US, which has expressed concern that US Internet companies are being unfairly targeted in a broad push to update the global corporate tax code.

“The United States has significant concerns with the two corporate taxes proposed by France and the UK,” US Treasury Secretary Steven Mnuchin said on Saturday at a two-day meeting of G20 finance ministers in the Japanese city of Fukuoka.

“It sounds like we have a strong consensus” about the goals of tax reform, Mnuchin later said. “So now we need to just take the consensus across here and deal with technicalities of how we turn this into an agreement.”

Mnuchin spoke at a panel on global taxation at the G20 after the French and British finance ministers voiced sympathy with his concerns that new tax rules do not discriminate against particular firms.

Big Internet companies say they follow tax rules but have paid little tax in Europe, typically by channelling sales via countries such as Ireland and Luxembourg, which have light-touch tax regimes.

The G20’s debate on changes to the tax code focus on two pillars that could be a double whammy for some companies.

The first pillar is dividing up the rights to tax a company where its goods or services are sold even if it does not have a physical presence in that country.

If companies are still able to find a way to book profits in low tax or offshore havens, countries could then apply a global minimum tax rate to be agreed under the second pillar.

The path to a final agreement is still fraught with difficulty because of disagreement on a common definition of a digital business and on how to distribute tax authority among different countries.

The G7 likely will not issue any communique at a meeting of the world’s leading economic powers next month, according to the official. Still, several finance ministers at the G20 said on Saturday they needed to act quickly to correct unfair corporate tax codes or risk being punished by voters.

“We cannot explain to a population that they should pay their taxes when certain companies do not because they shift their profits to low-tax jurisdictions,” French Finance Minister Bruno Le Maire said during the panel discussion.

The US government has voiced concern in the past that the European campaign for a “digital tax” unfairly targets US tech giants.

Earlier this year, countries and territories agreed a roadmap aimed at overhauling international tax rules that have been overtaken by the development of digital commerce. 


US removes some Chinese furniture, modems from planned 10% tariffs

Updated 17 August 2019

US removes some Chinese furniture, modems from planned 10% tariffs

  • US President Donald Trump on Tuesday delayed more than half of the proposed tariffs until December
  • The $114 billion retail furniture industry has been among the sector’s hardest hit with price increases due to Trump’s tariffs

WASHINGTON: The Trump administration is sparing some Chinese-made household furniture, baby items and Internet modems and routers from its next rounds of 10 percent tariffs, it said on Friday.
The US Trade Representative’s office released a complete list of the items that were removed from $300 billion in tariffs scheduled to go into effect on Sept. 1 and Dec. 15, some of which had already been hit with 25 percent tariffs.
Trump on Tuesday delayed more than half of the proposed tariffs until December, saying it would help shield businesses and consumers from the US-China trade war fallout during the Christmas selling season.
The new list of 44 categories of spared imports, worth about $7.8 billion according to US Census Bureau data, also includes some chemical compounds used in the manufacture of plastics. Reuters previously reported that bibles and religious texts would be spared from the tariff list.
Modems and routers made in China were part of a $200 billion list of products hit with tariffs last September that have since been raised to 25 percent. Friday’s exclusion would avoid a further 10 percent hike as Trump imposes tariffs on Sept. 1 to products in the same broad customs category, including smart watches, smart speakers and Bluetooth headphones.
The bulk of the items removed from the tariff list were furniture products, including wooden- and metal-framed chairs and those made of plastics. Some of these were previously hit with tariffs as part of broader furniture categories.
Baby-related furniture items also were spared, including toddler beds, bassinets, cradles, strollers and children’s seats.
The $114 billion retail furniture industry has been among the sector’s hardest hit with price increases due to Trump’s tariffs, which rose to 25 percent in May.
The US Labor Department said on Tuesday that the price index for household furnishings rose 0.4 percent in July, marking its third consecutive monthly increase and contributing to broad-based growth in consumer prices during July.