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. 


Saudi energy giant to invest $3bn in Bangladesh’s power sector

Updated 22 October 2019

Saudi energy giant to invest $3bn in Bangladesh’s power sector

  • Experts say deal will usher in more economic and development opportunities for the country

DHAKA: Saudi Arabia’s energy giant, ACWA power, will set up an LNG-based 3,600 MW plant in Bangladesh after an agreement was signed in Dhaka on Thursday.

The MoU was signed by ACWA Chairman Mohammed Abunayyan and officials from the Bangladesh Power Development Board (BPDB), officials told Arab News on Monday.

According to the agreement, ACWA will invest $3 billion in Bangladesh’s energy development sector, of which $2.5 billion will be used to build the power plant while the rest will be spent on an LNG terminal to facilitate fuel supply to the plant. Under the deal, ACWA will also set up a 2 MW solar power plant.

In recent months, both countries have engaged in a series of discussions for investment opportunities in Bangladesh’s industry and energy sectors. 

During the Saudi-Bangladesh investment cooperation meeting in March this year, Dhaka proposed a $35 billion investment plan to a high-powered Saudi delegation led by Majed bin Abdullah Al-Qasabi, the Saudi commerce and investment minister, and Mohammed bin Mezyed Al-Tuwaijri, the Saudi economy and planning minister.

However, officials in Dhaka said that this was the first investment deal to be signed between the two countries.

“We have just inked the MoU for building the LNG-based power plant. Now, ACWA will conduct a feasibility study regarding the location of the plant, which is expected to be completed in the next six months,” Khaled Mahmood, chairman of BPDB, told Arab News.

He added that there are several locations in Moheshkhali, Chottogram and the Mongla port area for the proposed power plant.

“We need to find a suitable location where the drift of the river will be suitable for establishing the LNG plant and we need to also consider the suitability of establishing the transmission lines,” Mahmood said.

“It will be either a JV (Joint Venture) or an IPP (Independent Power Producer) mode of investment, which is yet to be determined. But, we are expecting that in next year the investment will start coming here,” Mahmood said.

BPDB expects to complete the set-up process of the power plant within 36 to 42 months.

“We are in close contact with ACWA and focusing on the successful completion of the project within the shortest possible time,” he said.

Abunayyan said that he was optimistic about the new investment deal.

“Bangladesh has been a model for the Muslim world in economic progress. This is our beginning, and our journey and our relationship will last for a long time,” Abunayyan told a gathering after the MoU signing ceremony.

Economists and experts in Bangladesh also welcomed the ACWA investment in the energy development sector.

“This sort of huge and long-term capital investment will create a lot of employment opportunities. On the other hand, it will facilitate other trade negotiations with the Middle Eastern countries, too,” Dr. Nazneen Ahmed, senior research fellow at the Bangladesh Institute of Development Studies (BIDS), told Arab News.

She added that Bangladesh needs to weigh the pros and cons before finalizing such contracts so that the country can earn the “maximum benefits” from the investment.

“It will also expedite other big investments in Bangladesh from different countries,” she said.

Another energy economist, Dr. Asadujjaman, said that Bangladesh needs to exercise caution while conducting the feasibility study for such a huge investment.

“We need to address the environmental aspects, opportunity costs and other economic perspectives while working with this type of big investment. Considering the present situation, the country also needs to focus on producing more solar energy,” Dr. Asadujjaman told Arab News.