Sorry Ireland. G20 finance ministers agree to close tax loopholes for tech firms by 2020
G20 finance ministers have placed large tech firms on notice over their tax arrangements going forward, with changes promised by 2020.
The ministers reached an agreement on Sunday to compile common rules to close loopholes used by global tech giants to reduce their corporate taxes, Reuters reported.
This comes after some stiff US opposition to some countries implementing their own digital tax schemes. In March this year the United States hit out at the ‘digital tax’ imposed on companies by the French government. A senior US treasury official called the move ‘ill conceived’, and highly discriminatory against American businesses.
Companies such as Amazon, Facebook, Google and others have long been criticised for their tax practices that sees them reducing their tax bills by booking profits in low-tax countries (such as Ireland) regardless of the location of the end customer.
The new G20 rules are sure to impact countries such as Ireland and Luxembourg, and make it more difficult for them to attract foreign direct investment with the promise of low corporate tax rates.
“At the moment we have two pillars and I feel we need both pillars at the same time for this to work,” Japanese Finance Minister Taro Aso, who chaired the G20 meetings, told Reuters.
“The proposals are still a little vague, but they are gradually taking shape,” he added.
“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,” Sunday’s G20 communique said.
“We will redouble our efforts for a consensus-based solution with a final report by 2020.”
According to Reuters, the first pillar is a plan to divide 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 tech companies are still able to find a way to book profits in low-tax havens, countries could then apply a global minimum tax rate to be agreed under the second pillar.
“I see a high degree of willingness to work together on this issue that few could have anticipated a year ago,” Pierre Moscovici, the European Union Commissioner for Economic Affairs was quoted as saying.
“We truly believe that the tech giants, which are not only the GAFA (Google, Amazon, Facebook and Apple), must pay their fair share of tax where they create value and profits.”
This dissatisfaction with the current tax arrangements for tech firms has led some countries to go it alone, with a number, including the UK, proposing national digital taxes.
France already implemented its digital tax at the start of the year.
Spain, Italy and Germany meanwhile are said to considering introducing its own ‘digital tax’ on tech giants.
The European Union is also seeking to reach an agreement to implement a European digital services tax.
For their part, tech companies have previously defended their tax structures, and insist they abide by tax laws as they’re currently written.
Do you know all about IT and the law? Take our quiz.