Billions Lost in Taxes: And How They Did It
About 200 billion dollars is estimated to have been lost in global revenues due to corporate tax evasion. The monstrous size of the losses raises a question as to how the tech companies got away with it. To fully comprehend how they did it, we have to first understand that not every country in this world has the same corporate tax rates. For instance, USA has a federal tax rate of 21% which is much higher than the tax rates in Ireland, Bermuda and Switzerland. Meaning, big companies have to pay more money to the government in United States in comparison to counties like Ireland, Bermuda and Switzerland. Tech giants reduce their tax bills drastically by booking their profits in these low tax countries.
These issues were put forward in the G20 Summit and it drew the world’s attention to the discrepancies in the tax figures of several major tech companies. For example, back in 2017, Amazon just paid £1.7 million of tax on profits of £72 million in the UK, whereas the 19% tax rate required them to pay a whooping £13.68 million, these absurd numbers are not only evident for Amazon, but for nearly all major tech companies. In order to mitigate these sort of unethical practices, the G20 countries have decided to introduce digital taxation. Even though France and Britain stand in support of this new tax code, USA stands very much against it, claiming that these tax reforms are being made to solely target American tech companies.
Digital Taxation: The Saving Grace
The proposal of digital taxation is based on three factors: user participation, marketing intangibles and significant economic presence. The problem is that when it comes to digital taxation, there are no hard and fast rules. At least, not yet. The reason why we’re in this worrisome situation in the first place is because technology advanced at a much greater pace compared to the speed at which laws evolved. Now, in order to keep the tech-companies in check, the old tax laws need to be replaced with new, digital ones. However, it must be noted that the process of implementing digital taxation will be a long and difficult one, but it must be done to close the loopholes in the system that the Multi-National Companies have been abusing for so long.
2020: The Probable After-Effects
In the event that the digital taxation does get implemented world-wide by 2020, it would trigger some drastic changes. Bearing the knowledge that the amount of taxes that they would have to pay would remain same regardless of the company’s physical geographical location, the MNCs would pull out of the aforementioned tax heavens, taking all their investment money with them. This will dry up the foreign direct investment to the countries which currently have the lowest corporate tax rates. On the flip side, the countries which were being deprived of their rightful share of tax revenues would start to flourish upon receiving their deserved amount of money in taxes. Furthermore, small companies which will be marginally making profits will be hit the hardest due to digital taxation.
The list of probable outcomes does not end here. When it comes down to it, we can’t really be sure how the introduction of this form of taxation will impact the world economies – all we can do is predict. The outcomes that seem highly likely in the current state of events, may turn out to prove entirely out of context in the future. All we know is that, come 2020, we will have a set of reformed tax laws in place that will make multinationals more accountable.
