Convergencia Research, Consultoría especializada en Latinoamérica y Caribe
Thursday, November 07, 2019

France marks the way for global control of technology companies

It charges them 3% on revenue, while waiting for the “unified OECD” proposal. Spain intends to copy the measure if consensus is not reached soon.

With the imposition of a fine of almost € 1 billion on Google for irregularities in corporate tax between 2011 and 2014, France reached a record in tax matters. The approval of the GAFA Rate (Google, Apple, Facebook and Amazon) was the initiative to get these mega businesses to pay taxes in their territory. The French government argues that it seeks to combat tax havens, which apparently increased its flow of deposits with funds from these digital companies.

Technological multinational companies take advantage of the legal and fiscal ease to generate income in a country and pay there a minimum of tax that is not related to the total profits obtained. Current figures from the International Monetary Fund (IMF) indicate that offshore centers concentrate a wealth of € 6.3 billion, the equivalent of 8% of World GDP. And they generate losses to the nations of about US$500 billion a year for taxes that are not taxed.

Part of the problem originates in the fact that countries such as Ireland, for example, have a very low tax rate and do not charge taxes on intellectual property, which encourages transnational companies - in particular, North American companies - to transfer their profits there and then the deposit in tax havens. In 2018, the four GAFA companies paid the Spanish treasury only € 29 million in taxes, when they billed around € 960 million.

After the negotiation that the United States began with France, the OECD recently presented a preliminary proposal that seeks to replace the GAFA Rate, and initiated a public consultation process that will end on November 12. The document took into account the contributions of three of the member countries and although it does not set a fixed percentage, it does request that a minimum be considered for the application of an additional percentage - if necessary -, at the discretion of each country. Several economy ministers have spoken in favor of this measure, which would be ready by 2020.

Spain has not made a decision, due to political uncertainty. But the Minister of Economy and Business, Nadia Calviño, said they are willing to impose this tax unilaterally if the EU does not rush to establish an agreement.

As for technology companies, Amazon has already announced that as from October it will transfer the new French tax to its rates and will do the same if Spain copies its neighbor.

For the expert in regulation and digital economy Carlos López Blanco - he chairs the Digitalization Commission of the Spanish Chamber of Commerce -, the GAFA Rate responds to the fact that the control of digital companies is much lighter than that of traditional industries. Their relocation allows them to do a “forum shopping”: choose several countries to settle in and be subject to their legislation, López Blanco told Convergencialatina.

The expert considers that the digital taxes announced by France and Spain have numerous technical deficiencies and have an improper design of a modern tax system (fixed income tax). Its function is to put pressure on companies and the US government to move forward with a global solution to the problem.

For the Executive Director of the Asociación Latinoamericana de Internet (ALAI) (Latin American Internet Association), Gonzalo Navarro, the unilateral decision of France does not represent a favorable advance nor does it contribute to reaching a global agreement, because once taken, there is no way to go back.

In talks with Convergencialatina, Navarro recalled that ALAI and the OECD presented clear recommendations in this regard and stressed the importance of waiting for the result of technical studies that allow measuring the impact of the measure on the growth of the industry. Regarding the Latin American prospects, he said that the next G20 meeting should be expected.

Considering the data presented, it would be essential to obtain consensus to rethink the international tax system within the framework of multilateral organizations.

The GDPR experience

Just as the General Data Protection Regulation (GDPR) became a global standard and any attempt to make global regulations will be inspired thereon, the same is expected to happen with the GAFA Rate. But to reach an agreement, the relationship between the US and the EU, which is currently stressed by a war of tariffs and disputes over supremacy in the evolution towards the digital economy will be essential.

 

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