Expedite creation of tax system suitable for era of IT gian…

The Yomiuri ShimbunHow should global information technology (IT) giants be taxed? Discussions are intensifying to create international rules regarding taxation.

Taking the lead in these discussions are the Organization for Economic Cooperation and Development (OECD) and the Group of 20 (G20) major developed and emerging economies. A certain course of action will be sought at the meeting of G20 finance ministers and central bank governors to be held in Japan in June.

There has been deep-rooted criticism of IT giants for failing to pay tax commensurate with their enormous profits. Creating rules for a new era must be expedited. As the nation chairing the upcoming G20, Japan should spare no effort to compile views and ideas presented there.

Particularly problematic are the four U.S. IT giants including Google LLC and Apple Inc. dubbed the acronym GAFA.

The combined net profit of these companies in the October-December 2018 quarter reached $38.8 billion (about ¥4.3 trillion).

Yet under the current situation, tax cannot be imposed on business operators that do not have permanent establishments such as branches and factories in Japan. Even if these companies generate profits through the selling of goods to consumers in Japan via the internet, in principle they are not subject to corporate taxes.

Furthermore, it is difficult to grasp how the GAFA companies earn profits. An enormous amount of information collected from users such as their online purchase records and search history supposedly helps generate advertising revenues, but the actual situation is opaque.

Act for global fairness

It has also continually been pointed out that IT giants have evaded taxes through means such as transferring profits to operating bases in countries with low tax rates. An estimate by the European Commission shows that global IT companies face an effective corporate tax rate of only about 10 percent, compared with the more than 20 percent that regular enterprises pay.

It is excessively unfair that domestic companies have to compete in the same market with such IT companies that are exempt from paying taxes.

Also not to be overlooked is that GAFA have fully used their immense financial strength to buy out a succession of promising start-ups.

Google put the YouTube video-sharing website under its umbrella, while Facebook Inc. did the same to photo-sharing service Instagram. These companies bought out rival companies to avoid competition, in some respects accelerating the marketplace oligopoly.

Various existing systems seem to have failed to deal with the rapid rise of the IT giants. Reformulating rules for a wide range of matters, from taxation and competitive policies to the handling of personal data, is urged.

A gap exists between Europe, which is active in reviewing existing rules, and the United States and China, which are wary of such moves. The United States and China are home to giant IT companies, so they are likely concerned about situations that may become disadvantageous to their firms.

Instead of each country clinging to its own profit, each nation should closely coordinate with others to contribute to the growth and fairness of the entire world.

(From The Yomiuri Shimbun, Feb. 25, 2019)Speech


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