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Fair intl rules should be quickly created for taxing huge IT firms

The Yomiuri ShimbunHow should taxes be levied on huge information technology companies that earn money worldwide through the internet? Nations around the world should cooperate in devising a fair system for that purpose.

The European Union has proposed to its member nations a new taxation plan targeting giant IT corporations. The plan is expected to cover such U.S. firms as Google and Amazon.com Inc.

In addition to their tax payments at home, companies whose businesses span many nations are only required by current international rules to pay taxes in countries where they have permanent facilities, such as branches and factories.

More than a few IT corporations whose main earnings derive from internet ads viewed by people earn large profits from countries where they have no such facilities. They also tend to set up footholds in countries where corporation tax rates are extremely low — a move aimed at concentrating earnings in those places.

The awareness of the EU, which is fumbling for ways to properly impose taxes in a manner suited to the corporate activities of a new age, is understandable.

The EU proposal would require each country within the area to levy 3 percent taxes on the sales earned by huge IT companies in its own land. The EU expects to secure a revenue increase of €5 billion annually as a whole, or about ¥650 billion.

However, EU tax reform plans require the approval of all 28 member nations. Such countries as Ireland, which has used its low tax rates as leverage to attract more corporations, are said to oppose the latest proposal. Forming a consensus among the EU nations about the plan is no easy task.

Don’t stick to own interests

Efforts to create global rules for a similar purpose are being spearheaded by the Organization for Economic Cooperation and Development (OECD).

The OECD plan is in line with the EU proposal in that both seek to ensure the countries with no permanent facilities run by such corporations would also be able to collect taxes from the firms. The OECD is making headway in the study of the scheme, hoping to reach a consensus among its member nations by the end of 2020.

Huge IT corporations are also conducting brisk activities in Japan. The government should actively be involved in laying down new rules and seek to settle the issue at an early date.

It is worrying that the United States — home to a number of global IT companies — is strongly opposed to the EU and OECD moves.

With the EU plan in mind, U.S. Treasury Secretary Steven Mnuchin issued a statement in March that said, “[The United States] firmly opposes proposals by any country to single out digital companies.” He seemed to be concerned that the proposal would undermine the competitiveness of domestic corporations.

This problem will remain far from being solved as long as each nation does not consider the nature of IT companies that expand the scope of their activities on a global scale, and persists with its own interests. Wisdom must be exercised in securing taxation suited to the realities of corporate activities.

Giant IT companies are making their presence felt so strongly in many countries that they could be described as social infrastructure. Corporations should realize the weight of their own responsibility.

It is hoped that an exchange of opinions will be promoted with authorities in other countries about how taxes should be properly paid, thereby leading to constructive discussions on the issue.

(From The Yomiuri Shimbun, May 8, 2018)Speech



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