Focus on digital economy supervision: look at digital tax after G7 agreement

Original title: Focus on digital economy supervision: look at digital tax after G7 agreement

Analysis conclusion

The G7 agreement signed this time covers digital tax and minimum tax rate. The market generally pays more attention to the latter, but we believe that digital tax-related policy changes are also worthy of attention.

The key elements of the agreement involved in fiscal and taxation are: (1) For the largest and most profitable companies with a profit margin of more than 10%, at least 20% of the excess will be redistributed, and taxation rights are granted to each country, which will be allocated. Ways to reach a fair and reasonable solution; (2) Cooperation in the formation of a new international tax system, abandoning digital taxes or other similar taxes; (3) Countries should implement a minimum tax rate of 15%; (4) Central bank figurescurrency(Central Bank Digital Currencies) emphasized that a common standard will be introduced later this year.

In the previous report, “Will the Digital Tax Come?” In 》, we analyzed the significance of digital tax collection and the current progress. The value of digital taxation lies in solving the mismatch between the place where value is created and the place where profits are taxed. Large multinational companies (especially Internet companies) can operate in other countries without setting up business premises, but other countries cannot do so. Under the new tax system, these incomes derived from their own countries are taxed. In addition, large companies often use special tax arrangements to avoid taxation (such as the Irish-Dutch sandwich structure). The digital tax is levied on the income of digital services in the country to solve this problem.

Since the current tax rates of G7 countries are all higher than 15%, the minimum tax rate arrangement will not have much impact before further promotion. The redistribution of taxation rights for large enterprises is more worthy of attention. Considering that a considerable part of them are international Internet giants, we believe that this redistribution approach is similar in nature to the introduction of a digital tax, which will result in a transfer of profits from the giants to the government: (1) In July 2019, the United States planned to impose a tax on France. China’s digital service tax initiated a “301 investigation”, accusing the French government of unfairly targeting certain US technology companies, and subsequently called the suspension of collection; (2) On June 3, 2021, the Office of the United States Trade Representative issued a statement that will , Spain, Turkey, India and Austria levy 25% retaliatory tariffs on goods totaling 2.1 billion U.S. dollars to counter the above-mentioned six countries’ requests to Facebook, Google,AmazonWait for US technology companies to collect digital service tax. However, the above-mentioned retaliatory tariffs will not be implemented in the next 6 months. During this period, the United States will continue to negotiate with relevant countries under the framework of the OECD and the G20; (3) In this negotiation, the United States requires France , Britain and Italy waived the new digital tax in exchange for the tax rights allowed by the agreement. It is not difficult to find that the reason for the United States to impose (or threaten to impose) retaliatory tariffs is that the new international tax system envisaged in the G7 agreement is beneficial to the United States (the United States will also receive incremental taxes from large companies), but the unilateral digital taxes in EU countries Not good for the United States.

The risks brought by the global tax system changes to my country’s digital giants should not be ignored: (1) Whether it is a new international tax system or a digital tax, Chinese Internet giants and even other “going overseas” enterprises may become the objects of taxation; ( 2) China will also actively participate in the formation of a multilateral plan for international tax reform. When the consensus plan is officially implemented globally, new changes may also occur in how tax revenues from domestic digital services are distributed among governments, users, and enterprises.

risk warning

From a global perspective, the increase in the overall tax burden may inhibit the development of large enterprises, thereby adversely affecting innovation in related fields;

International negotiations on digital taxes fell short of expectations, and even retaliatory tariffs appeared, which in turn affected global economic growth.

(Article Source:Orient Securities）

(Editor in charge: DF010)