The United States is considering invoking punitive tariffs in retaliation for moves by the European Union and nine countries including India and Brazil to introduce digital service taxes on big tech companies.
Countries in Europe and other parts of the world are financially struggling to cope with the novel coronavirus pandemic as they mete out large-scale economic packages. They are thus aspiring to tap the financial resources of information technology giants that are thriving from the rapid spread of online meetings and internet shopping amid measures to prevent viral transmissions. The United States, home to major tech firms such as Google and Amazon, is lashing back at those moves.
Under current international rules, firms that are subject to taxation overseas are limited to manufacturers that operate factories, and other such firms. American tech giants have accordingly paid less tax than those other firms despite their enormous profits gained overseas.
In order to rectify the inequality, it is necessary to lay out a system to levy taxes on tech companies -- all the more so as the world faces a state of emergency, with countries and regions lacking financial resources to protect the daily lives of their own people from the ongoing pandemic. The world needs to give the establishment of new tech tax rules urgent attention.
The Group of 20 economies that include Japan, the U.S., the EU, as well as emerging countries, have been looking into those new regulations. However, the EU and the nine countries are moving ahead with their own taxation programs without waiting for new, common rules to be developed. As unintegrated taxation systems could cause disruption among corporations, they should avoid such moves.
The root cause of the current problem lies with the Donald Trump administration's dogmatic policies.
The EU and other economies have been steering toward introduction of their own taxation rules because talks over the new tech tax rules were interrupted by the U.S. at a time when parties involved were seeking to reach an agreement by the end of the year.
Late last year, the United States abruptly called for a plan that effectively waters down the new scheme by allowing companies to choose whether to abide by new tech tax rules, sparking a backlash from the EU, Japan and other countries. It is wrong for Washington to bring up punitive tariffs while shelving the very process where its America First policy disrupted multinational negotiations.
Washington also recently announced a policy to pull out from the talks over the new tax rules. While the move was aimed at rattling negotiation partners so they would retract taxes on tech giants, it has actually led the EU to take a significantly tougher line. Intimidation only deepens conflict.
Up until now, the Trump administration had imposed unilateral sanctions on other countries over trade and other issues, which provoked retaliation from those countries and aggravated the world economy. If Washington is to invoke sanctions this time around, that could further disrupt the global economy, which has already plunged into a serious crisis due to the coronavirus pandemic.
Concerted efforts among countries and regions involved are imperative to put together the new tech tax rules. Japan, which chaired the G-20 summit last year, has taken on the role of spearheading negotiations over those regulations. The country needs to call for concerned parties to find common ground for a swift agreement.