LONDON, July 9 (Xinhua) -- A quicker solution with international cooperation is needed to address the tax challenges arising from the digitalization of economies amid the COVID-19 pandemic, the Organization for Economic Co-operation and Development (OECD) said after a recent meeting.
The Paris-based body is trying to harmonize tax rules for digital companies with an international efforts, shifting taxation to the place where users of a service are located.
Despite these ongoing multilateral negotiations, several countries have decided to move ahead with unilateral measures to tax the digital economy, which have largely taken the form of digital services taxes (DST).
European OECD countries including France, Italy and Britain have implemented a DST. However, debate about this tax has never stopped.
Take Britain for example, a digital service tax has come into effect on April 1, 2020. It takes a percentage of sales from companies operating search engines, social media websites and online marketplaces with revenues above 500 million pounds (632 million U.S. dollars).
Glyn Fullelove, president of the Chartered Institute of Taxation (CIOT), told Xinhua that questions remain on the tax's scope and impact. "For example, will some online gambling and gaming platforms be in or out of this scope? There is continued uncertainty about this," he said.
Another major concern is about the base of the tax.
"It's hard for the company to make a reasonable assessment of how many UK users and the attributable amounts of revenue to the users, resulting in a lack of certainty either for the tax payer or the tax authority," he added.
John Vella, associate professor of Taxation in the Faculty of Law at Oxford University, told Xinhua that unilateral measures like DSTs raise a number of concerns.
"It's hard to predict their impact on the international scene. DSTs, or the threat of further DSTs, may put pressure on countries to reach a coordinated way forward but they may also sour relations between countries even further, potentially leading to trade wars," he said.
In Vella's eyes, there is need for fundamental reform of the international corporate tax system. Measures such as DSTs are not a long-term solution.
Although some countries claim that it's a temporary measure, there's no sunset clause in their DST laws. Fullelove pointed out that the DST should not be viewed as a long term solution but a temporary fix, and it should be repealed once a satisfactory agreement is reached internationally through the OECD.
One of the biggest challenges for the agreement lies in the United States, which has been at odds with countries that plan to impose the DST, arguing it unfairly target American tech companies such as Facebook and Google.
The good news is, according to the OECD, despite some previous media reports, the United States has not pulled out of the negotiations, signaling its ongoing engagement in the multilateral cooperation work.
Angel Gurria, secretary-general of the OECD, called for all participants to remain engaged, work together in a spirit of compromise and advance towards a solution on Pillar One, which aims to require businesses to pay more taxes where their consumers, and thus sales, are located.
Pillar Two will ensure that a minimum level of tax will be paid, no matter how much clever tax planning is undertaken by multinationals.
This is why an international agreement is needed to reach, whether partly in October and then later in 2021, or any other possible combination driven by the political agenda, according to the OECD.
Fullelove is optimistic about the achievement of international agreement. He said there might be a compromise from the talks since the last thing countries across the world want to see in the post-pandemic era is trade war.
According to some experts, although the coronavirus pandemic might be a hurdle for a global agreement, the prospect of tariffs and trade wars may ultimately help motivate governments to develop a consensual approach.