Frances Ball 10 Jun 2019 11:57am

International taxes on digital giants to be ready for 2020

Finance ministers at the G20 in Fukuoka will co-ordinate on an international tax system for digital giants, due to be finalised in 2020

The ministers have agreed to “redouble” their efforts to tax digital giants fairly, according to the communiqué sent out after their meeting in Fukuoka.

The group welcomed the proposals made by the Organisation for Economic Co-operation and Development (OECD), which call for a consensus solution to developing a tax system for the digital economy.

The OECD recommended a two-pillar approach to taxing digital giants, which it explains in a report compiled alongside the G20 Inclusive Framework on Base Erosion and Profit Shifting project (BEPS).

The first approach concentrates on the allocation of taxing rights. It would review profit allocation.

The second approach is to develop rules which would allow jurisdictions to “tax back”, in the event that “other jurisdictions have not exercised their primary taxing rights or the payment is otherwise subject to low levels of effective taxation”.

Digital giants can choose to base themselves in low-tax jurisdictions, despite providing services across borders. The chancellor, Philip Hammond, has stressed the need for better international co-operation on taxing digital giants.

Last year’s Autumn Budget included a UK digital services tax on large tech organisations, but Hammond has now promised to scrap a UK-only digital tax, should the G20 group agree on an international tax framework.

France’s finance minister Bruno Le Maire has also vowed to scrap his country’s equivalent digital services tax as soon as an international approach is agreed.

In their communiqué, the G20 ministers agreed that global growth “appears to be stabilising”, although they noted that it remains low.

Trade and geopolitical tensions “have intensified”, the ministers noted. “We will continue to address these risks, and stand ready to take further action”, they added.