Ducking and Dodging !

The world tax regime is very kind to international companies by allowing them to arrange tax matters to avoid paying tax.  One of those dodges is intellectual property.  The right to reward for ownership of intellectual property is slippery and that person often seems to have residence in a country with supportive tax laws.

Another favourite dodge is manipulation of the price charged when intellectual goods pass between countries.  If they are going into a country with a high tax regime the stated price can be artificially low to mask the tax payable.  Echelons of high priced lawyers and accountants keep at the cutting edge of tax laws to ensure that international companies get the best of both worlds when it comes to tax payable.

Australia had proposed a fair tax on internet behemoths like Google, Facebook, Apple and Amazon in 2018.   We later changed course when US President Donald Trump threatened to impose retaliatory measures that would result in a trade war.  Instead, Australia promised to support a move by Paris based OECD countries and G20 countries to design an international tax accord which had a stronger chance of surviving and might even have been accepted by the internationals themselves.

That is now on the backburner because US Treasury Secretary Steve Mnunchin has writteen to treasurers in the United Kingdom, Spain and Italy  advising them that he believes that the talks are at an impasse.  America would not  entertain discussions until later this year at the earliest.  That reason is crystal clear.   This is an election year in the United States.

The collapse of an international deal will force dozens of countries - including Australia - into difficult decisions.  They may decide to continue to strive for a global deal without the US, or try to introduce their own digital tax.  Both options risk a retaliatory tariff from Trump who is highly protective of US tech business.  The UK plan for a digital tax could also be a hurdle in its upcoming negotiations for a free trade agreement with the US.

It is quite clear that nothing will eventuate until this US election is over in November and we see who sits in the oval office for the next four years.   Even if it produces a change in the presidency there is no guarantee that the incoming president will be sympathetic to a change in the tax regime that will see the world companies based in the US pay more tax.

Many countries have been hoping that an increase in tax revenue from the tech giants could have helped repair budgets damaged  by the Coronavirus pandemic and the recession that followed.
It is encouraging that last year Google reached a $481.5 million settlement with the Australian tax office after a protracted dispute flowing from an audit of its tax practices.

Tax justice still seems a long way from happening, but there are terntative signs that it is slowly moving in the right direction  !