09/17/2020

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As the Pandemic Continues, Countries Search for Revenue Sources



Taxing the Tech Industry


During the pandemic, the flow of capital around the world has been anything but simple. With retail on pause, sports and other entertainment cancelled, and gas prices at record lows, many countries have been strapped for tax revenue. However, certain sectors of the tech industry are thriving, and many countries are trying to figure out how they can earn tax revenue from this relatively healthy part of the economy.

Taxing online industries is tempting for countries who have had to spend enormous amounts of money bailing out citizens and small businesses during the coronavirus pandemic. According to a report from the United Nations Conference on Trade and Development, nearly $26 trillion was spent online in 2018. To put that number in perspective, that’s just about a third of global GDP.

For the United States, however, international taxes on online goods and services are a cause for concern. A huge portion of the world’s tech companies are American. Apple (AAPL), Facebook (FB), Amazon (AMZN), Netflix (NFLX), Google (GOOGL), Microsoft (MSFT), and other American tech companies have been providing services around the world during the pandemic. In the first quarter of 2020, the collective revenue of the companies listed hit $234 billion.

Europe’s Plans


President Trump and Treasury Secretary Mnuchin, are pushing for an international agreement on digital taxes. Before the coronavirus pandemic, that kind of agreement seemed possible. The Organization for Economic Cooperation and Development had promised to deliver on a deal before the end of 2020. Now, however, it’s impossible for representatives from each country to meet in the same room.

Meanwhile, Austria, France, Hungary, Italy, Turkey, and the UK, have said they plan to impose taxes on online services. Six other European countries have also brought up the possibility of a tax. For many of these countries, a tax on online industries would partially relieve the financial burden they are facing due to the coronavirus pandemic. Back in February, the OECD estimated countries could secure up to $100 billion from this sort of tax.

Countries Weigh the Threat of Tariffs


In 2019, when France announced a digital services tax, Trump threatened tariffs on French goods. Now, though, France is severely in need of tax revenue. French Finance Minister, Bruno Le Maire expressed that since tech companies have benefited from the pandemic, it makes more sense than ever to tax them.

Many countries face tough decisions and are wondering if the costs of tariffs could outweigh the potential of huge earnings in tax money from tech companies. As the pandemic continues and government spending does too, countries may opt to tax American tech companies despite the threat of tariffs.


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