World leaders in agreement over global tax reform for tech giants.
A new global tax deal has been agreed by the likes of the UK, US, France, Italy, Austria and Spain, in a decision to move away from national DSTs.
A new DST-credit system will ease the transition between the UK’s current DST and the beginning of the global tax system coming into effect in 2023.
An agreement of a global minimum corporate tax rate of 15 per cent on multinational firms has been met this month by 136 countries.
So who do the rules apply to?
The new global tax deal will apply to global companies with at least a 10 per cent profit margin and will see 25 per cent of any profit above the 10 per cent margin reallocated and then subjected to tax in the countries they operate.
The aim of the changes is to crack down on multinational firms who operate mostly digitally, who circumvent taxes by only paying where they have headquarters and not where they operate. The agreement also seeks to deter tax avoidance by filing profits in low-tax-rate countries like Ireland and Luxembourg.
It was found in June, according to the Fair Tax Foundation, that the biggest US tech firms paid almost $100 billion less in taxes over the past decade than stated in their annual reports.
They also state that the ‘Silicon Six’ (Amazon, Apple, Facebook, Microsoft, Netflix and Google’s owner Alphabet) have a severe discrepancy in their income taxes and their revenue. For example, they paid nearly $219 billion in income taxes from 2011 to 2020: about 3.6 per cent of their more than $6 trillion in combined revenue.
You might be wondering who the biggest tax avoiders are.
According to the report, Amazon and Facebook are the biggest avoiders: the researchers claimed that Amazon paid $5.9 billion in taxes between 2011 and 2020, on reported profit of $60.5 billion and revenues of $1.6 trillion.
Since its introduction in April 2020, the DST has netted the Treasury £300 million in the 2020/21 financial year. It charged a 2 per cent on the gross revenues of social media companies, search engines, and online marketplaces.
The revenue that the DST raised will be kept until the new system, ‘Pillar One’, comes into effect. At that point, companies will be allowed to claim back credit against future bills, the difference they paid in tax under DST and what would have been paid under ‘Pillar One’, effective January 2022.
Talks on how the new tax system will be implemented are ongoing in the coming months, with world leaders working out how it’ll be done.