Asia is increasing in significance for Google. Google’s revenue in APAC increased from US$ 9.9 billion in 2015 to US$ 26.9 billion in 2019, and from 13.2 percent to 16.6 percent of total revenue.
Asian tax authorities like Indonesia and Australia saw some success in collecting tax even though the majority of revenue was shipped to Singapore’s Google APAC, but this only came about after lengthy and costly investigations by authorities paid for by taxpayers. Much faster and cheaper would be changing the laws and regulations that currently allow for tax avoidance.
New rules in the making
The 140 countries of the Organisation for Economic Cooperation and Development (OPEC) were negotiating new tax rules for digital firms until the United States (US) pulled out.
The US recently lowered its corporate tax rate from 35 to 21 percent. Google announced last month it “will license our IP (Intellectual Property) from the US, not Bermuda” according to Reuters. This change does not increase taxes for Google in Europe or Asia. Google did not respond to a request for comment by Global Ground Media by the time this article was published.
The European Union (EU) is now considering imposing tax unilaterally without support from the US.
In two separate cases in 2019, the EU fined Google US$ 1.7 billion for violating anti-trust law, and France fined Google US$ 56 million for data protection charges.
Asian countries are taking another route to increase tax revenue from digital giants.
Australia plans to “force Google, Facebook to pay domestic media to use content” states Reuters. The plan arose after Google and Facebook declined to abide by a voluntary code.
At that time, the Australian government said that Google and Facebook should not “abuse their market power and damage competition or the government would impose new controls”.
Indonesia is going after VAT. From this month, large internet companies have to add 10 percent VAT on digital sales.
Finance Minister Sri Mulyani Indrawati said in 2016, “I want to build trust. You run a business in Indonesia and create value, thus I will respect every investment you put into here, but at the same time if there is an economic value coming from your business activity here, Indonesia must strive for its right [to impose taxes].”
Thailand and the Philippines are considering similar VAT charges.
In Asia, governments are going for alternative ways of taxing digital giants instead of changing tax avoidance loopholes. That means that avoidance of corporate tax payment will still be possible.
The problem with current laws is that tax avoidance, which is legal, unlike tax evasion, pits countries against each other. Loopholes in national taxation laws are used to lower profit and thus taxes like intellectual property licences, service, marketing or administration fees paid to companies within the same group.
Until the loopholes are addressed, digital giants can continue to pit countries against each other to pay the lowest overall tax rate possible. In 2018, Google paid an effective global tax rate of 12 percent as stated in its annual report. Most countries have progressive tax rates where the wealthy pay more tax. Google has managed to pay tax like a poor person instead, while billions are parked in Bermuda.
Article by Anrike Visser.
Editing Laura Alice Martin.
Illustration by Kristine Carpio.
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