Don’t Stop Making Rules for Digital Taxation

The formation of international rules on digital taxes on giant IT companies is in rough waters. Dark clouds have formed over the final agreement the Organization of Economic Cooperation and Development plans for this year, due to America’s strong reaction against the increased burden its firms would bear.

Coordination among the major countries is essential to introduce fair and harmonious digital taxes and to demand an appropriate burden on global companies. They have a responsibility to restrain overzealous nationalism and cooperate in determining international rules.

The OECD has plans for taxing the profits of global firms and distributing the revenues among its members, according to the size of their sales. The members have mostly reached agreement on these plans, but America has requested that the matter of whether it abides by the new rules be left to the companies, spreading anxiety that the rules would be neutered.

Europe is fed up with the stall in rule-making, and France, Britain and others are moving to research and introduce their own digital duties. America has announced its displeasure with this and notified Europeans that it would break off the international negotiations on digital taxes.

America seems to be emphasizing that it is time to prioritize the response to the COVID-19 crisis, but this cannot be taken at face value. Most likely, it really wants to rattle Europeans and pressure them to scrap the digital taxes.

Besides Europe, America also considers digital taxes introduced or under consideration by India, Brazil and others to be problematic, and began studies to look into implementing disciplinary measures. This is a dangerous move that could be the starting shot of another tariff war.

First, the American administration of Donald Trump needs to refresh its attitude. Even within the U.S., there is much disgruntlement with the IT giants’ tax evasion. Adapting the tax code to the economy’s digitization is an issue even America cannot avoid.

Furthermore, dangling the threat of high tariffs in the midst of a crisis is inexcusable. The International Monetary Fund predicts real global growth to sink to -4.9% in 2020. We wish that the anxieties of companies and investors would not be incited any more.

We also wish Europe and others would be cautious in the introduction and consideration of their digital taxes. Forcing through arbitrary taxation due to their own circumstances and revulsion with America, and roiling global firms more than is necessary, must be avoided.

The major countries must immediately return to the negotiating table and hurry toward a final agreement on international rules. If the OECD and G-20 conferences stall due to the Euro-American confrontation, Japan should endeavor to break through the impasse.