Sustainable Tax Policy in the Digital Era: Implications of Technology-Enabled Trade

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[Read more session reports and live updates from the UNCTAD E-commerce Week]

The session was co-organised by the European Network on Debt and Development (Eurodad), the Global Alliance for Tax Justice (GATJ) and the Society for International Development (SID) and moderated by Mr Tony Salvador (Third World Network).

Mr Wullo Sylvester Bagooro (Programme Officer, Third World Network Africa) spoke about the fact that in many African countries income taxes can only be raised from a small percentage of the population which are in gainful employment. Similar issues apply to the field of corporate taxation.

He further noted that countries such as Mauritius generated about 25% of tax revenues from trade taxes in 2003 whereas developed countries such as the United Kingdom, France and Germany generated no revenues through trade taxes. Bagooro explained that as nations develop their tax bases expand, as well and that they do rely less on trade taxes. High-income countries are thus able to replace trade revenue by other domestic tax revenues.

Bagooro noted that a permanent moratorium on electronically transmitted goods and services is misplaced and should be rejected on the basis that it is currently one of the main sources of revenue for developing countries in Africa.

Mr Daniel Bertossa (Assistant General Secretary, Public Services International, PSI) quoted Christine Lagarde’s finding in her Financial Times article that ’we need a fundamental rethink on international taxation’. He explained that tax revenues are necessary for the development of countries and that there is a correlation between higher levels of development of a country and higher levels of tax payments.

Bertossa further mentioned that not the amount of taxes but tax certainty was rated among the criteria that companies look most for in countries when deciding where to invest. He noted that other sought-after criteria such as the country’s stability, the available skills, and infrastructure are also elements that fall under governmental responsibility. However, in order to create a fertile environment for companies, countries must be able to generate revenues from taxation.

He also noted that tax competition is often presented as a race to the bottom and pointed out that if all actors lowered their taxes there would not be a competitive advantage for anyone. Instead, governments would lose out on money which they need to invest to develop their economies.

Ms Monica Victor (Senior Tax Researcher, South Centre) explained that there was a clash caused by the WTO (Argentina-Financial Services (WTO/DS453)) which marked the evolution of the discussions of digital trade. She said that in the aftermath of that case, countries recognised the necessity to negotiate new rules for taxation.

The topic of digital taxation has since made its way into the OECD, the IMF and the UN among others. She mentioned that the OECD since adopted the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project to address challenges in the digital economy and further outlined accompanying processes at the OECD. She further noted that the OECD created an initiative that convenes about 120 countries which have equal voting rights. These steps show that the issue of digital taxation is a global one.

Ms Deborah James (Director of International Programs, Center for Economic and Policy Research, CEPR) spoke about the discussions on tax and trade.

James mentioned the moratorium on border taxes on electronic transmissions (ETs), adopted in 1998 and has since been reconducted every two years at the ministerial level at the WTO. Since then, developing countries have been ’trading’ exceptions to this moratorium as a way to gain access to ETs. She mentioned that in 2017, high-income countries asked to make this moratorium permanent which would prove devastating to developing countries.

James also outlined the goal of big technology companies in digital trade talks that are trying to lock in their business models into international law and that these strategies would affect tax revenue collection. She noted that there are at least seven ways in which transnational corporations are seeking to use trade agreements to lock down a regime in which they will not be accountable to countries in which they profit, to pay taxes. They want:

  • A permanent waiver on customs duties on electronic transmissions.
  • A high minimum for tariff-free small packages (de minimis).
  • A removal of tariffs on information technology products by encouraging countries to join the Information Technology Agreement (ITA).
  • A ban on technology transfers which are asked for by developing countries. Companies invoke intellectual property rights as a way to avoid disclosing their technologies.
  • A ban on ’source code disclosure’ which would make it more difficult for companies to cheat.
  • A ban on local data storage requirements, meaning that countries would lose control of the data.
  • A ban on local presence requirements. Effectively, this means that companies could not be taxed because they have no local presence. This would make it extremely difficult to have jurisdiction over the corporation but also to physically assess the taxes, send tax notices etc. locally which can be seized if they continue to fail to pay taxes.

Ms Rashmi Banga (Senior Economic Affairs Officer, Unit on Economic Cooperation and Integration among Developing Countries, UNCTAD) spoke about ETs and why there is a push to make it permanent by developed countries. She noted that software is the essential element of digital transformation and that it can be digitally transported. Software thus falls under ET provisions.

She noted that a permanent moratorium on customs duties on ETs would be fatal for developing countries given that digital transmissions will continue to increase and that countries would miss out on tariff revenue.

Banga presented the UNCTAD’s most recent estimates according to which developing countries are already losing out on approximately USD 10 billion in tariff revenue from digitisable export products.

 

By Cedric Amon

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