Controversy Over Expanding Digital Tax with COVID-19 'Excess Profit Tax'... Is Agreement Possible This Year?

UK Reviews Excess Profit Tax on COVID... Indirect Digital Tax Imposition
Digital Tax Expected to Intensify in Second Half of This Year... Ongoing Fairness Controversy

[Image source=AP Yonhap News]

[Asia Economy Reporter Hyunwoo Lee] As the UK government is reportedly considering a COVID-19 'excess profits tax' targeting giant IT companies such as Amazon, the global controversy over digital taxes, which has been a worldwide issue since last year, is intensifying. While the United States, whose major IT companies' profits are at stake, opposes this, concerns are emerging that digital taxes could provoke another international division as Russia, India, and others have begun to join the debate following the European Union (EU).

According to Russia's TASS news agency on the 10th (local time), the Russian Ministry of Finance has reportedly discussed imposing digital taxes on major global IT companies such as KPMG, Google, Facebook, and Amazon. According to major foreign media, Alexey Sazanov, Deputy Minister of Finance of Russia, who participated in the discussions, stated, "Large IT companies earn huge profits in Russia, but since they do not have legal entities within Russia, no taxes are imposed, which is unfair," adding, "We will strive to tax their unfair profits."

This came shortly after the UK government announced it was considering a COVID-19 excess profits tax targeting large IT companies such as Amazon and Google. On the 6th, the UK Sunday Times reported that the UK Treasury had requested opinions from industry groups, including the Confederation of British Industry (CBI), the UK's largest corporate lobbying group, and TechUK, a technology industry group that includes Amazon, via email on the advantages and risks of online sales tax, asking for responses by the third week of this month.

The report further stated that the UK Prime Minister's Office is preparing a proposal to impose an 'excess profits tax' on IT companies that saw significant profit increases during the COVID-19 pandemic. The Sunday Times predicted that a one-time tax could be imposed on online shopping and delivery companies such as Amazon, online fashion retailer ASOS, and online supermarket Ocado. The UK government is expected to review this COVID-19 excess profits tax starting in the second half of this year, according to the Sunday Times.

This is interpreted as the COVID-19 excess profits tax potentially serving as an indirect taxation method amid the global controversy surrounding digital taxes. Until now, digital taxes have mainly been pursued by EU countries, but now, following Russia, the Indian government is also reviewing them, making it a global issue. CNBC reported that as countries face massive fiscal deficits due to COVID-19 prevention costs and stimulus measures, they are increasingly seeking to impose digital taxes as a means of raising revenue, intensifying the controversy.

The United States has consistently opposed the digital tax controversy involving its domestic IT companies such as Amazon, Google, and Facebook. The US argues that it violates international tax principles and could hinder the economic recovery and job creation led by IT companies.

Due to these controversies, in October last year, the Group of Twenty (G20) summit established the 'Inclusive Framework (IF)' consisting of 137 countries to implement the 'Base Erosion and Profit Shifting (BEPS)' measures to prevent tax avoidance by multinational corporations. A mid-term report (OECD Pillar 1·2 Blueprint) approving an international agreement on digital taxes is expected by mid-year. From as early as the second half of this year, countries may begin reforming their tax systems to implement this international agreement. However, since it includes various issues such as double taxation and fairness among companies, concerns remain that it could cause another division within the international community.

This content was produced with the assistance of AI translation services.