In an era marked by the rapid growth of the digital economy, the issue of taxation on technology multinationals has taken centre stage. However, many countries in the Global South find themselves unequipped to harness tax revenue from these digital giants. Several policy options are available to countries. The Organisation for Economic Co-operation and Development (OECD) and the United Nations (UN) have proposed treaty-based solutions, but questions have emerged about the revenue potential of these multilateral proposals, the feasibility of their timely implementation, as well as whose interests they serve. Meanwhile, several countries — including some in the Global South — have implemented their own domestic solutions.
Countries are at crossroads to decide which policy option they should choose. In particular, countries in the Global South need to decide should align with the OECD solution by the end of 2023. To address this concern, LIRNEasia, in collaboration with the South Center, organized a thought-provoking debate at the 18th International Governance Forum (IGF) in Kyoto, Japan, on October 11, 2023. This discussion marked the first-time digital tax was discussed at the IGF conference.
The Debate
The 90-minute debate brought together experts representing diverse stakeholder groups, including intergovernmental organizations, governments, and civil society. The session was moderated by LIRNEasia CEO, Helani Galpaya.
Senior Research Manager, Gayani Hurulle, framed the discussion, drawing from LIRNEasia and South Centre’s joint research. Abdul Muheet Chowdhary (Senior Programme Officer, South Centre), Alison Gillwald (Executive Director, Research ICT Africa), Mathew Olusanya Gbonjubola (Coordinating Director, Federal Inland Revenue Service of Nigeria and Co-Chair, UN Tax Committee), and Victoria Hyde (Policy and Communications Manager, Asia Internet Coalition), then provided their perspectives and insights on the topic
Insights from the Debate
The speakers delved into the strengths and limitations of the OECD’s proposed solutions. The debate provided a platform to explore whether the OECD framework adequately addresses the unique challenges faced by countries in the Global South. The discussion also highlighted the practical challenges associated with implementing OECD guidelines at the governmental level.
Senior Programme Officer of the South Centre Abdul Muheet, in response to a query posed by an official from the Ministry of Economy and Finance official in Benin, provided insightful guidance on the taxation of multinational tech corporations, particularly focusing on such companies’ absence of physical presence in the country. Drawing from India’s successful implementation of an equalization levy, specifically a 6% tax on online advertising revenues generated by companies like Google and Facebook, Muheet emphasized that the physical presence of these tech giants in a given country should not be a deterrent to taxation. He proposed a pragmatic solution: leveraging the authority of financial institutions. Regardless of the companies’ physical presence, he suggested that imposing a withholding tax on payments made to entities like Facebook would be a compelling strategy. Such a withholding tax, enforced by banks, would necessitate the retention of a portion of the payment before it leaves the country. This withheld sum would then be directed to the local tax authorities, compelling these global corporations to engage in tax filing activities within the respective countries.
Key Takeaways:
- Digital taxation is a nascent yet dynamic space, whose impacts on social/digital justice and competition should be evaluated, alongside its revenue potential.
- The fate of the OECD Amount A proposal is uncertain, as power lies in the hands of a few (if not a single) countries. While the Global South may benefit, they will be price takers — therefore, domestic measures such as digital service taxes shouldn’t be ruled out.
It was clear from the session that firstly countries should consider the revenue potential, impact on competition, and implementation costs and capacity when choosing between signing the OECD Amount A multilateral convention and imposing domestic taxation measures by end 2023. Secondly digital tax must become a more prominent part of platform governance discourse. Multi-sectoral (finance, digital, competition, IR) dialogues are key to understanding various nuances.
Presentation by Gayani Hurulle, Senior Research Manager, LIRNEasia
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