Steady Transition to Fair System Must Be Promoted
Editorial 12:30 JST, July 24, 2023 The Organization for Economic Cooperation and Development (OECD) has released an outline of a treaty that sets new international taxation rules. The outline calls for an appropriate tax burden on tech giants, and it is hoped that it will be steadily implemented. The new rules are called digital taxation. The 138 countries and regions, including Japan, the United States, Europe and China, have agreed on the outline of the treaty, which is expected to come into effect by the end of 2025. As negotiations have been protracted, the effective date has been delayed by one year from the target of 2024. The current international taxation rules are mainly designed for the manufacturing industry. Since the 1920s, a principle has been maintained that a nation cannot levy taxes on companies that do not have permanent establishments such as factories or branch offices in the country. This will be the first time in nearly 100 years that this principle has been revised. The economys core has shifted from manufacturing to information technology and other service industries. With the spread of the internet, business can now be conducted worldwide without the need for factories or branch offices. It is only natural that the taxation system should be revised in accordance with the changing times. In fact, although tech giants are expanding their businesses such as online shopping and digital advertising around the world and earning huge profits, many countries have not been able to adequately tax them due to the absence of permanent facilities. Under digital taxation, companies with sales exceeding 20 billion (about 3 trillion) and more than 10% profit on sales are subject to taxation. For the portion of profits that exceeds 10% of sales, 25% of that portion will be divided among the market countries where the users of the service are located. The system is designed to distribute the profit in proportion to sales in each country. Since it is difficult for profit margins to exceed 10% in the manufacturing industry, where raw material costs are high, the companies subject to the new rules are expected to be about 100 firms around the world that are mainly tech companies. Although there are only a few such Japanese companies, NTT Corp. and the like are likely to be included. The OECD estimates that the new rules will increase tax revenues by 1.8 trillion to 5 trillion per year worldwide. The Japanese government ought to implement appropriate taxation measures so that Japan can also benefit from the new system. Meanwhile, ratification by the United States, which hosts many of the companies subject to the rules, is expected to be necessary for the rules to come into effect. The ratification requires the approval of the U.S. Congress, but the Republican Party is said to be opposed to it, fearing an increase in the tax burden on U.S. companies. If the rules fail to go into effect, European and other countries will once again impose their own taxes on tech giants and business activities could be disrupted. U.S. President Joe Biden should take seriously the fact that 138 countries and regions have agreed to the outline and give priority to international cooperation and do his best to persuade Congress. Japan and Europe should also strongly urge the United States to realize a fair tax system. (From The Yomiuri Shimbun, July 24, 2023) JN ACCESS RANKING The Japan News / Weekly Edition Our weekly ePaper presents the most noteworthy recent topics in an exciting, readable fomat. Read more 2023 The Japan News - by The Yomiuri Shimbun