Governments push to regulate Big Tech companies amid COVID-19 economic shock

April 15, 2020: India imposed a sweeping new tax on digital goods and services on April 1, 2020, closely followed by an Indonesian move on April 7. Both countries noted the rapid increase in online activity due to the COVID-19 pandemic shutdowns on physical contact between people.

The Indian government used its 2020 Budget to impose the 2 per cent tax on all goods and services sold online in India by companies that do not have a taxable presence in India. The threshold for sales is low, at US$267,000.

The new Indonesian government regulation states that the companies will be charged value added tax (VAT) on taxable intangible goods and/or services sold through electronic platforms. Companies with a significant economic presence in e-commerce will be declared permanent establishments and, thus, are subject to domestic tax regulations. The rate of the new tax is yet to be determined.

This follows French moves to tax revenues of digital conglomerates and similar measures being considered in other European countries.

All of these measures are attempts to collect taxes from tech companies that can avoid tax by not having a commercial presence in countries where they do large amounts of profitable business, which has been expanding during the pandemic.

A group of tech industry associations representing major US companies including Google, Facebook and Microsoft urged US Trade Representative Robert Lighthizer to try to have the Indian taxes delayed or withdrawn.

USTR, in its 2020 National Trade Estimate issued on March 31, 2020, identified as key barriers to trade France’s tax on revenues of digital conglomerates and similar measures being considered or adopted in Austria, the Czech Republic, Italy, Spain, Turkey and the United Kingdom. The Trump administration reacted to the French digital tax with a threat of tariffs on up to $2.4 billion worth of French products.

The Organisation for Economic Cooperation and Development has convened talks aimed at reaching a consensus-based solution by the end of 2020. USTR, in its report, cited an October 2019 commitment made by EU Commission Executive Vice President Margrethe Vestager to support an OECD-wide solution.

Meanwhile the plurilateral initiative of 80 WTO members states on e-commerce continued to meet in February and March 2020. Negotiations have now slowed but continue electronically. Australia, Japan and Singapore are major sponsors of this initiative.

USTR reports on compliance with the World Trade Organisation rules show that the US also has major concerns on e-commerce regulation and digital taxes with China, and to a lesser extent Russia.

All of these reports underline AFTINET’s concerns that the push by big tech companies for trade rules that deregulate data flows, do not require a commercial presence and prevent taxation of big tech companies are unreasonable restrictions on governments’ ability to regulate data flows and to take measures to ensure that Big Tech companies pay their fair share of tax.