Britain And India Formally Levy Digital Tax: Internet Giants Survive

When the global outbreak of the new crown outbreak occurred, it began to impose a digital tax, which is "worse" for many Internet giants.

In March 26th, the India government announced that, starting in April 1st, India will levy a 2% "digital tax" on foreign enterprises providing digital services in the country. The digital tax levy includes Internet companies such as Google and Facebook, which are mainly Internet advertising, and even Amazon, eBay and other e-commerce sites. In the view of the government of India, as long as these enterprises lock the final target customers in India, they need to pay a digital tax.

This time point is appropriate for the new crown epidemic spreading stage. Although for some Internet companies, users stay at home to make their online video, social networking applications and activities greatly improved, but limited by advertisers budget investment downturn, Internet companies' profit margins are also affected by the epidemic.

For them, "raising taxes" is undoubtedly a burden. Therefore, it is not difficult to understand that taking into account the impact of the new crown epidemic on its own, including Google, Facebook and other U.S. technology giants are working hard to seek the India digital tax collection for 6 months.

It's not just India. The British government will also impose a 2% digital tax on online revenues of Facebook, Google, Amazon and other companies in the UK.

After years of brutal growth, Internet companies are finally beginning to pay their debts. However, this time node is really subtle.

Multinational levy digital tax

The so-called Digital Tax refers to the digital service sales related taxes, usually by a country to foreign enterprises in the country's subsidiaries. Since digital services are mostly provided by Internet companies, the main target of digital tax is large Internet companies.

There has been precedent for levying related taxes in India. As early as 2016, in response to the new economic model, the India government imposed a 6% "balance tax" on local advertising enterprises on overseas e-commerce platforms, which included the Internet advertising business, digital advertising layout and other online advertising related services provided by foreign companies.

In August 2019, the government of India proposed to set up a tax threshold for digital giant enterprises, that is, digital tax. In March 26th, the India government formally announced that it would levy taxes in April, mainly for foreign companies with annual sales of over 20 million rupees (US $260 thousand), and 2% of the total number of digital services sold in India.

In addition to India, in March this year, the British government also officially confirmed that it had imposed a 2% digit tax in April 1st. The tax is based on global sales of over 500 million pounds (US $645 million) and at least 25 million pounds (US $32 million 260 thousand) from UK users. The tax base is revenue from UK users. Among them, enterprises in the UK's income of the first 25 million pounds do not need to pay new taxes.

The British tax and Customs Administration (HMRC) has previously explained that the tax may affect "revenue from large multinational enterprises that provide social media services to UK users, search engines or online markets".

In fact, in the past year, countries including France, Italy, Czech, Turkey and other countries have announced their respective "digital tax" schemes, with tax rates ranging from 2% to 7.5%. Austria, Belgium, Czech, Denmark, Hungary, Poland and other countries are eager to try.

In addition, 7 Asian Pacific countries, including South Korea, as well as Latin American countries such as Mexico, Chile and Columbia, are considering similar new tax policies. This means that the Internet giant's traditional tax avoidance will fail.

"Compared with traditional enterprises, network technology companies do not need to set up physical stores locally, and can provide services by means of online office." Pan Helin, executive dean of the digital Economic Research Institute of Zhongnan University of Economics and Law, said that for the coming digital age, the traditional tax laws could not bind the cross border digital services provided by network technology companies, so that the income that these giant tycoons earned was far from proportional to the tax paid.

Taxation overlay worries of epidemic situation

The Levy of digital tax stems from the particularity of digital services.

Since the Internet Co does not need a physical store, it can provide services only by the Internet. Therefore, by setting up its headquarters in low tax countries (such as Ireland and Holland), these enterprises can transfer profits from other countries to the countries where they are located, so as to achieve the purpose of "tax avoidance".

For example, Google India paid huge sums of money to its subsidiaries in Singapore and Ireland from 2014 to 2018 as a "buy advertising page", which accounts for 50%-60% of the total revenue of Google India in this period, but it has not been included in the local tax collection.

Now, such an abacus will be "lost" under the digital tax. For example, Google, Amazon and Facebook earn more than one billion dollars a year in the UK, of which Facebook sales in the UK in 2018 amounted to 1 billion 650 million pounds (about 2 billion US dollars). Facebook is taxable for 32 million 500 thousand pounds based on the current tax rules. In addition, in 2017, Amazon's UK business income amounted to 1 billion 980 million pounds, if the current British digital tax calculation, Amazon should pay 39 million 100 thousand pounds.

From this point of view, if digital tax is introduced worldwide, large technology companies will face huge corporate tax expenditures every year. The HMRC initially estimated that digital tax revenues could bring up to 515 million pounds (US $665 million) additional annual revenue by the end of the fiscal year in 2025.

However, the extra tax at this time will undoubtedly add a "wound" to the Internet giant under the influence of the new crown epidemic. In March of this year, with the global outbreak of the new crown disease, the performance of the Internet giant was also affected, including Facebook, Twitter, etc., all of which issued a performance warning, saying that its advertising business was hit by some countries and regions. Twitter is also withdrawing the first quarter performance guidelines, reducing revenue forecasts for the first quarter and annual capital expenditure expectations. The first quarter revenue is expected to decline slightly in the first quarter.

Facebook said that despite the fact that the number of instant messaging messages has increased by more than 50% and the number of voice traffic traffic has increased more than doubled in countries with severe epidemics, the utilization rate of many services including Messenger and WhatsApp has soared, but these growth has not been converted to more advertising revenue.

In fact, because of the uncertainty brought by the new crown epidemic, many advertisers are saving money by reducing advertising budgets - even Google is doomed. Amazon has slashed shopping ads and word ads on Google since March 11th, according to Tinuiti, a market maker.

Google declined to comment on its advertising business. However, according to media reports, although the company's YouTube video service viewing volume has increased substantially in the past week, but one of its internal executives revealed that its CPM (Cost Per Mille, 1000 people show cost) revenue fell by 8%.

Therefore, for the Internet giants, there will be a bitter life in the future. "In the current international environment, the introduction of digital tax is a general trend," pan and Lin pointed out. "With the development of digital economy, digital tax will be an inevitable outcome of the development of digital economy."