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Global tax proposals take aim at U.S. tech

Illustration: Sarah Grillo/Axios

The U.K. government plans to introduce a new "digital services tax" in 2020 that would force big American companies like Google, Amazon and Facebook to pay a tax of 2% of their British revenue.

Why it matters: The tax, which is expected to raise £400 million annually, is one of several international efforts to levy stiffer corporate taxes that would hit U.S. tech giants hard.

The details: The U.K. tax would apply to profitable companies making at least £500 million ($640 million) annually in revenue. Unprofitable companies like Netflix and Uber would be exempt.

  • South Korea, India and at least seven other Asian-Pacific countries are exploring new taxes, the Wall Street Journal reports. "Mexico, Chile, and other Latin American countries are contemplating new taxes aimed at boosting receipts from foreign tech firms."
  • This year, the European Commission proposed a 3% "digital services tax" on revenues of large tech companies doing business within the EU's borders, which policy makers want to finalize by the end of the year.

Why now: Some global tech companies have perfected the art of moving profits to countries with low tax rates. In response, countries are proposing to tax revenue instead of profits. That's because it's much harder for a company to move revenue than it is to move profits.

  • The Organization for Economic Cooperation and Development has been working on coordinating a new international tax system, but the process is moving slowly.
  • The U.K. and others want to speed it up by saying that they'll implement unilateral taxes if the OECD doesn't act by 2020.

What they're saying: U.S. tech companies see this as a direct assault and a way to curb their dominance abroad. Europeans say that's not true.

  • Shot: "Its very unfair," says Daniel Castro, vice president at the Information Technology and Innovation Foundation. "These things have always been decided by broader organizations between countries."
  • Chaser: "I would like to also underline that fair taxation is not taxation against the United States. The purpose of that taxation is to have a fair and efficient taxation at an international level," French Finance Minister Bruno Le Maire told CNBC.

Some in the tech industry want to see stronger U.S. objections.

  • "Companies are not getting much cover from the U.S. government," says Castro. "A lack of appointments in many U.S. government posts could also be a part of it."
  • Still, last week the Treasury Secretary Steve Mnuchin sent a stern warning to European policymakers that condemned their consideration of a "unilateral and unfair gross sales tax that targets our technology and internet companies."

Our thought bubble, per Felix Salmon: It doesn't make much sense to introduce this type of regulation at the national level. A unified front from the OECD would be much harder for tech companies to game.

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