Politicians and governments around the world are very dissatisfied with the way multinational companies, especially big tech companies, pay taxes. The Organization for Economic Co-operation and Development (OECD) has developed what it hopes are two solutions: A minimum tax on corporate income and a tax based on the point of sale. the company the product.

But some tax experts believe that even these broad reforms will not be effective in an increasingly global economy. Instead, they propose a tax on digital data. Not in terms of value or revenue, but in the amount of data.

For those familiar with the world of income or consumption taxes, this is a nonsensical concept. But administratively, it will differ from a more traditional tax — a carbon tax that is levied on the total greenhouse gas emissions a company emits.

Rethinking traditional taxes

This Thursday, my guest on the Tax Policy Center’s website The Prescription is University of California Irvine law professor Omri Marian. He made the case for such a tax in the letter 2021. Cristian Óliver Lucas-Mas and Raúl Félix Junquera-Varel, economists of the World Bank, presented their own interpretation. University of Michigan law professor Reuven Avi-Yonah and co-authors proposed a similar idea earlier this year.

Businesses usually pay tax on the income they receive from the sale of their goods or services (after deductions and credits for business expenses). They can pay in their area or by selling the product.

But, says Marian, it is becoming increasingly difficult to determine where the revenue comes from, who owns the data and what the cost is. What happens when Facebook users get offers in exchange for their personal information but no money changes hands?

He wrote: “The data economy is fundamentally changing the role of resources, assets and value…. In a data-rich market, it’s not even clear. [they] is a theoretically meaningful construct in legal tax design. It is not clear that they help in any meaningful way to determine people’s ability to pay.

Tax data, not income

In recent years, many countries have tried to address these challenges by imposing license fees or taxes on telecommunications companies. Others have tried a digital services tax (DST) on significant revenue from the sale of a technology company in their jurisdiction. But these national DSTs can put companies at risk of double taxation or loss of income.

Pillar 1 of the OECD attempts to address these issues through a globally uniform framework. Each country will tax the sale and distribution of digital products from multiple countries within its jurisdiction. Marian praised the aims of the OECD effort but believes it will fail.

On the contrary, the basis of its tax is the amount of raw data, regardless of its use. The user of the data pays the tax. Taxes may be imposed at the national or sub-national level such as US states.

Don’t try to predict how the data will be used, says Marian. The government will never follow these changes. It’s just a measure of data flow, and it’s a tax. It is easy to monitor this activity, he said. Cell phone companies do this all the time.

Marian will not pay direct taxes every time she makes a phone call or downloads a movie. Only heavy users pay directly. This can make taxes easier to manage and more efficient.

Many variations

It raises the question of who will pay the tax in the end. Most economists believe that corporate income taxes are paid by a mix of employees, shareholders and other capital owners. In contrast, excise taxes or taxes (such as taxes on gasoline or beer and wine) may ultimately fall on the consumer.

Marian describes several tax options: Taxes like the small tax of the 1990s, a direct data tax, or a dividend tax on companies that collect and store a lot of personal information with the returns to those they collect.

Marian says the direct data tax works like this: New York State levies a $1 tax on every gigabyte of data a company collects or transmits to a New York IP address. It doesn’t matter who the data is collected from, what type of data, or what machine uploads the data.

Avi-Yonah and co-authors do not pay taxes except for downloads by for-profit companies, excluding small businesses and individuals. Lucas-Mas and Junquera-Varel favor a digital license tax and a bandwidth tax.

Much more work needs to be done to develop a real tax and solve administrative problems. And critics ask why the government wants to upload the data, which, unlike the claims of carbon emissions, often have positive benefits. Some argue that a more traditional consumption tax would be a better option. But all of these ideas are worth considering as technology continues to outpace corporate income taxes.



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