There’s a lot of news right now which means that not everything momentous is making the headlines.
The announcement of a new approach to corporate taxation by the Biden administration has not been a lead story but could turn out to have huge ramifications over the next few years.
I wrote a long piece on tech company taxation back in December 2020 flagging that this would be a key issue for the incoming US administration but without being sure then how far they would go.
If they follow the path described in their announcement they will be going a long way and making serious efforts to shift the approach of all major economies.
This is part in driven by their wish to raise domestic US corporate tax rates to pay for the costs of the pandemic and their sensible recognition that this will not have the desired revenue-raising effect without wider changes.
They will be looking for a greater equalisation of corporate tax rates around the world that will be politically difficult but perhaps not impossible given that most governments are desperately in need of increased revenue right now.
The harder part will be arriving at agreement over a new structure for allocating the profits of multinational companies to different countries so that they can be taxed there (at the hopefully newly homogenised rates).
This will need a debate about whether any new rules should apply to all sectors as opposed to just digital products, where the US has a strong export position and so could lose disproportionately in any digital-only agreement.
It also crucially needs countries to agree on how to allocate value for different parts of a business’s activities such as writing software, collecting data, marketing digital products etc.
The formulae for how value is assigned to different countries for these activities has been largely opaque to date and the subject of much behind-the-scenes manoeuvring between tax authorities and businesses.
There is a benefit to the public and companies from bringing this out into the open so we can all understand and take a view on whether we think the allocation is reasonable for how profit is shared between, eg the US and France for an online ad shown to a French user by an American platform.
But governments may have some hesitancy in putting this into the public domain as there is a certain power to being able to negotiate deals in private as well as scope for policy interventions such as favourable treatment for national champions or desired inward investors.
We often discuss the need for platforms to provide greater transparency but in this case the onus may fall on governments to be willing to open up and explain better the workings of their corporate tax systems.
If the plan produced by the Biden administration is anything go by they certainly seem up for such an open data-driven conversation and let’s hope that they can deliver on this in the international negotiations.
If you are interested in more reflections on what is happening with tech company taxation you may want to listen to the most recent episode of the regulate.tech podcast where I discuss this with Nicklas Lundblad.