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The Geopolitics of Internet Taxation: Is digitalisation eroding the corporate tax base in Asia?

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Presentation at Thammasat University in Bangkok and at the Korea Chamber of Commerce in Seoul - August/September 2017

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The Geopolitics of Internet Taxation: Is digitalisation eroding the corporate tax base in Asia?

  1. 1. T H E G E O P O L I T I C S O F O N L I N E TA X A T I O N M A R T I N A F R A N C E S C A F E R R A C A N E R E S E A R C H A S S O C I A T E A T E C I P E
  2. 2. • Neutrality: tax rules should not privilege any form of commerce over another • Efficiency: tax rules should minimise administrative and law-compliance costs • Effectiveness: tax rules should prevent double taxation and tax evasion by individuals and firms P R I N C I P L E S I N I N T E R N A T I O N A L TA X A T I O N
  3. 3. D I G I TA L TA X A T I O N • Neutrality: discrimination against digital companies • Efficiency: additional administrative burden and uncertainty • Effectiveness: exacerbated risks of double taxation
  4. 4. I S T H E R E A P R O B L E M W I T H O N L I N E TA X A T I O N ?
  5. 5. - Digital MNC do not pay taxes - Digital trade leads to base erosion - Governments have to increase personal taxes in order to compensate for the loss in corporate taxes C L A I M S A B O U T D I G I TA L TA X A T I O N
  6. 6. - Digital MNC do not pay taxes - Digital trade leads to base erosion - Governments have to increase personal taxes in order to compensate for the loss in corporate taxes C L A I M S A B O U T D I G I TA L TA X A T I O N
  7. 7. A V E R A G E E F F E C T I V E TA X R A T E S ( E T R S ) O F L E A D I N G O N L I N E S E R V I C E S P R O V I D E R S C O M PA R E D T O O T H E R L E A D I N G A S I A - PA C I F I C M N C S , F I V E - Y E A R A V E R A G E ( 2 0 1 2 - 2 0 1 6 ) Source: Ferracane, M. and H. Lee-Makiyama (2017), The Geopolitics of Online Taxation in Asia-Pacific: Digitalisation , Corporate Tax Base and the Role of Governments. ECIPE Policy Brief 2-2017. 0%# 10%# 20%# 30%# 40%# 50%# 60%# LG#Electronics#(Korea)# Airtel#(India)# Rakuten#(Japan)# NTT#(Japan)# Tata#CommunicaFons#(India)# BHP#Billiton#(Australia)# Honda#(Japan)# Toyota#(Japan)# KT#CorporaFon#(Korea)# Naver#(Korea)# Samart#Group#(Thailand)# Telstra#(Australia)# Globe#(Philippines)# Korea#Electric#Power#CorporaFon#(Korea)# Qantas#(Australia)# VieRel#Mobile#(Vietnam)# Spark#(New#Zealand)# Hitachi#(Japan)# SoUbank#Group#(Japan)# HM#Sampoerna#(Indonesia)# OECD#Average#Statutory#Tax#Rate# Telkom#Indonesia#(Indonesia)# China#Unicom#(China)# Tata#Motors#(India)# China#Mobile#(China)# China#Telecom#(China)# Digi#TelecommunicaFons#(Malaysia)# Industrial#and#Commercial#Bank#of#China#(ICBC)# China#ConstrucFon#Bank#(China)# Average#EffecFve#Tax#Rate#of#main#US#Digital# Samsung#(Korea)# Asia#Average#Statutory#Tax#Rate# Bank#Rakyat#(Indonesia)# SK#Telecom#(Korea)# Wilmar#InternaFonal#(Singapore)# Advance#Info#Service#(AIS)#(Thailand)# Tencent#(China)# PLDT#Inc.#(Philippines)# Indosat#(Indonesia)# Vinamilk#(Vietnam)# United#Overseas#Bank#(Singapore)# FPT#Group#(Vietnam)# Singtel#(Singapore)# Alibaba#(China)# Telekom#Malaysia# Temasek#(Singapore)# Garuda#(Indonesia)# Japan#Airlines#(Japan)#
  8. 8. - Digital MNC do not pay taxes - Digital trade leads to base erosion - Governments have to increase personal taxes in order to compensate for the loss in corporate taxes C L A I M S A B O U T D I G I TA L TA X A T I O N
  9. 9. TA X R A T E S & TA X R E V E N U E S Source: Ferracane, M. and H. Lee-Makiyama (2017), The Geopolitics of Online Taxation in Asia-Pacific: Digitalisation , Corporate Tax Base and the Role of Governments. ECIPE Policy Brief 2-2017.
  10. 10. - Digital MNC do not pay taxes - Digital trade leads to base erosion - Governments have to increase personal taxes in order to compensate for the loss in corporate taxes C L A I M S A B O U T D I G I TA L TA X A T I O N
  11. 11. C O R P O R A T E & I N D I V I D U A L TA X A T I O N Source: Ferracane, M. and H. Lee-Makiyama (2017), The Geopolitics of Online Taxation in Asia-Pacific: Digitalisation , Corporate Tax Base and the Role of Governments. ECIPE Policy Brief 2-2017. !4%$ !3%$ !2%$ !1%$ 0%$ 1%$ 2%$ 3%$ 4%$ Australia$ China$ India$ Indonesia$ Japan$ Korea$ Malaysia$ New$Zealand$ Thailand$ %$Change$in$$Revenue$from$Corporate$TaxaGon$$ %$Change$in$Revenue$from$Individual$Income$TaxaGon$
  12. 12. ] C O N C L U S I O N S - A debate about the future of taxation must first clear about what is the problem and what is causing it - The geopolitics of international taxation has not changed because of the internet - Asia is a net gainer from the geopolitics of taxation (lower taxes & export-led economies) - Any solution should be agreed internationally rather than being imposed unilaterally - Taxes on the internet are a tax on economic growth
  13. 13. M A R T I N A F R A N C E S C A F E R R A C A N E E M A I L : M A R T I N A . F E R R A C A N E @ E C I P E . O R G THANK YOU!
  14. 14. Ferracane, M. and H. Lee-Makiyama, H. (2017), The Geopolitics of Online Taxation in Asia-Pacific: Digitalisation , Corporate Tax Base and the Role of Governments. ECIPE Policy Brief 2-2017. Lee-Makiyama, H. and B. Verschelde (2014), OECD BEPS: Reconciling Global Trade, Taxation Principles and the Digital Economy. ECIPE Occasional paper 4-2014. R E F E R E N C E S

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