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Vergide Gündem
English Translation

Chaos in the taxation of the digital economy:
Can the efforts of OECD be finalised till at
the end of 2020?

The share of global digital companies in the economy and global trade is increasing
each passing day. Since the share of these companies in the global trade of goods
and services is realised in the country where they are resident without creating
a physical workplace from another country; with the current international tax
architecture, it is not possible to collect taxes on the earnings they have obtained
from the countries that are the source of their income.

The Economic Cooperation and Development Organization's (OECD) efforts to find
a solution to this problem were progressing rapidly until the COVID-19 pandemic.
Considerable progress was gained through a double pillar approach called Pillar One
and Pillar Two. However, according to press reports on June 18, 2020, referring
to the U.S. Treasury Secretary Steven Mnuchin, a letter was sent to the French,
Spain, Italy and British finance ministers indicating that the US withdrew from talks
on the taxation problems of the digital economy and the taxation of multinational
companies led by the OECD.

Shortly after the news on the US’s withdrawing from the negotiation process;
another statement came from the U.S. Treasury Department saying, "we wanted to
take a break while everyone was focused on COVID-19". This development brought
to mind the question that the US decision to withdraw from the negotiations may
actually be a part of its negotiation approach. Because the four countries that
received the US Treasury’s letter offered to proceed with a new initiative to facilitate
the deal explaining that changes can be made to the scope of taxation of digital
companies.

In addition to the increasing income needs of governments due to COVID-19
outbreak's cost to economies, the increase in the revenues of companies targeted
by the digital services taxation during the pandemic has highlighted the taxation
of digital services. That made global digital companies a clearer target in financing
aid packages they started to implement in the fight against COVID-19. On 2 June
2020, the United States announced investigations will be conducted into certain
jurisdictions including Turkey relating to the adoption or contemplated adoption
of a digital services tax (DST). Jurisdictions included within the scope of this
announcement include Austria, Brazil, the Czech Republic, the European Union
(EU), India, Indonesia, Italy, Spain, Turkey, and the United Kingdom and consultation
with the relevant authorities of these countries was requested.

The system in Europe is back on the agenda with the taxation of global digital
companies. Within the European Union, unanimity among member states is required
for legal regulations related to tax.

While most of the EU decisions are taken with a qualified majority based on each
member country’s population; decisions are taken unanimously in sensitive areas
such as taxation, foreign affairs and defence policy In addition to the problems of
the EU's ability to make common policy, it remains unclear how the outbreak will
affect new decisions to be taken.

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