The COVID-19 pandemic has accelerated digital transformation, as it forced businesses, households, and governments to digitize their services, work from home, and find other ways to reach out to their customers. Tech giants like Google and Facebook hugely benefited from this trend, which fueled one of the most impressive stock market comebacks after the sudden meltdown in March and April.

Economists now speak of a K-shaped recovery. While some parts of the economy, especially the digital industries and the people working in it, benefit from the crisis, businesses and employees in other sectors such as tourism or travel have fallen into a recession. The result is rising income inequality and a discussion on how to distribute the cost of this crisis fairly.

Budget Holes and Income Inequality Increase the Pressure on Legislators

Legislators intend to patch budget holes by imposing new taxes on the corporations that have so far benefited from the crisis. This is because large tech giants currently pay very little in taxes when they sell their digital services worldwide, which often does not result in a tax liability.

The question of how governments should tax digital companies with no physical presence in their countries but still sell services to their citizens is not a new one. The reason why pressure is now increasingly mounting on legislators to discuss it with more urgency is that someone will eventually have to pay the bill for the COVID-19 crisis, while the rising inequality also inevitably increases social tensions.

Governments in Europe and elsewhere are thus looking to implement stricter digital services taxes that will apply to overseas companies selling goods and services to their citizens online. Such a tax would, in particular, hit American tech companies, as they are the leading players in most online industries such as eCommerce or online advertising.

Talks Postponed to 2021

Talks regarding digital agreements were originally postponed to 2021 last year. This is because if countries imposed taxes that particularly hit US companies, the Trump administration would likely answer with retaliatory threats, fueling another escalation of the trade war.

Six months into the new year, the US is currently working on creating broader international negotiations, participating actively to produce ideal outcomes for all. Fortunately, some tech businesses are not completely opposed to a global taxation framework since it would erase many of the complications that arise when dealing with different digital services taxes in foreign countries.

Learn More with EXIMA

EXIMA’s ultimate goal is to provide our users with all the knowledge we have on international trade. For more trading information, make sure to check out our other articles here.

#EXIMA #digitaltaxes #digitaleconomy #COVID-19 #pandemic