In the last 18 months, digitalization has undeniably proven its usefulness. Allowing millions of people in many industries to work remotely. Improving the comfort of online banking, developing new mobile payment alternatives says William D King. Virtual video/audio conferencing are all instances of how digitalization has altered global society.
But there is also a negative aspect to this. Big tech firms are quickly expanding, not only in terms of impact but also in terms of financial power. To put this in context, the total market value of the top five. Big Tech companies—Apple, Microsoft, Alphabet (Google’s parent), Amazon, and Facebook—were about US$9 Trillion as of October 1, 2021.
Why does William D. King think tax rules must evolve with the “digital economy”?
The crisis has badly harmed government income across the world, while costs have skyrocketed. This has resulted in growing budgetary deficits, which have their own set of repercussions. Given that most corporate tax systems throughout the world were mainly designing with conventional businesses in mind. Digital economy enterprises are fundamentally different, a new corporate tax playbook is requiring.
Because of its huge number of technologically literate customers. The United States is frequently one of the top three markets for digital economy businesses. Such as Amazon, Facebook, Netflix, and others. However, experts believe that the nature of their business allows them to conduct business in the United States. Without having a major presence in that nation. The subsidiary operating in the United States pays a royalty to this foreign business. This is not wrong in the true sense of the present tax rules. But it does result in minimal tax revenues.
Worldwide spectrum and the changes in tax laws
According to William D King, the United States loses five times that amount (US$49.2 billion). The research also reveals the Netherlands, the Cayman Islands, China, Hong Kong, and the United Kingdom as the top promoters of tax evasion.
A new worldwide minimum corporation tax rate of 15% was established earlier. This applies to firms with revenues above 750 million Euros. Furthermore, MNCs having global sales of over 20 billion Euros. Profits of over 10% will be subject to the new laws. Model regulations are mainly scheduled for development in 2022, with the new system going into force in 2023.
This framework has the support of 136 nations, including the United States. After adjusting for purchasing power parity, the United States accounted for 15.9 percent of world GDP in 2020. Individual nations are compelled to remove any digital taxes they charge once such a framework is in place.
While this type of thinking will have far-reaching consequences for digital firms. In the global economy, new tax rules are not the sole drivers of significant change. Given Google’s dominance in the search industry, competition rules will surely become more stringent. And, as seen by the United States’ strong stance on Master Card, several statistical rules will become increasingly rigorous. Finally, data privacy rules will develop as well.