By Koo Lap

It is a known fact that Apple, Google, Amazon, Facebook and other tech giants make big bucks and pay little tax, and many tax collectors around the world have been eyeing them for years. With the pandemic rampaging for more than a year already, countries of all sizes have been burning cash in response and created astronomical fiscal deficits. In order to increase revenue, the Group of Seven (G7) decided to pick on these multinational giants, and set a minimum global corporate rate at 15% in order to raise money for the treasury. Regardless of whether this move will be effective in shrinking the astronomical deficit, the obvious targets of this, the tech giants, have unequivocally welcomed this minimum global corporate tax rate. How is that?

Be it an individual or a corporate, once they are caught in the web of tax, none would not be striving for tax saving, tax avoidance, or even tax evasion. It is truly intriguing how they have all opened their arms toward contributing to the treasury. So what is up with these American tech giants? Easy, they are trying to divert attention. For a long time, the E.U. has been after large enterprises like a butcher after fatty pigs, and repeatedly used the antitrust law against them. From chip manufacturers like Qualcomm and Intel to software providers like Microsoft, all the way to online marketplace Amazon, social media platform Facebook, all have been sued in court. As soon as the G7 pledged to commit to the minimum global corporate tax rate, Google surrendered to France by paying a fine of US$270 million to end the antitrust lawsuit. If the minimum global corporate rate could quell the E.U.’s constant pestering, that’s a really sweet deal.

How have these enterprises been making big bucks but paying little tax? There are at least two explanations. Firstly, corporate income is taxed twice in the U.S. Prior to Trump’s tax reform, the federal corporate income tax rate was 35%; so long as the income is abroad, overseas profit would not be taxed, which is no different from encouraging companies to keep profits overseas for tax saving. As of 2017, it is estimated that companies have as much as US$2.7 trillion in profits abroad! Secondly, demand is the mother of invention. In order to facilitate the storage of profits overseas, tax-saving arrangements and even tax havens have emerged. In Europe, Ireland is the best for tax saving, with the lowest level of tax on profits at a rate of 12.5%, one against which the E.U. countries have no way of competing. Even Germany and France are at least three times that rate. Hong Kong is known for its low taxes, but compared to Ireland, its 16.5% is still not low enough. How does it benefit Ireland to have such a low tax rate?

It increases the revenue of the treasury and raises employment. A European Commission survey found that although Ireland’s tax rate is 12.5% nominally, it is in fact way below this level; In 2003, Apple was granted a selective treatment which required the company to pay an effective corporate tax rate of 1% on its European profits, which had gone down to 0.005% in 2014. Why so generous? Although the tax rate was low, it was all about saving for a rainy day: from 2014 to 2016, Apple paid US$1.5 billion in tax to the Irish treasury, which was 7% of all corporate income tax paid in that country. In exchange for tax concessions, Apple has a factory in Ireland, hiring 6,000 employees, to produce tablet computers.

Seeing that neither a two-tier tax rate nor a high tax rate would increase revenue in the treasury, Trump began tax reforms as soon as he took over, and reduced the profits tax rate from 35% to 28%. At the same time, he ironed out the discrepancies between domestic and foreign profits taxes, increasing after-tax income across all taxpayers to 10.2% to encourage enterprises to transfer their profits back to the country. With the two measures, the corporate income tax revenue predictions for 2018 was US$340 billion.

Despite Ireland’s helping hand, Apple still had to pay taxes. Its corporate profits tax paid last year was 14.2% of its total profits, which although is no doubt less than half of what it would pay in the U.S., is really not that far from the 15% global minimum agreed upon by the G7. As such, even paying the 15% in full as a tribute to the treasury would likely not make up for the astronomical deficit. Yet if this global minimum tax could hold off the E.U.’s pestering, how is this not a sweet deal?

Though the global minimum tax rate has crossed the G7 hurdle, its next challenge is the G20, which includes China a member state, before it could go on and get the 170 countries around the world to agree. Even with the most optimistic outlook, the chances of success in the short term are pretty low. That being said, the discussion of the global minimum tax rate is for sure a sharp warning to Hong Kong.

Hong Kong has always been known for its simple tax system and low tax rate. After the Handover, the SAR government treasured none of those and continued to make the tax system more complex. Since Carrie Lam took over, not only did she raise the profits tax rate from 15% to 16.5%, she also followed the U.S. mistake of a two-tiered profits tax rate regime in the name of a “tax reform”, setting a 7.5% which favored unincorporated businesses, especially small and medium start-up businesses, but was in fact complicating the tax system and creating chaos.

By shaking the very fundamentals and digging into the marrow, this Carrie Lam disaster is out-and-out deadly.

This article is translated from Chinese by Apple Daily.

Click here for Chinese version

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