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Data Diplomacy and Digital Taxation

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A digital services tax can take several forms, but most commonly is a tax levied on digital platform services and the advertising revenue generated by users. More simply, foreign governments levy DST to capture revenue from digital platforms. For example, when an Indian citizen accesses Facebook, the advertising dollars they generate go back to Facebook and its U.S. headquarters, and a DST would seek to capture some of that revenue for the Indian government.

Digital services tax rates vary from 2-7.5%, and generally apply only to companies that have a certain level of global and in-country revenues. The most common European Union model, for example, levies a 3% tax on companies with at least €750 million in global revenues, and €25-50 million in domestic revenues. India’s DST, adopted in March 2020, levies a 2% tax on non-resident companies with more than Rs.20 million in global revenue. The minimum revenue requirement for these taxes by nature target U.S. tech giants, which have both the market size and global footprint that allow them to generate such high profits.

Despite these high levels of profit, most U.S. tech giants pay low tax rates relative to other multinational corporations of the same size. Thus, foreign governments levy DST as a way to capture revenue from the dominant foreign tech platforms, and protect local industries from foreign digital competition.

The European role in shaping the DST discussion and the U.S. response to DST

In response to rising popularity of DST around the world, the U.S. initiated Section 301 investigations in June 2020 against ten of its trading partners who have implemented or proposed a DST: Austria, Brazil, the Czech Republic, the European Union, India, Indonesia, Italy, Spain, Turkey, and the United Kingdom.The USTR’s June 2020 Section 301 investigations note concern that DSTs “[discriminate] against U.S. tech companies” and may “[penalize] technology companies for their commercial success.”

With the exception of Brazil, Turkey, and India, the majority of these Section 301 investigations focus on European Union countries. This makes sense, given the EU’s hardline tactics against U.S. tech platforms, especially under Commissioner for Competition Margrethe Vestager, widely known for her assertive anti-trust maneuvers against tech platforms in the EU.

Notably, the USTR had already initiated Section 301 investigations against France in July 2019, following France’s announcement that it would levy DST against tech platforms. Accordingly, this tax became known as the “GAFA tax,” for Google, Amazon, Facebook, and Apple. However, France backed down on its plans to collect these taxes in 2019 following the response from the U.S. that they would raise tariffs on French exports like wine, cheese, and other popular goods. On June 17, 2020, USTR Robert Lighthizer announced that the U.S. had pulled out of DST negotiations with the European Union as talks stalled.

OECD tax rules and the digital economy

The Organization for Economic Co-operation and Development (OECD) traditionally stipulates that tax should be levied based on where a company has physical presence, as ZDNet reports. However, problems arise in the digital economy, where the borderless nature of the Internet, and increasing numbers of users connected to digital platforms around the world obfuscate the definition of “physical presence.”

In response, the OECD isdeveloping a separate tax framework for the digital economy, addressing challenges around taxing multinational companies whose customers are often thousands of miles and borders away from where the tech company has their headquarters. Virtual OECD digital economy negotiations are scheduled for October 2020, following a delay related to COVID-19. Both the U.S. and China, home to the world’s largest tech giants, are proponents of a digital taxation framework that favors the digital economy; that is, without DST. Many European Union countries, including France, have deferred implementation or collection of a DST until an OECD agreement is reached.

From one angle, a DST makes sense: you, as a government, need revenue, especially following the economic fallout of COVID-19. In the attention economy, every minute a citizen spends on a platform headquartered outside of your country is a “dollar” of attention not spent on domestic platforms or domestic issues. However, because digitization is a new issue, digital taxation and trade are also emerging fields, and thus many tech platforms are not taxed at the same level as their brick-and-mortar counterparts. What are you, as a foreign government, supposed to do when your citizens are spending all their time on Facebook?

U.S. tech platforms are sometimes perceived as being under-regulated and under-taxed relative to the influence and footprint they have. This is what has led to their meteoric rise, both domestically in the U.S. and abroad. Digital services taxes make sense as a “band-aid” for a much thornier issue that will not be fixed by taxing advertising revenue made in-country: increasing polarization and information warfare conducted on these platforms.

Global polarization and the impact of DST

Disinformation and misinformation are and will be the conflicts of the 21st-century polarized world. Information warfare results in confusion for citizens around the globe, which erodes trust in citizen-government relations and weakens democratic systems. Tech giants, with their open and generally unregulated systems, offer perfect platforms for malicious agents to conduct this information warfare, raising concern and alarm for governments everywhere. At a time when governments and tech platforms should be coming together to combat information warfare, DST further polarize relations between these two entities. Governments that implement these taxes introduce friction into their relations with tech companies at a time when collaboration should be prioritized.

Some may bristle at the concept of equating a private U.S.-owned company with a government. But the reality is that tech platforms, in many cases, have more prominence in the daily life of the average citizen around the world than governments. Think about how many touchpoints you have with a digital service or platform provided by Facebook, Amazon, Apple, Netflix, or Google every day, versus the touchpoints you have with your local government. That’s not even including the tens of thousands of websites run on AWS, Amazon’s cloud computing breadwinner.

A call to action

In the 21st-century world, tech platforms are here to stay. Governments and their diplomatic corps, therefore, should do everything they can to collaborate and cooperate with major tech platforms, and vice versa. Tech platforms, therefore, also cannot miss the mark in underestimating their own power in shaping democracy, diplomacy and political discourse.

The increasing impact of digital platforms and data privacy now prominently feature in conversations about the future of democracy. Democratic governments and tech companies urgently need an actionable framework for digital cooperation, especially with the rise of dual-use technologies like facial recognition and artificial intelligence. Both governments and tech companies must take responsibility for their own spheres of influence and explore all possible pathways to cooperation, in order to combat and dissuade the many forces conspiring to erode the pillars of democracy and citizen governance around the world.

Puru Trivedi is Meridian International’s Vice President of Corporate Affairs, with direct responsibility for the Meridian Corporate Council and leading commercial diplomacy initiatives across the organization. Prior to joining Meridian, Puru worked across the financial services, policy advocacy and consulting industries. Puru can be contacted through email ptrivedi[at]meridian.org a nd his full bio is located here: https://www.meridian.org/leadership/ Past Written Work:

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Biden-Putting meeting: Live from Geneva

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19:00 The places of the flags on the Mont Blanc bridge on which President Biden and President Putin will pass to reach the meeting venue on Wednesday usually hold the flags of the different Swiss cantons. Not today. The American and Russian flags have been placed to welcome the two leaders. 

18:00 A day before the Geneva summit: Hotel Intercontinental where the American delegation and probably President Biden himself is staying, how the city looks like a day before the meeting, what are the security measures like, why isn’t the UN involved and are the usual protests expected?

Iveta Cherneva with live video political commentary from Geneva one day ahead of the Biden-Putin Summit

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Will the promotion of cricket in GCC add to its Soft Power?

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In recent years, Gulf Cooperation Council (GCC) countries, have been trying to bolster their ‘Soft Power’ in a number of ways; by promoting tourism, tweaking their immigration policies to attract more professionals and foreign students and focusing on promoting art and culture. The United Arab Emirates (UAE) has taken the lead in this direction (in May 2017, UAE government set up a UAE Soft Power Council which came up with a comprehensive strategy for the promotion of the country’s Soft Power). Under Crown Prince Mohammad Bin Salman (MBS), Saudi Arabia has also been seeking to change its international image, and it’s Vision 2030 seeks to look beyond focusing on economic growth. In the Global Soft Power Index 2021, Saudi Arabia was ranked at number 24 and number 2 in the Gulf region after the UAE (the country which in the past had a reputation for being socially conservative, has hosted women’s sports events and also hosted the G20 virtually last year)

Will the promotion of cricket in GCC add to its Soft Power?

   One other important step in the direction of promoting Soft Power in the GCC, is the attempt to popularize cricket in the Gulf. While the Sharjah cricket ground (UAE)  hosted many ODI (One Day International )tournaments, and was witness to a number of thrillers between India and Pakistan, match fixing allegations led to a ban on India playing cricket at non-regular venues for a duration of 3 years (for a period of 7 years from 2003, Sharjah did not get to host any ODI). The Pakistan cricket team has been playing its international home series at Sharjah, Abu Dhabu and Dubai for over a decade (since 2009) and the sixth season of the Pakistan Super League is also being played in UAE. Sharjah has also hosted 9 test matches (the first of which was played in 2002).

 Sharjah hosted part of the Indian Premier League (IPL) tournament in 2014, and last year too the tournament was shifted to UAE due to covid19 (apart from Sharjah, matches were played at Dubai and Abu Dhabi). This year again, the UAE and possibly Oman are likely to host the remaining matches of the IPL which had to be cancelled due to the second wave of Covid19. The ICC Men’s T20 World Cup to be held later this year (October-November 2021), which was actually to be hosted by India,  could also be hosted not just in the UAE, but Oman as well (there are two grounds, one of them has floodlights). International Cricket Council (ICC) is looking for an additional venue to UAE, because a lot of cricket is being played there, and this may impact the pitches. The ICC while commenting on the possibility of the T20 World cup being hosted in the Middle East said:

, “The ICC Board has requested management [to] focus its planning efforts for the ICC Men’s  T20 World Cup 2021 on the event being staged in the UAE with the possibility of including another venue in the Middle East’

GCC countries are keen not just to host cricketing tournaments, but also to increase interest in the game. While Oman has a team managed by an Indian businessman, Saudi Arabia has set up the SACF (Saudi Arabian Cricket Federation) in 2020 and it has started the National Cricket Championship which will have more than 7,000 players and 36 teams at the school level. Peshawar Zalmi, a Pakistani franchise T20 cricket team, representing the city of Peshawar the capital of Khyber Pakhtunkhwa, which plays in the Pakistan’s domestic T20 cricket league – the Peshawar cricket league —  extended an invitation to the SACF, to play a friendly match against it. It’s owner Javed Afridi had extended the invitation to the Saudi Arabian team in April 2021.  Only recently, Chairman of SACF Prince Saud bin Mishal  met with India’s Ambassador to Saudi Arabia, Dr Ausaf Saeed, to discuss ways for promoting the game in Saudi Arabia. He also visited the ICC headquarters at Dubai and apart from meeting officials of ICC also took a tour of Sharjah cricket ground.

GCC countries have a number of advantages over other potential neutral venues. First, the required infrastructure is already in place in some countries, and there is no paucity of financial resources which is very important. Second, there is a growing interest in the game in the region, and one of the important factors for this is the sizeable South Asian expat population. Third, a number of former cricketers from South Asia are not only coaching cricket teams, but also being roped in to create more enthusiasm with regard to the game. Fourth, UAE along with other GCC countries, could also emerge as an important venue for the resumption of India-Pakistan cricketing ties.

Conclusion

In conclusion, if GCC countries other than UAE — like Saudi Arabia and Oman  — can emerge as important cricketing venues, their ‘Soft Power’ appeal is likely to further get strengthened especially vis-à-vis South Asia. South Asian expats, who have contributed immensely to the economic growth of the region, and former South Asian cricketers will have an important role to play in popularizing the game in the Gulf. Cricket which is already an important component of the GCC — South Asia relationship, could help in further strengthening people to people linkages.

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Analyzing the role of OIC

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Composed of fifty-seven countries and spread over four continents, the Organization of Islamic Conference (OIC) is the second-largest intergovernmental body following the United Nations (UN). And it is no secret that the council was established in the wake of an attack on the Al-Aqsa Mosque in Jerusalem. Safeguarding and defending the national sovereignty, independence, and territorial integrity of its member states is the significant provision of the OIC’s charter. OIC charter also undertakes to strengthen the bond of unity and solidarity among member states. Uplifting Islamic values, practicing cooperation in every sphere among its members, contributing to international peace, protecting the Islamic sites, and assisting suppressed Muslim community are other significant features of its charter. 

Recently, the world witnessed the 11-days long conflict between Hamas and Israel. In a recent episode of the clash between two parties, Israel carried out airstrikes on Gaza, claiming many innocent Palestinian lives. The overall death toll in the territory rose to 200, including 59 children and 35 women, with 1305 injured, says Hamas-run health ministry. This event was met with resentment from people across the world, and they condemned Israeli violence. After 11 days of violence, the Israeli government and Hamas agreed to a ceasefire. The event of Israeli violence on Palestinians has called the role of OIC into question. The council, formed in the aftermath of the onslaught on Al-Aqsa mosque, seemed to adopt a lip service approach to the conflict. However, the call for stringent measures against Israeli aggression by the bloc was not part of its action. 

Likewise, the Kashmir issue, which has witnessed atrocities of Indians on innocent Kashmiris, looks up to the OIC for its resolution. Last year, during the 47th session of the Council of Foreign Ministers (CFM) in Niamey, Niger, the CFM reaffirmed its strong support for the Kashmir cause. The OIC categorically rejected illegal and unilateral actions taken by India on August 5 to change the internationally recognized disputed status of the Indian Illegally Occupied Jam­mu and Kashmir and demanded India rescind its illegal steps. However, the global community seems to pay deaf ears to the OIC’s resolution. The Kashmir issue and the Palestine issue are the core issues of the world that are witnessing the worst humanitarian crisis. And the charter of the bloc that aims to guard the Muslim ummah’s interest rings hollow. About a year ago, the event that made rounds on electronic and social media was the occurring of the KL summit, which reflected another inaction of the OIC. The move of influential Muslim countries (Iran, Turkey, and Indonesia), to sail on the idea to establish another forum to counter the OIC, manifested the rift in the bloc.  

Many OIC countries are underdeveloped and poorly governed and are home to instability, violence, and terrorism. The consequences of the violence and terrorism in the OIC countries have been devastating. According to Forbes, 7 out of 10 countries, which suffer most from terrorism are OIC members. The Syrian conflict is another matter of concern in the Mideast, looking up to OIC for a way out. An immense number of people have lost their lives in the Civil war in Syria.

Several factors contribute to the inefficiency of the bloc. The first and foremost reason is the Saudi-Iran stalemate. Influential regional powers (Iran and the Kingdom of Saudi Arabia) in the Mideast share strained links following the Islamic Revolution in Iran. Both sides dissent each other on many fronts. Saudi Arabia accuses Tehran of interfering in its internal affairs, using terrorism as a tool to intimidate neighbors, fuelling sectarianism, and equipping proxies to de-stabilize and overthrow the legitimate government. Locked in a proxy war in the Mideast, the KSA and Iran vie for regional dominance. Moreover, Iran’s nuclear program is met with strong resentment in the KSA since it shifts the Balance of Power towards Iran. Such developments play a vibrant role in their stalemate, and the bloc’s effectiveness is hostage to the Saudi-Iran standoff.

Political and social exclusion in many OIC states is the norm of the day, contributing to upheaval and conflict. In OIC countries, the level of political participation and political and social integration is weak. This fact has rendered OIC countries vulnerable to unrest. Arab Spring in 2011 stands as the best example. Furthermore, conflicts, since the mid-1990s, have occurred in weak states that have encountered unrest frequently. 

Saudi Arabia has tightened its grip on the OIC. The reason being, the OIC secretariat and its subsidiary bodies are in the KSA. More importantly, the KSA’s prolific funding to the bloc enhances its influence on the bloc. One example includes, in the past, the KSA barred an Iranian delegation from the OIC meeting in Jeddah. Saudi authorities have not issued visas for the Iranian participants, ministry spokesman, says Abbas Mousavi. “The government of Saudi Arabia has prevented the participation of the Iranian delegation in the meeting to examine the deal of the century plan at the headquarters of the Organization of Islamic Cooperation,” Mousavi said, the Fars news agency reported. Given the Iranian growing influence and its access to nuclear capabilities, the KSA resorted to using financial leverage to reap support from Arab countries against Iran. For instance, in past, Somalia and several other Arab states such as Sudan and Bahrain received a commitment of financial aid from Saudi Arabia on the same day they cut ties with Iran. Furthermore, the summits of OIC, GCC, and Arab League are perceived as an effort by Saudi Arabia to amass support against Tehran. 

Division in the Muslim world and their clash of interests is yet another rationale behind its inefficacy. These days, many Muslim countries are bent on pursuing their interests rather than paying commitment to their principles, that is, working collectively for the upkeep of the Muslim community. Last year, the governments of Israel and the United Arab Emirates (UAE) announced that they had agreed to the full normalization of relations. Following this, the Kingdom of Bahrain became another Muslim country to normalize its links with Israel. Such moves by the Islamic countries weaken the OIC agenda against Israel. 

OIC’s efficacy would be a distant dream unless the Saudi-Iran deadlock finds its way. For this purpose, Pakistan can play a vital role in mediating between these two powers. Pakistan has always been an active player in the OIC and played its role in raising its voice against Islamophobia, Palestine Issue, and the Kashmir issue. Shunning their interests and finding the common goals of the Muslim ummah, should be the utmost priority for the members of the bloc. Every OIC member ought to play its part in the upkeep of the bloc. Furthermore, a split in the bloc should come to an end since it leads to the polarization of member states towards regional powers. Many OIC countries are rich in hydrocarbons (a priceless wealth, which is the driver for the growth of a country); if all OIC members join hands and enhance their partnership in this sphere they can fight against energy security. And OIC is the crux for magnifying cooperation among its member states to meet their energy needs.

In this era of globalization, multilateralism plays a pivotal part. No one can deny the significance of intergovernmental organizations since they serve countries in numerous ways. In the same vein, OIC can serve Muslim ummah in multiple ways; if it follows a course of adequate functioning.

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