Adapting to digitalization as main value creator

At least 10 members of the European Union, the United Kingdom and some other countries are thinking of levying a digital services tax. The basic trend is evident. Therefore, it is necessary to summarize the possible impact of a digital service tax on China.

In a bid to prevent individual countries from imposing their own digital services taxes on technology companies, and prevent the US government from imposing retaliatory tariffs, the OECD has been working with 137 countries to coordinate the collection of tax around the world.

Its latest report shows that the negotiations have already produced two possibilities, a tax collected in the places where companies do business, rather than where they are registered, or a global minimum corporate tax for the industry, the option the United States is in favor of.

The question is what influences any digital services tax will have on China and Chinese companies.

It should be noted that the OECD's digital services tax mainly targets US companies that have enjoyed preferential tax rates in the developed countries for a long time. As the US companies will have to face a reduction in their profits in European countries, the Chinese technology companies might have more space in the European market.

China has been actively engaged in cooperation with the OECD and there is a possibility that China will take part in the digital services tax project as well so as to reduce the overseas tax burden on relevant Chinese companies and increase its own tax revenue from relevant foreign companies operating in China.

The large tax base provides China with bigger space to further lower its overall added value tax rate.

After the digital services tax is put into place, the Chinese technology companies will have to adopt more transparent accounting practices, and follow relevant rules. To tax digital businesses entails reliable accounting and real cost-profit calculations. That said, the pressure from the digital services tax, and its inherent needs for professional accounting services means Chinese companies will have to meet the international standards on accounting and transparency.

Also, by joining the global digital services tax initiative led by the European Union, China can continue to deepen its cooperation with the EU. So far, the disputes on the digital services tax center around the conflicts between the US companies and the EU. It is predictable that to levy the tax in the EU will take a certain period of time, which, particularly before the EU and the US reach an agreement on the tax, will provide China a window of opportunity to negotiate with the EU on it.

21ST CENTURY BUSINESS HERALD