The Taxing Problem of Global Tech Giants

online shopping and complex global supply chains. But one country acting alone isn't going to fix it. Everyone, including the French, agrees we really need a global solution. But for that, you need the US and the rest of the world to agree on the best way to divide up the profits of those big tech giants, and that is proving very difficult. Indeed, in a minute, I'll be talking to the frenchman stuck in the middle of this, the official who has to find a way through or risk another

round of nasty US europe trade wars. Will also be going to Abidjan in the Ivory Coast to hear about the global chocolate war what it means for the price of Hershey's kisses this Christmas. But first, a short introduction to the battle over the future of tax from our French economy reporter William Horrobin Mercy m. It's one a M in the French Senate on Tuesday May two, in the nine century Chamber, the President of the Session, Tanni Mohammed, is submitting to a vote the world's first tax and

the digital revenues of multinational tech giants. Something to do on some detexts, continue doing some delgation depends Senator. The calm passing of the bill with only four votes against, reflected an unquestioning support in France making tech giants pay more tax. Then this happened. France put on a U attacks on our companies, you know that, and wrong, wrong thing to do. They should not have done it. They didn't do the right thing when they start taxing our companies.

We tax our companies. They don't tax our companies. So France did that. I told him, I said, don't do it, because if you do it, I'm going to tax your wine. Weing tariff or tax or whatever you want. So yeah, we're working on that right now. Transcend anti clash is in fact just the tip of an iceberg. Both surface, there is a far broader battle over the future of taxation, trade,

and the authority of nations. As the global economy turns digital, governments see sovereignty slipping away as they struggled to tax globe trotting firms with market capitalizations that dwarf the GDP of most nations. Traditional firms that face the costs and tax bills of having a physical presence are crying foul as their custom goes elsewhere, and even the global tech giants are voicing concern about navigating a growing thicket of

unilateral measures and punitive levees. The US has started investigations into taxes like frances in at least ten other countries, from the UK to Italy, India and Indonesia. The COVID crisis has done nothing to unwind the tension. On the contrary, locked down in their homes, consumers have moved online like

never before to work, shop, eat and entertain themselves. Meanwhile, governments are clocking up vast debts as they bail out bricks and mortar firms on the verge of collap Any hope for a solution to taxation in the digital age rides on negotiations at the o e c D, the Organization for Economic Cooperation and Development. But there's a problem. The talks on the rules of tax involved nearly one hundred and forty countries and have been tracking on for years.

Among the many issues still to resolve, the most divisive is the scope of new tax rules, with the Europeans wanting to single out digital companies and the US demanding no such ring fencing of firms that are in the most part American. With no swift deal in sight, a truce in the battle between France and the Trump administration

is about to break. The French government is resuming the collection of its tax on digital revenues this month, and the US is set to retaliate in early January with taxes on one point three billion dollars of emblematic French goods, including handbags and cosmetics. If that happens, France says the EU must immediately retaliate all. Let's put digital tax at the top of Joe Biden's list of problems when he takes office to solve it and lead the bridge a

Transatlantic divide. Here's the French finance minister Bruno Lamaire, the UK, Spain, Italy Austria have accepted to launch their own digital taxation because we are all aware that this is a question of fairness. You cannot have the digital giants being less taxes than SAMESE and than the smallest private companies euro I really hope that this new Biden's administration will mean a new start in the relationship between job and the

United States. Well, if we're going to get nearly a hundred and forty countries to agree something in the next twelve months, it's only going to be after herculean efforts by the individual we're going to talk to now. Pascal Saint them are, director of the Center of Attack Policy at the a e c D in Paris. Pascal, thank

you so much for coming on Stephanomics. We had a little we had a little bit from William Horrobin there, But as far as your concerned, what's at stake in these negotiations, Well, what is at stake is some form of economic peace, in particular between the US and Europe. The dispute is about how countries could better share the

taxation of digital companies. That's where the Europeans and not only the Europeans the rest of the world have been very frustrated for the past ten years, seeing these companies are deriving a lot of profits from our markets and we cannot tax them. And we cannot tax them because we're stuck with rules which were designed one century ago which prevent us from taxing companies because they are not physically present on our market. Therefore we cannot collect anything.

These companies are making billions, and these billions were untacked until recently. Now they may be taxed in the US, but we want our fair share and the US in response to that set but this profit belongs to me. It's it's profit by American companies, and there is no reason for me to let you tax them. And by the way, if we find a solution, it shouldn't be ring fans to digital companies because the problem we're facing is a global problem for all companies. So we've been

struggling with that for the past three years. And we have an extension, unfortunately not until the end of twenty one, but the end of the first semester of twenty one. So the challenge is even bigger because we need to find consensus in the next six months basically, it just seems like it's gonna be really difficult. Um. I mean, I guess one question is we we've we've started to think that tech giants, these enormous companies are sort of

bigger than any one government. I mean, can governments actually prevail against these companies. Well, that's a good question, and indeed there is a challenge that. Maybe The first thing to say is that until we did a big G twenty O city initiative known under the Depth acronym. That was a big effort by the G twenty to try to bring some form of tax regulation to globalization and say multinational companies can locate their profits serious link tax s events in a complete legal manner. And we did

change that in two thousand and fifteen. We came up with the new set of rules, and these rules have translated in the US tax reform and due to thousands sixteen seventeen, the tech companies, among others it's not omitted to tech could have an effective tax rate on their foreign source income plus to zero. Now they are taxed in the US at least at ten percent. So you can see that governments can act when they want to act. But the question which is left is how do you

share these profits? Is it taxable only in the US or elsewhere? How you share profits of multinational companies depend on what we call tax treaties, which are international tax instruments. There are three thousand, five hundred instruments, and today these instruments provide for a country to tax the foreign company when this foreign company has a physical presence in the country. This dates back to ninety eight brick and mortar economy. That's what we need to change. But again, if we

change it, it shouldn't be only on tech companies. But you may raise the same question for uton the French, you know, luxury company, the manufacture bag, the design, the good French taste, right, so French good taste, So they say it belongs to us. But the Chinese who buy the bags may say, well, sorry, part of the value creation belongs to us. So the question of how you share the profit is not omitted to tech companies and governments. I think if they act together, can change the rules.

So companies are not in a position to block but it's more for governments to make the effort to try to reach consensus, and that's not easy, especially as you said it. We have one hundred and forty countries around the table. If we don't get these countries agreeing on something, the risk we face is trade tensions, trade wars, and then you know, the French are trying to move on their own and the US is retaliating, and Europe may retaliate to the retaliation, and that's where you end up

with the trade war, which would harm growth further. And after COVID, we we don't need any other hurdle on on growth. So you know, the counter factual is the best reason to try to find an agreement. We've been talking on this podcast about the new players and the Biden administration. How do you think the Biden administration can change this or even break the log jam. It's a very good question, and like very good questions, there is no answer yet. We do not know. What has happened is, however,

quite interesting and much more complex than people think. First, when we did the Best Project back in two thousand, thirteen, fourteen and fifteen, the Obama administration at that time said there is no problem with digital, let's not talk about that. We revisit that in twenty after all these measures are implemented, So the US was very negative Obama administration. Very Paradoxically, the Trump administration, which was not known for being multilateralists,

right said well, let's have a conversation. The US changed its approach and kind of told the French, you want to tax Google. You're right, you're the market, but we want to tax your companies because we are their market. And that's where the conversation started in two thousand and seventeen. Paradoxically,

the door being opened by the Trump administration. Now it is true that in two thousand twenty this year, the Trump administration has got cold feeds because the election was approaching, because companies were not sure whether they wanted to change or not. And at the end of the day, I mean progress like behind and and we didn't deliver the solution by here and as planned. So what will the

Biden administration do. We hope that they will continue the negotiation, that they will say we want a solution, and that they will take some leadership to indicate what is the solution they want. I think all the other countries are ready to take what the US would tell them if it's fair enough, and that's will But that's what we will see. We shall see I hope soon, and we must see it soon because we have only six months,

and after six months, countries will move unilaterally. Because it's been yes, they've been waiting, So the Biden administration will probably have to disclose quite soon what their position is. This negotiation has actually got bigger and bigger, in part because of the Trump administration's approach. Um, is it the case that you have to agree this whole new system for taxing companies globally in order to resolve the digital question? Or are you hopeful that maybe there's a halfway house.

There is a menu of options. One option would be to say, what is the dispute. The dispute is on a few highly digitalized companies, and one could say, let's sort this out first and then take more time to sort out the more fundamental problems of the international tax framework. But these crosses the red line fixed by the US so far in a bipartisan manner, which is not ring fencing.

So you have here a contradition. You could do an easy fix, a quick fix, but these crosses redline, because that would be just too much one way try effect for the US. It's a one way traffic. The US pays a check to the rest of the world. Right, I mean you you have a free lunch on American companies and we give a tax credit, which means that we transfer taxing rights to you. So you can understand

why they would say that. Well, absolutely, and the US as a fair point to say, one, why would we be interested in paying the check to the rest of the world when they unfairly attacked American business Because that's the US perception. And too, we cannot really bring fens so that's a way to do a quick fix. May not work. Then what we could do and it wouldn't take years, is to have a broader scope. But that's for the US to say what they want in that scope.

Digital companies, consumer facing businesses, which was the latest position of the US administration, whether it's the sustained engagement of a company with the customers, with the consumers, the final consumers on the market. That that that that would be the area where you would you would create the new taxing right where you would gives to the markets a new taxing right. And that we can do, and that

we can do in the next six months because we're ready. Technically, we're ready almost we are very well advanced and just waiting for political equipment to press the button and get it at and ready. We should probably we should pause for a second to paint the scene a little bit because people listeners who are not so familiar with the with the O E c D. When you talk about technical work, that is what the O E c D is famous for. And you sit in the wonderful office.

Wonderful office is in a in a very nice part of Paris, UH, and have tended to be very good at technical work, not always so good at reaching fast agreements UH and having dynamic progress on. I think you keep the recent years it was twenty years ago. I hope we get the the expertise and the technical point and you've kept the nice buildings that should be said and we get the nice building as well. Your point all, yeah, that's so good at providing political breakthrough, it's no longer true.

Let me give you two examples. Two thousand eight, Global French Ship Crisis two thousand eight. For the first time the G twenty meets at the leaders level when they say we need to put an end to bank secrecy. The obesity delivered the end of bank secrecy in two years time. We listed countries, we provided a standard, we provided a multilateral convention to implement that standard. Ten years later, where we are not a single country in the world

has bank secrecy left. Last September, eighty four million bank accounts were exchanged Switzerland, I mean the temple of bank secrecy exchanged more than three million bank accounts with the countries where the people live having bank accounts in Switzerland for a total value of ten trillion US dollars ten trillion. That a concrete example. Second one and due to thousand twelve, multinational companies could locate their profits wherever they wanted tax avoidance.

It was an easy game to play. We came up with an action plan and we told the g twenty we're going to change international tax woos. It's used to take twenty years to change COMMA and DOT in ob City guidelines. We did all these changes fifteen changes in two years time. And as a result, you have hundreds of billions of taxes which are being collected on multinational

companies which were not in the past. It is true that on the digital project it takes more time because it's more complex because big countries are modivided, but we're there. We have all these people coming together, exchanging information, sharing the same goal, which is to strengthen the attacks sovereignty by corporation. But we'll also have I think a high level of gorenment. The question is more of the timing. So I think we've we've been more than just happy

technocrats in Paris. So there you have it. For for years, I think people some people would have said, what's the O E c D for? But but quite seriously, it turns out this is what it can be for trying to fix these really incredibly difficult problems that we face with a move to a to a digital economy. So Pascal, where does this go from here? You've talked about the Biden administration, You've talked about the timing. I can't help noticing that there's been some talk about the middle of

next year and then maybe the end of next year. Realistically, how likely is it that this is going to get resolved in the next six or twelve months. I don't know. There is a real level of unset and you which makes it exciting right for observers, a bit stressing when you're an insider. Um we we need to wait for Biden administration to give indications, and I think they are reflecting on that they need to make up their minds and send a message to the rest of the world.

And it will largely depend on on their message whether they want to play ball or not what they will do on the on the trade front. Given that before leaving, the Trump administration will inflict sanctions on the French. Because the French are moving unilaterally with their digital service tax um, we we we have a fair chance of reaching an agreement. And at the leaders level there is the sense that not only it is possible, but it is wishable that

we reach an agreement. And against that background we can be optimistic that that something positive will happen, even though we don't know yet. And and it's up for the Biden administration to decide which direction they will they will want to go. Countries would rather avoid the trade attensions,

especially in the post COVID environment. I mean this is if you take some distance, this is a tiny issue in the grand schemes of things, so we should not have we should not harm growth for these and the tax technicalities can be fixed, even though it's politically sensitive, they must be fixed. So we are confident that we'll move ahead and that will will have a path towards further corporation, some form of tax regulation of globalization, which I think is what we need. Meanwhile, it could be

handbags at dawn. I mean, we are literally having a bare neck or fight between the US and France on this with with the US imposing the tariffs on on handbags. So we come we come full circle from the heights of the digital economy to sort of basic taxes on key products like handbags and lipsticks cosmetics, which is the US vision of the French right bags and dipsticks. Past canaandam Or, director of the Center for Text Policy at oc D, thank you very much. Thank you. In a

global chocolate war, it's Hers against West Africa. That was a headline on bloom Bog but jumped out at me this week. We can't have a global chocolate war two weeks before Christmas. Then I read the story and found out there was a lot more resting on this than your holiday bowl of hers. She's kisses or chocolate orange. Leander Basson Pierre is our Ivory Coast reporter and she's been covering this story and she's joining me now from Abidjan in the Ivory Coast leanne It is quite complicated

this story. We should just start with the basics. Where you're sitting. Ivory Coast in West Africa is where a lot of the world's coco is produced and the gharner produces most of the rest. Tell me first how these two countries have tried to use the hour they have

in this particular crucial bit of the global economy. And while we've ended up talking about war, well, they've tried many times before to try to keep the price in their favor, but it hasn't really worked until last year when they decided to add a four hundred dollar premium on top of the price of the on on top of the futures price, that is, and that came into effect from the first of October, which was the start of the main crop harvest in both these two countries.

And as you rightly said, these two countries supply nearly seventy percent of the world's cocoast. So they saying, while all these multinationals are benefiting from this one hundred billion dollar industry, poor farmers in Ivory Coast and Ghana are barely seeing or barely able to make ends meet, and they're not seeing the fruits of their labor. They don't

even know what the in product actually tastes like. I guess it's it's fair to say that the Hersheys and all these big chocolate producers didn't didn't like this very much. But what's actually happened, Why is it why are we now talking about war? Well, what happened was that when they initially announced this, which was in the middle of the last year UM, there was obviously some some discussions that took place with chocolate companies, with big exporters as well.

All of them actually came and board saying yes they World by Coco at that price when it comes in from the first of October to Everyone was on board. They were on board with the fact that that needs to happen. But nobody really thought that COVID nineteen was going to happen and that they would be people where people would be eating less chocolates and sales would would slump,

and so nobody really took that into the equation. And then what happened was that they needed to I guess, try to find a way to UM to basically keep their price is in check. Given that they had lost quite a lot in sales, and that happened. And so what happened is that they revisited this premium that they had promised to pay from the start of the season, which was on the first of October, and tried to

inverge his case. They went and actually brought some some beings directly from the exchange in New York and not in the physical market. And many companies were surprised by this move. The governments of Ivory Coast and Gharner, they said, you know, what they did means that they against the four hundred dollar premium, which is called the Living Income

differential or l I d UM. They said it was a sign in the in the wrong direction that they had agreed to it, that they had spoken about it significantly. So Ivory Coast and Ghana have suspended the sustainability programs, which obviously is going to hurt the farmers that are involved in those and the workers who are involved in those pro graund So is that someone say that's a bit counterproductive, that you're hurting hurting people on the ground

to to punish her. She's while things have been moving quite swiftly, the story is very dynamic, and so we had on the November we had the governments of Ivory Coast and Gharner saying that they have suspended her she sustainability programs in any other company that's involved with any sustainability programs that her she is involved in as well.

So that implicated quite a number of different companies, and by the end of that week on December four, they've been came to an agreement her she been recommitted to

paying the premium FO premium for the season. There is obviously a bit of history here, and it's the sustainability programs I guess are important for her she and I should say there's some other big companies who are involved in this because there's been this tradition where they've been accused of being involved with child labor and deforestation everything. So there's there's quite a lot on the line for

these companies in terms of their reputation. Absolutely, and so I think that many of them have been very quick to to respond to UH in the statement that the Iborian regulator had put out on December fourth saying they had old for the suspension or suspended their sustainability programs.

So they reacted very quickly, as you said earlier, is a couple of weeks before Christmas will have other holidays were chocolate is essential coming up next year, and so it is something that they want to try to find a solution too, very quickly. And you know it's they need each other ivre coasts, they need buy Ivery Coast and Gardner, they need buias for their coco beans, and these chocolate companies need coco. It's not that they could suddenly go and source all their coco needs from elsewhere

in the world. These two governments, or these two countries at least do make up in the least of global coco production. And chocolate is not just for Christmas, I would argue it's essential most of the time, not just on holidays. I guess if you think of the end results of this in trying to put a premium on the price trying to sustain the incomes of farmers, if we end up with less cocoa being bought and god forbid, people actually eating less chocolate, aren't the farmers going to

end up poorer as a result of this. That is a fine balance that's both countries and the chocolate companies need to try to strike and in fact, there was a there was a huge concern that with this increase in the price that it would incentivize more farmers to go out and plant cocoa, that they would go out and do that in protected forest areas um And so that is an essential element of the story that they these two countries managed to keep their production in check,

that they let their farmers know that, you know, it's not going to benefit anybody if there's going to be too much coco in the markets, that they need to cap it at a certain amount so that they can keep the prices where they need them to be. So it is a fine balance that they need to strike. And at all starts worth actually the farmer and educating

them on what needs to be done. Getting down to that small farmer that has you know, half a hectary, one or two hectares, to explain to him you cannot go into predicted bus because the price is high, that if there is the surplus of cocoa, it could indeed bring the price down. Well, Leanne, thank you so much. Where do you think this is going? I mean, do we actually have to worry about chocolate shortages this Christmas?

Next Christmas? Anytime soon. Um, I've just been out into the field and there is a lot of cocoa beans. At least it doesn't seem like there's going to be much of a shortage in Ivory coast at least. Whether they will be able to maintain the price and good relations with these chocolate tears and and keep the momentum going with this project with with Ghana, we just had an elections this week, so they will continue the conversation around getting the best prices for their farmers and you know,

keeping this joint effort up. I think that they standard a bit of chance of getting the best value for their products for their farmers. When we talk about grassroots reporting on this program, we are not kidding. We are actually going out looking at the roots of the coco and it looks okay at least from Ivory case right now. Leander Bassam Pierre sitting in ather Jam, thank you so much, pleasure, Thanks for listening to Stephonomics. We'll be back next week

with more on all things economic. And remember you can always find us on the Bloomberg Terminal website, app or wherever you get your podcasts, and you can get a lot more news and analysis from Bloomberg Economics by follow at Economics on Twitter. This episode was produced by Magnus Hendrickson, with special thanks to William Horrabin, Bascal Saint dement leand

de Basson. Pierre and her colleagues Isis Almeida and Baudela Mieux, Lucy Meekin as the executive producer of Stephanomics and the head of Bloomberg Podcast is Francesco Levi.