Telcos ask for loophole in OECD's anti-tax-loophole rules

Two of the telecoms industry’s biggest lobby groups have called for their members to be exempt from upcoming rules designed to curb tax avoidance by multinational tech firms.

The proposed legislation, drawn up by the OECD/G20 is called the Inclusive Framework (IF) on BEPS. BEPS stands for base erosion and profit shifting; it refers to the practice of multinationals – most notably big tech firms – exploiting mismatches in tax rules between different countries by allocating profits to low or no-tax locations like Bermuda or the British Virgin Islands.

Over the years, the likes of Amazon, Apple, Google and Microsoft have all availed themselves of these loopholes, enabling them to reduce or even eradicate their tax exposure on huge profits generated from customers residing in the US, UK and EU.

This year’s G7 Summit saw members agree to end the party by imposing a 15 percent tax rate on profit earned in the actual country where the business activity takes place. It would replace an earlier proposal to levy a tax specifically on digital services, called the Digital Services Tax (DST). The OECD/G20 IF on BEPS builds on this agreement with a set of domestic and international tools that governments can use to tackle tax avoidance.

In a statement this week, the GSMA and ETNO said they are generally in favour of the proposals, but are concerned about its potential to subject “large multinationals within the telecommunications industry, who already pay their fair share of taxes, to double taxation.”

Indeed, the lobby groups point out that in addition to paying income tax to the various jurisdictions in which they operate, they also pay spectrum licence fees and – in many markets – unilateral Telecommunications Service Taxes (TSTs).

“There is no explicit commitment to withdraw unilateral TSTs,” said the GSMA and ETNO. “This would result in a discriminatory treatment of the telecommunication sector.”

As such, they want telcos to be exempt from the proposed new tax, or at the very least, want operators to be given a full tax credit on their TSTs. In addition, “the definition of profit allocated to a country should take into account long-term capital investment (including spectrum and other costs that are capitalised as indefinite-lived assets), borrowing costs, credits and incentives, and accumulated losses to match infrastructure investments with returns.”

This being the GSMA and ETNO, they also didn’t waste an opportunity to point out how brilliant it is that telecoms operators spend so much money on deploying life-improving network infrastructure all over the world.

“There is ample evidence of the positive impact of telecommunication infrastructure on economic growth. For example, one ITU study found that an increase of 10 percent of mobile broadband penetration increases GDP growth by 1.5 percent worldwide and up to 2.46 percent in developing countries,” they said. “As such, levying incremental taxes and fees on telecommunications operators in addition to existing levies, risks discouraging investment and harms economic progress.”

Calling for special treatment from a tax regime designed to end special treatment looks pretty brazen on the face of it, but there is some logic to the GSMA’s and ETNO’s arguments. Should those arguments fall on deaf ears, they and their members have the time, money and incentive to make sure their collective voice is heard. This has the potential to turn this into a long, drawn-out affair.