International news

Global tax deal may raise over $230 billion annually

OECD officials stated during a webinar presentation that the global tax deal could raise over $230 billion in revenue annually from the adoption of the OECD's two pillar tax plan. Pillar One is likely to allocate taxing rights to market jurisdictions on an estimated $200 billion in annual residual profits, resulting in an additional $12 billion to $25 billion in global tax revenues. Pillar Two's implementation of a global minimum tax could raise approximately $220 billion annually.

The revenue estimates are significantly higher than previously estimated as a result from (i) design changes with respect to both pillars; (ii) more recent and better data, with higher levels of in-scope profit (Pillar One) and low-taxed profit (Pillar Two); and changes in modelling, with improved estimation approaches. The above estimate remain preliminary and work is ongoing.

The full economic impact analysis is intended be published in the coming months.

USCIB and other trade groups provide comments on OECD public consultation

The United States Council for International Business (USCIB) provided comments on the OECD public consultation document regarding Pillar One including digital service taxes and relevant similar measures (DST / RSM). The comments generally provide that the draft provisions:

1. Do not contain an appropriate remedy for any part that is subject to a DST/RSM;

2. Do not provide a complete definition of DST/RSM that adequately applies to the types of discriminatory taxes that the [Inclusive Framework] agreed to roll back and not enact in the future;

3. Contain a list of exclusions from the DST/RSM definition that are concerning and/or unclear;

4. Lack an effective mechanism for avoiding double taxation; and

5. Do not provide for a timely and efficient process to determine whether a challenged tax is a DST/RSM.

Other trade groups, including the National Foreign Trade Council and the Information Technology Industry Council also asked for a broader definition of DSTs and other unilateral measures.

The OECD previously published a public consultation document containing draft provisions for the Multilateral Convention (MLC) on Digital Tax Services (DSTs) and related measures under Pillar One Amount A. These draft provisions included: (1) the withdrawal of all current DSTs and related measures for all companies, including a complete list of these existing measures; (2) a definition of the measures that the MLC parties will agree not to implement in the future; and (3) a mechanism for eliminating Amount A allocations if this commitment is violated.

United States news

Indiana bill would adopt social media tax

Representative J.D. Prescott (R) introduced Indiana HB 1517, which would impose a surcharge tax on social media providers. Specifically, HB 1517 would impose a surcharge tax on social media providers equal to: (1) the annual gross revenue derived from social media advertising services in Indiana in a calendar year multiplied by seven percent; plus (2) the total number of the social media provider’s active Indiana account holders in a calendar year multiplied by $1. A “social media provider” is defined as a social media company that: (1) maintains a public social media platform; (2) has more than one million active Indiana account holders; (3) has annual gross revenue derived from social media advertising services in Indiana of at least one million dollars; and (4) derives economic benefit from the data individuals in Indiana share with the company.

The bill defines a “social media platform” to mean an internet website or internet medium that: (1) allows account holders to create, share, and view user generated content through an account or profile; and (2) primarily serves as a medium for users to interact with content generated by other third party users of the medium. “Social media advertising services” means advertising services that are placed or served on a social media platform. The term includes advertisements in the form of banner advertising, promoted content, interstitial advertising, and other comparable advertising services.The bill contains an apportionment provision, which provides that the apportionment of annual gross revenue derived from social media advertising services in Indiana shall be determined using an allocation fraction, the numerator of which is the annual gross revenue derived from social media advertising in Indiana, and the denominator of which is the annual gross revenue derived from social media advertising in the United States, during the calendar year.

The bill would be effective January 1, 2024. According to the bill’s fiscal note, the surcharge is expected to raise between $64.6 million and $88.3 million in FY 2024 and between $118.5 million and $173.9 million in FY 2025.

Digital advertising and data tax proposals introduced in Connecticut and New York.

On January 18, 2023, proposed legislation was filed in the Connecticut House (HB 5673) and Senate (SB 351) that would establish a 10 percent tax on the annual gross revenues of any business with annual gross revenues exceeding $10 billion from digital advertising services. HB 5658 was also proposed, which similarly calls for a 10 percent tax on the annual gross revenues from digital advertising services on any business with annual gross revenues exceeding $10 billion, with no caveat that revenues be from digital advertising services. Similar proposals were introduced in Connecticut during the 2021 legislative session. Because Connecticut legislators may introduce legislation as a short statement in non-statutory language, HB 3573, SB 351, and HB 5658 lack the formal statutory language normally found in other states. The Joint Committee on Finance, Revenue and Bonding will now consider these proposed bills and determine if it should be sent to the Legislative Commissioners’ Office for full drafting of the bill’s text.

New York legislators are back at it again, too. On January 17, 2023, S1845 was filed and referred to the Budget and Revenue Committee. The legislation proposes to impose a 5 percent tax on the gross income of every corporation that derives income from the data New York individuals share with such corporations. The bill says little about how the tax will work – and fails to define or use existing defined terms within New York’s franchise tax. As written, it is unclear whether the income to be taxed is limited to gross income earned from data procured from New York individuals or if a broader base (i.e., any gross income) applies. This bill is similar to legislation introduced in both the 2021 and 2022 legislative sessions that did not make it out of committee.