Zoom chief: Digital tax policy should be a ‘set of carrots’ not sticks

• Global tax policy on digital services has to be multilateral – and should be more carrot than stick, Josh Kallmer, Zoom’s Head of Global Public Policy and Government Relations has said.
• He was speaking at the World Economic Forum’s Global Technology Governance Summit hosted by Japan.
• The OECD is making progress on agreeing a set of principles to revolutionize the taxation of multinationals, as well as better taxation of the digital economy.
• Zoom profits soared in 2020, as working from home became the norm in the COVID-19 pandemic.
• Some European OECD countries have already implemented Digital Services Taxes – and the US has set out plans for a global minimum corporation tax.

Zoom chief Josh Kallmer has called for a multilateral rethink of tax policy, that recognizes how much the world has become digitized, but also encourages new, smaller innovators.

Kallmer, the Head of Global Public Policy and Government Relations at the video communications company, was speaking at the World Economic Forum’s Global Technology Governance Summit hosted by Japan, as leading economies moved a step closer to agreeing principles to revolutionize corporate tax.

He said: “We’d really like to see a multilateral solution with all the players at the table leaning into the idea that the way the economy is now, it demands answers to these questions. We want to avoid the unilateral approaches that so many markets are taking.

“This debate is thinking about tax policy as a stick, that may be unfair, it has an important role to play. But is there a way potentially to look at tax policy as a set of carrots, ways to encourage activity we want to encourage, like innovation and actual physical investments in certain markets.

“That’s a conversation that Zoom would be very eager to have. We’re committed to the growth and development of markets around the world and working with governments to get there. We want to find creative, coordinated, multilateral ways of getting there.”

‘Multilateralism at stake’

“If there were ever an issue that was fundamentally international, where the cross-border interdependence was so undeniable, it’s this,” Kallmer added, during a session on Taxing Digital Value.

“Ultimately, whether you’re looking at revenue or income, there’s a fixed amount of money in the world and we have to have a principled, coherent, consistent way to determine how to allocate taxing rights with respect to that.

“And it’s not just the global tax system that’s at stake, it’s the concept of multilateralism, the concept of cooperating together to meet the challenges that we all face now.”

In the past year, Zoom has arguably become one of the world’s biggest digital companies.

With COVID-19 lockdowns forcing stay-at-home orders across the globe, working from home became the norm and use of the communications tool skyrocketed as meetings went virtual.

Sales leapt by 326% to $2.6 billion in 2020, seeing profits go from $21.7 million in 2019 to $671.5 million in 2020.

From Zoom’s perspective, Kallmer said it was also important that digitization was viewed “as a whole” in discussions on tax.

“Certainly there are some companies that are very significant players, but we’re dealing with a larger phenomenon where it’s not just internet platforms, but services companies of all kinds providing services across borders digitally, often with no physical place of business, so it goes beyond a small group of admittedly very important countries.”

Digitization has changed the playing field

In the last two decades, the notion of ‘permanent establishment’, of a physical place of business as the anchor for allocating taxing rights, has “lost some of its utility”, he added.

“It’s still an important concept and fixture in the set of international tax norms, but there is certainly an appreciation within Zoom and across the global tech sector as a whole that digitization has legitimately changed the playing field and that governments have legitimate questions about how to respond.”

Earlier this week, the US treasury announced plans for a global minimum corporation tax, which has been backed by the EU.

The OECD has already been working on a two-pillar global taxation scheme for some time, with two pillars that address taxing companies where they make profits even if they do not have a physical presence there.

The second pillar of the OECD scheme, reports Reuters, is to establish a global minimum tax rate, which could apply to all companies, so that governments do not compete with each other offering lower taxes to attract large multinational firms.

Kallmer, the former Executive Vice President, Policy, Information Technology Industry Council (ITI), said there are some very real competition-related, and in the US, anti-trust related questions happening in the global economy, in the technology sector and other settings.

“From Zoom’s point of view, as still a relatively small company, in a relatively competitive environment we’re following those issues, we care about the outcomes of those discussions.

“We all agree the economy has changed in ways that make re-examining global tax issues appropriate. But we may have some differences on how to get there.”

Challenges and shared problems

Kallmer highlighted key challenges in the tax debate, including the prospect of double or multiple taxation.

“If you don’t have clear rules of the road agreed among countries that are essentially battling over the same quantity of revenue or profits, you have the very real prospect of that happening.”

There’s a potential penalty for small innovative companies, as some Digital Service Taxes don’t have minimum revenue thresholds, he said.

“So you have small companies, many of whom don’t make a profit for many years, who could potentially be within scope and taxed on revenue that is not part of an overall profit-making effort.”

Administration and implementation are also factors: “It’s no small feat, even for a relatively large company, to re-engineer their financial reporting to comply with greatly varying rules from market to market, so there’s a deadweight loss there, that occurs.”

He said his final point goes beyond tax to how we tackle all shared global problems. “When individual markets depart from a multilateral approach, it affects the larger global environment as well, it affects trade policy… it’s reasonable to expect that it would affect things like how we fight climate change, truly shared problems that we need to be working together to address.”

Watch the full session on Taxing Digital Value here.