This update shines a light on the increasing patchwork of global forums and bodies looking to govern digital and data flows.
Return of the US to global governance? OECD digital tax.
Discussion about the global taxation of firms has become increasingly controversial. One aspect of this has been the digital economy. Given that it is common for digital firms to operate at distance and outside the territory of consumers, this poses challenges for how taxes are defined and collected.
Smaller and less powerful countries often face specific tax challenges, with the digital economy more dominated by foreign firms. Digital tax has also become a more significant issue as a result of the COVID-19 pandemic driving growth in the digital economy. Governments see risks in such shifts – reducing the national tax base away from local firms towards remote ones outside their jurisdiction.
Before the crisis, we already saw European countries (such as UK, France and Turkey) implementing “digital service” taxes. Over the last six months, a broader range of countries have begun to adopt similar rules (see image below), most notably a group of emerging South Asian countries – Indonesia, Cambodia, Vietnam, Thailand, Philippines and Malaysia.
In this region, nations are looking to implement a tax on foreign digital companies as well as better track platform e-commerce sellers for VAT and tax purposes.
The OECD has become the major global forum for discussing these issues with proposals from 2013 onwards. Until recently lack of progress related to US opposition under the Trump presidency; the US position was that digital tax initiatives would have a discriminatory impact on US-based tech firms who are by far the most successful in terms of global reach.
The lack of progress at the OECD led to countries unilaterally implementing digital taxation schemes, such as those mentioned above. This has come even in the context of strong political pressure to stop unilateral activity. For example, UK and France have been publicly warned of trade reprisals by senior US officials and a US “Special 301” investigation on trade barriers in European countries remains in progress.
Following pronouncements of President Biden towards renewed international engagement, there has now been confirmation that the US will support the “two pillars” of the OECD tax rules.
These pillars – a minimum global corporate tax rate for multinationals; and taxation of profits based on the location of customers – are the foundations of reformed tax rules in the digital sphere. Nevertheless, Biden’s team will likely still push for rules that reduce the overall impact on US tech firms in negotiations.
Examining emergent digital tax rules in different countries reveals a diversity of agendas in this domain. For example, implementations in South East Asia push rules on taxing foreign platforms and making e-commerce trade more legible, which might be less discussed at the OECD.
The potential for agreement on OECD tax rules is an important step forward on tax. But given US power and the corporate pressure negotiators will face, close attention will be needed to ensure it does not water-down impact for countries outside the US.
New forms of governance? UN Digital cooperation
The “UN High-Level Panel on Digital Cooperation” was launched by the UN secretary-general in 2018 to examine global cooperation and trust in the digital sphere, with a focus on the SDGs. The panel was chaired by Jack Ma and Melinda Gates with the panel reporting in 2019.
Many of the actions of the Panel were relatively uncontroversial with calls for the UN to renew engagement in key areas such as human rights online, cybersecurity and building digital capacity.
As the panel report has moved into implementation, a more controversial focus has been on implementing updates to UN governance mechanisms for digital. In particular, it was suggested that a “new strategic multistakeholder high-level body” would be formed that would coordinate steps forward.
This goal aligns to the critique that the UN has failed to have a strong policy influence in the digital arena (unlike say OECD on digital tax and WTO on digital trade). The UN does convene important multi-stakeholder bodies such as the IGF (internet governance forum), but so far these have had limited policy making power.
A “high-level body” as a way to push policy making functions within the UN has provoked unease amongst civil society actors. A particular fear is that this effort will move focus away from the multistakeholder and inclusive spaces such as the IGF and WSIS.
Rather than look to reform these more open spaces towards a policy function, the “high-level body” proposal suggests less open mechanisms of discussion, with fears of capture by corporate agendas.
This unease cumulated in a letter written by the JustNet Coalition made up of 170 civil society groups in March 2021 that articulated these fears. “What we are most concerned about here is the completely unacceptable over-reach”.
The letter continues to suggest that the UN should “immediately withdraw the proposal for a High-level Multistakeholder Body, since it would become the de facto body for ‘global digital governance’ “.
Platforms as governors? Apple’s new tracking rules
IDFA (Identifier for Advertisers) is an interface that allows tracking of Apple users across different sites and apps. As part of their focus towards privacy, Apple has recently implemented new rules that resulted in consumers being alerted to this type of tracking and having to opt-in. It is expected that the majority will opt out.
What is interesting is that this seemingly small decision by Apple promises to have spillover impacts across a whole ecosystem of digital organisations. Apple has argued that this change is important to reduce the impacts of questionable tracking behaviour, particularly by third-party ad networks.
There are suggestions, however, that it will unevenly impact smaller firms. Dynamic online sellers and digital marketing firms often look towards marketing-led and a niche focus, using targeting mechanisms such as IDFA to profile customers. Such firms claim that changes will impact their business models.
There have also been suggestions that Apple’s goal of improving security and tracking may not be the main agenda. Associations of small firms involved in the digital economy (in France, Spain and Germany) have argued that this change should be seen as anti-competitive. This is simply a dominant digital firm using its platform power to push users towards new Apple marketing products and ad platforms.
Whichever side one sits towards these arguments, this development illustrates how large firms have significant governance power across (international) ecosystems of firms. We might see such rules in parallel with other frameworks that look to regulate the data economy such as data protection rules.
Emerging data protections rules provide important new protections on data, but with their drawn-out processes of litigation and many grey areas, there is evidence that they have a limited impact, with major power remaining within decisions by large tech firms and their implementations of data tracking systems.
In the run-up to the Apple changes, we also saw an attempt by China to define a publicly supported standard called CAID. This would look to standardise tracking activities across platforms, reducing dependency of single platform firms. In China this was being developed by digital giants such as ByteDance and Tencent amongst others.
This initiative has so far been rebuffed. Apple warned Chinese firms that such implementations would be outside their terms of service and their apps would be taken off the Apple store. There is the potential for this to become an area of significant tensions between China and Apple in the future.
Digital profiling and data are at the heart of business models in the digital economy. Therefore, regulation of such activities will be important to consider further. This is particularly true as new data initiatives on the horizon promise similar conflicts (such as new standards for web cookies, and how Google and Facebook respond to Apple’s new rules).
Clearly, these have a global impact. But there is little understanding or clear consensus of how rulemaking might be evolved.