The form and function of these incentives are country-specific. China, for example, offers subsidies for 5G R&D projects of RMB 3 million (approximately USD $430,000) and up. Also, for specific investments in 5G industrial integrated circuits, the nation will fund 30% of the direct cost for purchasing intellectual property, up to a maximum of RMB 2 million.
In South Korea, beyond 5G itself, tax officials deem self-driving cars and virtual/augmented-reality devices as related technologies – which receive the designation of new growth engines and source technologies. Participants in these categories can apply for a range of incentives. For example, investment in facilities for commercializing these technologies can yield deductions of 5-10% (5% for large businesses, 7% for mid-sized firms and 10% for start-ups) of the amount invested from corporate tax. The nation is also offering accelerated depreciation for investments in these sectors.
Separately, but often in addition to 5G-specific incentives, many nations offer a range of tax grants, holidays and related benefits with a more general focus. For example, UK officials are incentivizing investment in innovative projects in science and technology. Companies there can claim a credit for 12% of qualifying research and development expenditures.
A catalyst for digital taxation
Another consideration for tax teams is 5G’s potential to become a catalyst in the drive toward digital taxation. A 5G-enabled world will further fuel progress toward digital tax administration. As Flynn explains, “more and more jurisdictions are already moving toward digital reporting of VAT and GST.”
But now, as 5G enables more sensors, IoT devices and even smart contracts within a blockchain, tax “events” can be systematically detected, triggering reporting and payment. Overall, says Flynn, “the pace of digital taxation will accelerate.”
One possible concern is how the digital focus within the OECD’s BEPS 2.0 initiative might affect 5G-enabled digital processes. BEPS 2.0 seeks to implement concepts such as digital services taxes.
“For now, their focus is on consumer-facing businesses,” says Flynn. “So large, 5G-infused ecosystems and supply chains will be exempt from changes to the determination of nexus and redistribution of profits,” says Flynn. “But as digital services taxes take hold for consumers, there’s a risk that businesses could be subject to the same formulas in the future.”
How the COVID-19 pandemic could spur 5G
The COVID-19 pandemic demonstrates the value of digital interconnectivity and virtual workforce capabilities. While 4G and hard-wired connections are mostly sufficient today, the coming shift to a significantly more virtual society suggests the necessity of 5G.
Pressure may continue to build from the private sector for more 5G infrastructure “as executives gain greater experience and comfort with videoconferencing and related aspects of a remote workforce, even as workers themselves experience quality-of-life improvements [from teleworking],” says Pasanen. “COVID-19 will subside, but telecommuting will become much more commonplace.”
Education is also relying heavily on digital tools. “Amid the crisis, we’re seeing how many schools have been able to rapidly shift to e-learning,” says Pasanen. “Again, that will have ripple effects as [society] will begin to want more of it.”
Further, he adds, “more medical services are seeing patients virtually – and even movie studios are responding to empty theatres by offering more of their new releases for streaming. These experiences will drive demand for more digital tools, services and then ultimately bandwidth – which 5G can deliver.”
There is, however, a caveat. The spike in digital versus physical interaction throughout society increases cybersecurity risks. “With more people working from home, issues such as weak wifi passwords present a rich target for hackers,” says Pasanen. “We’ll need to develop far stronger cybersecurity measures.”