The tech giants have taken over the world, but now governments are trying to claw some of it back. Global leaders are discussing new rules on taxing some of the planet鈥檚 most valuable firms, but reaching agreement on how to divide the digital spoils won鈥檛 be easy.
It has been clear for some time that these firms seem to pay less tax than might be expected given their revenues. Take the UK, where in 2018, Facebook in sales. The amount of corporation tax it paid was just 拢28 million 鈥� around 1.75 per cent of the total. The same year, Google paid nearly 拢67 million in tax, but reported 拢1.4 billion of UK revenue. Apple made 拢1.2 billion in UK sales last year, but paid just 拢3.8 million in tax.
It is a similar picture in many other countries. It is smart business and entirely legal for multinational companies to funnel profits through low-tax countries, but many argue it robs nations of vital income.
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鈥淭he multinational tax system doesn鈥檛 work properly,鈥� says Neil Ross of industry body techUK. 鈥淲e know global tax rules haven鈥檛 kept up with the way the modern economy works, particularly when it comes to the digital economy, which is international by default.鈥�
France is leading the charge. Last year, it levied a 3 per cent rate of tax on about 30 tech firms worldwide. The tax retroactively charged companies for income earned in France during the 2018-19 tax year.
The French finance ministry declined to say exactly how much the tax raised, saying it hasn鈥檛 yet calculated the figure, but spokesperson M茅lanie Voin told 快猫短视频 it was several hundred million euros.
France had initially called for a European Union-wide tech tax, but these efforts were stymied by opposition from Ireland, Finland and Sweden, says Voin, in large part because they benefit from the status quo. For example, many tech firms choose to base their European operations in Ireland because its corporation tax rate of 12.5 per cent is much lower than the of 21 per cent.
鈥淔or us, it鈥檚 a matter of fairness,鈥� says Voin. 鈥淚t鈥檚 something people want in France. There鈥檚 a perception that there are companies not paying a lot of taxes, whereas they鈥檙e making a lot of profits, and individuals feel that they are taxed much more.鈥�
Countries like Austria, Italy, Spain and the UK have also proposed plans to introduce similar taxes.
But the French plans started a spat with the US, where many big tech firms are based, with US president Donald Trump threatening to impose import tariffs on French goods in retaliation.
Both sides stepped back from the brink at a meeting of the World Economic Forum in Davos, Switzerland, in January 2020, agreeing to consider a ) for a global digital services tax that would increase tax bills across the tech sector by about 4 per cent, or $100 billion.
International finance ministers met in Saudi Arabia last weekend for a G20 summit to debate the plan, which has two pillars. The first would give governments some taxing rights for any sales made in their country, redressing the issue that big tech firms can shift profits to nations where tax is low by booking online sales to customers in one country as being made in another.
The second ensures a minimum level of tax internationally, avoiding a race to the bottom as countries reduce their taxes to encourage firms to shift their profits there. The agreement would harmonise tax rates across 137 countries supporting the OECD plan. This wouldn鈥檛 install the OECD as the global taxman, but it would replace existing national-level tax rules and standards, allowing each country鈥檚 tax authority to levy and collect the correct amount of tax.
鈥淏oth pillars would go a long way towards addressing the challenges posed by the increasing digitalisation of the economy,鈥� says Pascal Saint-Amans, director of the OECD Centre for Tax Policy and Administration.
Google says its for the past decade, similar to the average statutory rate across OECD countries, but the OECD thinks it and firms like it should be paying more. Tech giants have profit margins of about 20 per cent compared with the global average of 8 per cent for listed companies, according to the OECD. It says these excess profits should be distributed to the markets where those goods are sold, rather than being kept in their home jurisdiction, generally the US or China.
Not everyone shares this view. 鈥淐ountries sense that they are making a lot of money in terms of revenue but also profit in jurisdictions in which they do not pay a certain 鈥榝air share鈥� of tax,鈥� says Matthias Bauer of the European Centre for International Political Economy, a free-trade think tank based in Brussels that is opposed to the notion of introducing tech taxes.
Bauer argues that the companies often fingered as the worst tax avoiders still contribute to the countries they operate in: they add employment, investment through data centres or logistics and warehouse facilities, and pay out salaries that are taxed through income tax. 鈥淚f you tax away the capacity of the companies to do this, you lower the impact of their activities,鈥� he says.
At the G20 meeting, the US cautioned against the OECD plan, while European nations were generally in favour. If they don鈥檛 reach an agreement by the end of the year, countries that have already put forward proposals for so-called digital services taxes are likely to reinstate or implement their own unilateral taxes anyway.
Michael Devereux at the University of Oxford believes the latter is the most likely option. 鈥淚 think they鈥檝e made enormous progress given where they started and the difficulties of doing it, but they鈥檝e got a very tight timescale,鈥� he says. The next OECD meeting on the tech tax will take place in Berlin in July, where the participants hope to thrash out the key policy features of a global solution and sign a political agreement that would be delivered to G20 heads of state in November 2020.
The bosses of big tech firms are recognising that something has to change. 鈥淚 understand that there鈥檚 frustration about how tech companies are taxed in Europe. We also want tax reform and I鈥檓 glad the OECD is looking at this,鈥� Facebook CEO Mark Zuckerberg said last month, and Apple boss Tim Cook that he 鈥渄esperately鈥� wanted the tax system to be 鈥渇air鈥�. Facebook and Alphabet, the parent company of Google, both declined to comment for this story. Apple did not respond to requests for comment.
It makes sense for tech executives to throw their support behind the OECD scheme. 鈥淚t鈥檚 in their interest and from a tax certainty perspective, it鈥檚 definitely better for them to have one international solution,鈥� says Voin. 鈥淭he economy has changed, and the fiscal principles haven鈥檛 changed.鈥� If the OECD gets its way, they soon will.
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