Gideon Spanier: At last, Europe is targeting the tech giants on tax
American technology companies are suddenly living in fear.
European governments are finally standing up to the power of these giants that are happy to talk about the benefits their digital products and services bring to society while being accused of not paying their fair share of corporation tax, not doing enough to support privacy and copyright, and stifling competition.
Lobbyists from the tech firms were busy schmoozing at this week’s Conservative Party conference in Birmingham.
Facebook, Microsoft and Twitter have been sponsoring Tech Central, a marquee promoting the tech and mobile industries, just as they did at Labour’s conference last week.
But the mood music is shifting against the tech giants. Apple is embroiled in a European Commission investigation into its offshore arrangements in Ireland — the central hub of its non-US operations, which are worth $22 billion (£13.5 billion) a year and rising.
The EC said this week it believes the iPhone giant has benefited from unfair “state aid” because it pays such a low corporate tax rate — effectively below 4% — on its international profits, a significant proportion of which are channelled through Dublin.
The EC could force Apple to pay millions or even billions in lieu of tax, with implications for others. Google and Facebook also process sales offshore in Ireland, and Amazon uses Luxembourg.
Google has another reason to feel rattled. The web giant was expecting the EC to wind up its long-running competition probe into whether Google, with 90% of the UK search market, uses its dominant status to skew results in favour of its own services.
Instead, new Commission President Jean-Claude Juncker, pictured, is set to deepen the investigation — with the encouragement of German publishers and Rupert Murdoch’s News Corporation.
Chancellor George Osborne also used his conference speech to signal a crackdown, dubbed a “Google” tax. “Some technology companies go to extraordinary lengths to pay little or no tax here,” said Osborne, who called it an “abuse”.
In a typical offshore sales structure, the London office of a US tech firm acts as a marketing arm but the sales transaction itself is said to take place offshore — even though a UK advertiser is buying an ad to be shown in the UK.
Osborne did not mention Google, but it is a prime example. Last year, it made £3.5 billion in sales in Britain but declared only £642 million in subsidiary Google UK’s accounts by funnelling sales through Ireland. It paid just £21 million in UK corporation tax.
Osborne’s promise of action on tax might carry more weight if he hadn’t spent years failing to act. But any crackdown requires co-ordination by many governments because tech firms cross borders.
Part of the reason he can take action now is the Organisation for Economic Co-operation and Development, representing 34 countries including Britain, has united behind anti-avoidance measures.
It is high time the US tech giants were challenged. Their use of tax loopholes gives them a significant advantage over home-grown rivals in markets like the UK.
The problem worsens every year as revenues at most of these companies keep growing by double-digit percentages. Newer companies are following suit. Accounts filed at Companies House and at the US Stock Exchange suggest Twitter is using Ireland as a central hub in a similar way to Google, Amazon and others.
Osborne’s team at the Treasury has not spelled out its anti-avoidance plans. One idea could be a “point of consumption” tax — like the proposed law for the offshore gambling industry, which faces being taxed on the basis of the location of the customer, not of the gambling company.
Apple, Google and the other tech companies maintain they pay appropriate taxes in every country. Apple and the Irish government have also rejected any suggestion the company has received “state aid”. Google has insisted it does not skew search results.
But they know they cannot easily dismiss Europe’s complaints. In comparison, Washington has been content to let the tech firms go largely unchallenged so long as they keep paying a high rate of US tax.
Only when the 27 countries of the European Union unite is there a regulatory body strong enough to challenge and scrutinise the tech Goliaths that dominate so much of our lives.
