20 | New Scientist | 7 March 2020
“We know global tax
rules haven’t kept up
with the way the modern
economy works”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’s most valuable
firms, but reaching agreement
on how to divide the digital
spoils won’t 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
achieved a record £1.6 billion in
revenue, but paid just £28 million
in corporation tax, around 1.75 per
cent of the total. The same year,
Google paid nearly £67 million in
tax, but reported £1.4 billion of UK
revenue. Apple made £1.2 billion
in UK revenue last year, but paid
just £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 that
it robs nations of vital income.
“The multinational tax
system doesn’t work properly,”
says Neil Ross of industry body
techUK. “We know global tax
rules haven’t kept up with the
way the modern economy
works, particularly when it
comes to the digital economy,
which is international by default.”
France is leading the charge.
Last year, it levied an additional
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’t yet calculated the figure,
but spokesperson Mélanie Voin
told New Scientist it was several
hundred million euros.But the French plans started
a spat with the US, where many big
tech firms are based. US president
Donald Trump threatened 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 plan put
forward by the Organisation for
Economic Co-operation and
Development (OECD) for a global
digital services tax that would
increase tax bills across the tech
sector by about 4 per cent, or
$100 billion.Global debate
International finance ministers
met in Saudi Arabia on 22 and
23 February 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 accounting 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’t install the
OECD as the global tax authority,
but it would replace existing
national-level tax rules and
standards, allowing each country’s
tax authority to levy and collect
the agreed amount of tax.
“Both pillars would go a long
way towards addressing the
challenges posed by the increasing
digitalisation of the economy,”Many tech firms have
huge revenues, but
small tax billsBig techCH
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IMAGES3 %
Additional tax on income
of large tech firms in FranceNews Insight
Taxing times
The ability to shift online profits to low-tax nations has made tech firms
hugely profitable. Should that change, asks Chris Stokel-WalkerFrance 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 EU average of
21 per cent.
“For us, it’s a matter of fairness,”
says Voin. “It’s something people
want in France. There’s a
perception that there are
companies not paying a lot of
taxes, whereas they’re making a
lot of profits, and individuals feel
that they are taxed much more.”
Countries like Austria, Italy,
Spain and the UK have also
introduced or are proposing
to introduce similar taxes.