Governments have a range of ways in which they can apply pressure, one being tax audits, which HM Revenue and Customs has used to get more out Google and Apple. In January 2016, Google UK paid additional taxes and interest totalling £130m following an audit, and earlier this month accounts published by Apple Europe and Apple UK (here and here (PDFs) showed total tax payments of £309m for the 18 months ending 1 April 2017, including £218m for adjustments to earlier years, compared with a net total of £5.2m for the year ending 26 September 2015. In similar notes in both sets of accounts, the Apple subsidiaries say these payments resulted from “an extensive audit” by HMRC, adding that “the company’s corporate income tax payments will increase going forward”.
But such audits take a lot of effort and do not change the rules. British politicians are also talking about the latter. Home Office security minister Ben Wallace recently suggested new taxes to compensate for the costs of tackling online-inspired terrorists. “Because content is not taken down as quickly as they could do, we’re having to de-radicalise people who have been radicalised. That’s costing millions,” he told The Sunday Times, adding of the tech firms: “We should stop pretending that because they sit on beanbags in T-shirts they are not ruthless profiteers.”
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Wallace’s growling follows similar noises over the cost of damage to children and teenagers, in a green paper consultation published last October. British governments have form when it comes to imposing sector-specific taxes, including financial services, privatised utilities, bookmakers and oil and gas producers.
But Italy has got there first. Before Christmas it announced a 3 per cent "web tax" on digital advertising as part of its 2018 budget. The measure was revised down from 6 per cent and reduced in scope, but it is based on gross revenue, not profits. Faccio thinks it will work. “The web tax will generate some revenue, because it’s a fairly hard to escape tax. If you make a sale, then a percentage is applied.”
However, he sees problems in each country coming up with its own method to squeeze tax out of technology giants, as they will still have incentives to shift profits around. The ideal for tax reformers is "unitary taxation", where multinationals are taxed on their consolidated global accounts and the proceeds shared out between countries based on measures such as sales, employee numbers and physical assets. “This will remove all the complexity and the incentive for tax avoidance,” Faccio says.
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While attempts to agree something like this through the Organisation for Economic Co-operation and Development (OECD) have stalled, it is starting to look like it may happen within the EU. Last September, European Commission vice president Valdis Dombrovskis said the commission expects to publish proposals for legislation on EU-wide taxes on online advertising and internet transactions this spring. A public consultation on the plans ended in early January. Such plans could fall foul of a veto by low-tax countries such as Ireland and Luxembourg, but might also be possible through a "qualified majority" vote where the two small countries would lack the votes to block a measure.
Brexit could of course place the UK outside such an arrangement. Having said that, the British government is obviously keen to get more money out of technology companies and looks set to stay in or closely cooperate with some EU work after Brexit. This could be one such case.
It seems likely that the big technology companies will pay more tax to governments around the world in future. However, short of an unprecedented level of global agreement, this is only likely to happen in countries willing to establish new kinds of taxes, whether on their own or through regional bodies like the EU. “Google will pay significantly more tax in Europe, more tax perhaps in the US, but unless real reforms of international tax rules take place, in Asia, Africa and Latin America it is unlikely to pay anything significantly higher,” predicts Faccio. ®
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