Italy readies itself for tax assault on Silicon Valley

The Italian Government is preparing to join the UK and France in taking a tougher tax stance against Big Tech with the introduction of a 3% sales tax.

Designed to target the elusive technology giants which have been slipping between the mountains of red-tape to take advantage of cheaper tax destinations, the levy will be based against revenues realised in the market as opposed to tax. While it might be possible to move profits to different markets in the bloc, it is much more difficult to disguise payments taken from individuals who physically reside in Italy.

While it still might be early days in tackling the abuses of the taxation landscape, momentum is starting to gather. According to sources, the new tax regime could be announced during the next budget and set in place January 2020. The new budget from the coalition is due to be submitted to the European Commission today [October 15].

Although details are relatively thin for the moment, take any predictions or leaks with a pinch of salt. It would be fair to assume Italy is heading down the same route as the UK and France in holding Silicon Valley accountable to a fair and reasonable tax position, though due to the complicated political situation in the country, what form this could take is unknown for the moment.

During the 2018 Italian election, no political group or party won an outright majority resulting in a hung parliament. Numerous coalition governments could have been formed, and after a few failed attempts, the centre-left Democratic party and the anti-establishment Five Star Movement were sworn in last month.

These policies have been in the works for some time now, though what eventually comes out of the wash remains to be seen. Interesting enough, the failure of this latest coalition could force the country into another election, potentially a new government and perhaps a new line on tackling Big Tech.

That said, the only thing which is clear coming out of this political kafuffle is that Silicon Valley is a target.

Across Europe there are several member states who are becoming increasingly frustrated with the flamboyance of the internet giants accounting departments. There are of course a few who have scuppered a pan-European approach to new digital tax rules, the likes of Ireland and Luxembourg of course benefit from the unfair status quo, though with several member states going it alone, the writing is on the wall for Big Tech.

This is just one element of the changing landscape for tech. Alongside a rethink on tax rules, regulation and legislation governing data, privacy, surveillance, free speech, political advertising and artificial intelligence are in the works. Governments and regulators are attempting to drag bureaucracy and the rulebook into the digital era, and it might be a bit uncomfortable for some of Silicon Valley’s residents.

OECD weighs in on digital taxation saga

The Organisation for Economic Co-operation and Development (OECD) has put forward its own proposals on new tax regimes in the digital economy as the threat of fragmentation lingers.

With the proposal now open to public consultation, the OECD will make the relevant adjustments over the coming months. While this does look like a reasonable approach to creating a fair taxation landscape, there will of course be objections, perhaps from the US and those countries which cultivate the creative tax strategies which exist today.

As it stands, multinational corporations are able to shift tax payments to cheaper locations and regions, as many tax laws are defined by the physical presence of the company. With more businesses employing digital business models, this presents a greater risk moving forward. Big Tech are of course some of the biggest profiters of the inability of regulation to keep up with technological progress. In theory, the new rules will make tax avoidance much more difficult.

“We’re making real progress to address the tax challenges arising from digitalisation of the economy, and to continue advancing toward a consensus-based solution to overhaul the rules-based international tax system by 2020,” said OECD Secretary-General Angel Gurría.

“This plan brings together common elements of existing competing proposals, involving over 130 countries, with input from governments, business, civil society, academia and the general public. It brings us closer to our ultimate goal; ensuring all MNEs [Multinational Enterprises] pay their fair share.

“Failure to reach agreement by 2020 would greatly increase the risk that countries will act unilaterally, with negative consequences on an already fragile global economy. We must not allow that to happen.”

This is perhaps the biggest worry for the OECD and enterprise organizations around the world; failure to introduce new rules will lead to a much more regionalised approach. This would create difficulties for everyone involved.

The aim is of course to provide more stability and certainty in the international community, though there are a couple of elements to the proposal which are critical.

First and foremost, while these new rules will be applicable to every organization, they have seemingly been designed with digital front of mind. The proposal creates new marker definitions removing the necessity of a physical presence in a market to create tax liabilities.

“The new nexus rule would address this issue by being applicable in all cases where a business has a sustained and significant involvement in the economy of a market jurisdiction, such as through consumer interaction and engagement, irrespective of its level of physical presence in that jurisdiction,” the proposal states.

Revenue threshold levels will be created dependent on the size of the market in question. The OECD hopes this will encourage innovation while also removing the ability to dodge tax through working with third-parties and local distributors.

While this is a much more reasonable approach, designed for the digital economy, there are a few issues which need to be ironed-out, and it won’t be long before the objections to the plans are aired. One area where more thought will have to be applied are the double-taxation clauses; the OECD needs to ensure the concept of fair and reasonable works both directions of course.

What you might also see over the next couple of weeks are objections from countries like Ireland and Luxembourg who benefit so handsomely from the status quo, and perhaps the US who feels it should be the only country allowed to tax the residents of Silicon Valley.

Although there also has been some criticism levelled at the OECD for creating a proposal which favours the wealthiest countries not taking into consideration the developing regions, this is a step-in the right direction. Tax rules were woefully outdated, leaving ample opportunity for abuse. Timelines are short, but this is progress.

Zuckerberg comes out swinging in face of break-up tension

Via a leaked audio-recording of a Facebook townhall meeting with employees, Facebook CEO Mark Zuckerberg has taken a combative position in the face of increasing pressure.

Taking questions from Facebook employees, Zuckerberg has taken a much more forthright and confident stance than he generally does when in the shiny lights of the public domain. The leaked audio files, courtesy of the Verge, paint a picture of a man who is prepared to go to war to protect the gargantuan company he has built over the last decade.

“So, there might be a political movement where people are angry at the tech companies or are worried about concentration or worried about different issues and worried that they’re not being handled well,” Zuckerberg said.

“That doesn’t mean that, even if there’s anger and that you have someone like Elizabeth Warren who thinks that the right answer is to break up the companies … I mean, if she gets elected president, then I would bet that we will have a legal challenge, and I would bet that we will win the legal challenge.”

Presidential hopeful Elizabeth Warren, the Democrat Senator representing Massachusetts, is looking like the biggest political opponent of Silicon Valley. And it is becoming increasingly clear Facebook is enemy number one.

But perhaps these comments indicate just why Washington and its political leadership is acting so aggressively towards the likes of Facebook, Google and Amazon. These are companies who no-longer fear the political establishment. They are arguably more influential, and as you can see from the comments above, they believe they have the upper-hand when it comes to legal arsenals.

As we have mentioned before, this is one of the reasons we suspect politicians are taking such a firm stance against Silicon Valley in 2019. Not only are the actions and business models of these firms’ easy pickings for PR points, Washington DC seemingly does not like it is not the most influential neighbourhood in North America anymore.

On the other side of the debate, Warren has not kept her opinions about Facebook to herself or even attempted to disguise that some of the tweets have been directed towards Zuckerberg.

“We have to fix a corrupt system that lets giant companies like Facebook engage in illegal anticompetitive practices, stomp on consumer privacy rights, and repeatedly fumble their responsibility to protect our democracy,” Warren said in one tweet.

“Zuckerberg himself said Facebook is ‘more like a government than a traditional company’. They’ve bulldozed competition, used our private information for profit, undermined our democracy, and tilted the playing field against everyone else,” she said in another.

“Facebook’s anti-competitive mergers mean they face no real pressure to tackle disinformation. They won’t even do the bare minimum to improve transparency. Tech giants shouldn’t be able to wield enough power to undermine our democracy,” a final one read.

Facebook seems to be the focal point of Warren’s anger, though this might be down to the leaked audio, as well as the concentration of power at Facebook. Zuckerberg himself has admitted that his voting power at the company has made him a target for the politically ambitious, though this is not the only company which is facing pressure.

All of the major players in the Big Tech fraternity are becoming targets and it the raising temperature might hit boiling point before too long. Some of these companies might be willing to accept fines simply because they don’t make that much of a dent in the spreadsheets, but it would not be a surprise to see some aggression coming back the other direction before too long.

Silicon Valley and Washington DC both have ambitions to be the most prominent voice in the ears of the US consumer, but only one can secure that mantle.

The internet is now 10% of US economy: a regulatory conundrum

Placing more stringent regulations on a sector is a delicate equation to balance, especially when it contributes so much to the national economy.

According to estimates from the Internet Association, the industry now accounts for 10.1% of the overall US economy, directly employing 4% of the working population and indirectly supporting a further 8.7%. These are the figures which have placed the politicians in such a precarious position.

Silicon Valley is driving progress in the US, however it has arguably become too powerful. The years of the ‘Wild Web’ cannot be allowed to continue, though politicians and regulators have to be careful when designing and placing the shackles on these monstrous companies; the last thing anyone wants is to inhibit or undermine an industry so important to economic growth.

Over the course of 2018, the Internet Association estimates the industry contributed $2.1 trillion to the US economy. This is more than double the $966 billion from five years ago, accounting for as much as 10.1% of the total. The number of jobs it also supports has doubled from 2014, directly employing 6 million individuals, while 13.1 million jobs were indirectly supported by the internet companies.

In comparison to other segments, the internet sector grew nine times faster than the US economy as a whole between 2012 and 2018. Since 2007, the US economy has grown by 41.8% compared to growth of 372% for the internet’s contribution. It is now the fourth largest sector in the US, only behind manufacturing, public administration and real estate.

And some might suggest this is only the tip of the iceberg. As more digital products and innovations are introduced, alongside more traditional aspects of our daily lives heading online, growth would presumably only head one direction.

As mentioned beforehand, this presents a conundrum to the politicians and regulators.

It has become increasingly popular over the last few months to point the finger of accusation at Silicon Valley. According to the politicians, these are companies who are navigating around the rules, ignoring the privacy rights of citizens and offering the opportunity for nefarious actors to trick, con and mislead.

Everyone realises the internet economy has to be brought under control through a stricter regulatory regime. The companies involved have not been responsible enough with the light-touch regulatory environment which has been afforded to them, however the iron fist of regulation cannot strike too hard. This is an industry which is thriving and adding so much value to the US economy, and subsequently, society.

Internet Association figures

If the US is to maintain its leadership position in the global economy, the internet industry is critically important, likewise the telecommunications industry.

5G is a topic which is dominating the headlines and will continue to do so. Those who harness the connectivity euphoria earliest could dominate the international markets for decades to come.

Launching 5G first is not necessarily anything to shout about, but the nation which can scale these networks the quickest will put themselves in an excellent position. Soon enough, the innovators will start to think of new products and services which have been enabled by 5G, irrelevant to whether they are consumer or enterprise focused, though the success of these products will depend on how widespread 5G connectivity actually is.

If you don’t have a large enough 5G network, these innovators cannot test their new ideas at scale, validate business models, or make the necessary tweaks to protect their investment from fast-followers. This concept was very evident in the 4G era.

The idea of Facebook as a mobile product or Uber did not exist until the 4G networks had scaled. There are numerous other examples, though these two are the most obvious. Once 4G networks and devices had been adopted by the mass market, these companies grew rapidly, contributing notably to the US economy.

Let’s compare this to a country which was slow to scale 4G networks. Someone might have had the same idea as Uber founder Travis Kalanick in the UK let’s say, but without the scaled 4G network, the idea couldn’t be validated or test properly, funding would have been more difficult to secure, domestic growth would have been stifled and less funds would have been available for international expansion. By the time the UK version was ready to push out internationally, it might have been so far behind Kalanick in the US the business died.

We have of course made this comparison up, but it proves a point of the importance of scaling the network, not just being the first to launch commercial services.

The same could be said about 5G networks. New businesses will emerge with this new connectivity dynamic, but where will the best ideas have the opportunity to scale domestically, before launching an assault on the global markets. Another interesting element is the attraction of foreign dollars. It you have the best network, you will lure R&D investments to the country from the likes of China, Germany and the UK. How many companies have a R&D centre in Silicon Valley nowadays?

All of these ideas will contribute to the success of the internet economy in the US.

However, the industry is at a critical point. It is facing a regulatory crack-down and 5G is quickly developing all around the world. Politicians and regulators need to create new rules to govern and force accountability, though they need to be careful they do not shackle an industry which is providing so much stimulus to the national economy.

Silicon Valley drops the ball on censorship once more

Yet another set of ill-considered censorship decisions by Silicon Valley has illustrated once more the impossible position they are in.

Google has announced it will now ‘elevate original reporting in search’. On one level this is totally laudable. Modern journalism has been severely corrupted by the wholesale shift in advertising spend from print to journalism and thus put in the hands of the digital advertising platforms, of which the biggest is Google itself.

The move to digital has squeezed media margins, with advertisers looking for demonstrable ROI where once the circulation and brand of a publication was sufficient reassurance of ad money well spent. As a result the total number of journalists employed has dropped dramatically which, in combination with the explosion of digital publications, has meant each remaining hack has to produce much more content than previously.

Digital ad spend also directly rewards direct traffic in a way print never did, which means media are incentivised to publish a high volume of ‘click bait’ journalism, which is typically of a low standard and designed more to provoke than inform. Of all the companies in the world Google is easily the most directly culpable for this trend and now it’s belatedly trying to correct it.

“While we typically show the latest and most comprehensive version of a story in news results, we’ve made changes to our products globally to highlight articles that we identify as significant original reporting,” said Richard Gringras, head of Google News. “Such articles may stay in a highly visible position longer.”

There’s a lot to like about this. Prominence in Google news equals more clicks, which equals more revenue. If follows, therefore, that any tweaks to the algorithm that promote proper reporting (which is much more expensive than opinion or re-reporting) are a step in the right direction. But Gringras himself acknowledged the complexity of the situation this puts Google in, in his next paragraph.

“There is no absolute definition of original reporting, nor is there an absolute standard for establishing how original a given article is,” said Gringras. “It can mean different things to different newsrooms and publishers at different times, so our efforts will constantly evolve as we work to understand the life cycle of a story.”

In other words Google decides what news is worthy of delivering to the public. Even if we assume those decisions will always be made in good faith and that the associated algorithms will somehow be furnished, in real time, with the most exhaustive context, this is still a lot power to be put in the hands of one commercial entity.

On top of that Gringras himself was the head of digital publisher Salon before moving to Google in 2011. Salon is widely recognised to be significantly biased in favour of perspectives and issues considered to be left wing and you have to assume its long time boss is also that way inclined. How can we be sure his own political positions don’t influence the decision-making of his team? US President Donald Trump will doubtless be asking that very question before long.

What media spend hasn’t shifted to Google has been mostly hoovered up by fellow Silicon Valley giant Facebook. As a social media platform it faces an even greater censorship challenge than Google (if you just focus on the search bit, not YouTube) and has been even less consistent and coherent in its approach, leaving it open to extensive accusations of bias.

Facebook’s latest attempt to clarify its censorship policies offers little clarity or reassurance to its users. Here are the new criteria, as copied from the official announcement.

  • Authenticity: We want to make sure the content people are seeing on Facebook is authentic. We believe that authenticity creates a better environment for sharing, and that’s why we don’t want people using Facebook to misrepresent who they are or what they’re doing.
  • Safety: We are committed to making Facebook a safe place. Expression that threatens people has the potential to intimidate, exclude or silence others and isn’t allowed on Facebook.
  • Privacy: We are committed to protecting personal privacy and information. Privacy gives people the freedom to be themselves, and to choose how and when to share on Facebook and to connect more easily.
  • Dignity: We believe that all people are equal in dignity and rights. We expect that people will respect the dignity of others and not harass or degrade others. 

While privacy seems relatively easy to determine and thus police, authenticity, safety and dignity are very subjective, ill-defined concepts. Facebook could arbitrarily determine almost anything to be inauthentic or undignified, so all this announcement really does is assert Facebook’s right to unilaterally censor its platform.

The Facebook announcement comes the day after reports of it censoring a piece of content published on it that challenged the claims made in another piece concerning abortion. This isn’t the place to examine the relative merits of the positions stated, but since abortion is one of the most polarising issues out there, and that balancing the rights of the mother and infant is a uniquely challenging ethical dilemma, for Facebook to apparently pick a side in this case has inevitably led to accusations of bias.

Lastly even crowdfunding service Kickstarter is under pressure to censor projects on its platform. A comic titled ‘Always Punch Nazis’ was taken down after claims that it violated Kickstarter’s community guidelines. Slate reports that many Kickstarter employees objected to this decision, which resulted in it being reversed but also claims of recriminations against some prominent protesters. This in turn has led to moves to unionize among Kickstart staff.

Once more we see that it’s impossible for a digital platform to issue watertight ‘community guidelines’ and that arbitrary censorship decisions will always be vulnerable to accusations of bias. The comic claimed to be satirical, which should offer at least some protection, but it still falls on someone to assess that claim.

Prior to the internet there were very few opportunities for regular punters to be published, let alone to a global audience. Social media especially has revolutionised the public dissemination of information and opinion, while concentrating the policing of it in the hands of a few democratically unaccountable companies. They will continue to try to perfect their censorship policies and they will continue to fail.

50 US Attorney Generals sign-up to Google antitrust investigation

Usually, when you put 50 lawyers in a room together, it’s a bloodbath, but Google has seemingly done the impossible; united them all behind a single cause.

Led by Ken Paxton, the Attorney General representing the State of Texas, the coalition brings all except two State Attorney General’s on board, California and Alabama, as well as the legal minds representing Washington DC and Puerto Rico.

“Now, more than ever, information is power, and the most important source of information in Americans’ day-to-day lives is the internet,” said Paxton. “When most Americans think of the internet, they no doubt think of Google.

“There is nothing wrong with a business becoming the biggest game in town if it does so through free market competition, but we have seen evidence that Google’s business practices may have undermined consumer choice, stifled innovation, violated users’ privacy, and put Google in control of the flow and dissemination of online information. We intend to closely follow the facts we discover in this case and proceed as necessary.”

Paxton has pointed out in the statements that the Government and its agencies does not have an issue with a dominant market player (we don’t believe this however), but it must maintain this dominance by playing within the rules. This is where Paxton believes Google has become non-compliant with US law; it is stifling competition and the choice for consumers.

The difficulty the legal coalition will face in this investigation to start with is the reason behind Google’s market domination; it offers the best search service on the web. Some might disagree, but we believe it is the most effective and accurate internet search engine available. This will be one of the reasons behind the continued dominance, though there are of course others; these other factors will determine whether Google is abusing this position of dominance.

One area which might become of interest to the Attorney Generals is the roll of acquisitions in maintaining this leadership position. Of course, M&A is a perfectly valid means of growing a business, though should such transactions be deemed as a means for Google to kill off any competition which could potentially emerge, this would be a violation of antitrust laws.

This is where the probes will find it very difficult to fight against Google and the other giants of Silicon Valley; can anything be done against potentially anti-competitive acquisitions? In the Google case, some might suggest it shouldn’t have been allowed to acquire both Android and YouTube to supplement its PC search advertising business. This suggestion is of course made with hindsight, though there will be some who will attempt to do something about it.

Elizabeth Warren, the Democrat Senator for Massachusetts and potential opponent for President Trump in the 2020 Elections, has already promised to break-up the tech giants. FTC Chairman Joe Simons is another who has the divestment ambition, though he has stated it would have to be done sooner rather than later, as Big Tech is manoeuvring assets and operations in an attempt to make any divestments almost impossible.

What this investigation does offer is another layer of scrutiny placed on the internet giants. This investigation might well be directed at Google, but any precedent which is set could be applied to the other residents of Silicon Valley.

When you actually stand back and look at the investigations which are on-going, the US Government is creating a swiss cheese model of legal nightmares for the internet giants. The more layers which are applied, the less likely Big Tech can squeeze through the legal loopholes and come out unscathed on the other end. The likes of Google will have the finest legal minds on the payroll, but the legal assaults are coming quickly, and from all angles.

Aside from this investigation, Google has also recently confirmed it is at the centre of a Department of Justice probe and is also facing the House Judiciary Committee’s examination into big tech antitrust. And then it will have to consider the potential implications of other enquiries.

Facebook is being investigated by the FTC for its acquisitions of WhatsApp and Instagram, as is the House Judiciary Committee. New York Attorney General Letitia James is asking whether the social media giant has damaged the consumers lives through its operations. Finally, the House Financial Services Committee as well as the Senate Banking Committee is investigating the Facebook push into cryptocurrency.

At Amazon, the FTC is investigating how the eCommerce giant competes against and aids third-party sellers on its platform, while at Apple, the House Judiciary Committee probe is attempting to understand whether the commission it takes from developers through the App Store is anti-competitive.

Each of these investigations will create precedent which can be applied to others in the Silicon Valley fraternity. It also gives any failed attempts to limit the potential of Big Tech another opportunity. There are plenty of irons in the fire and Silicon Valley will do well to avoid a branding altogether.

With the sheer volume, breadth and depth of investigations scrutinising the business models of the internet giants, it is starting to become impossible to believe the regulatory status quo will be maintained. The sun might be setting on the Wild West Web.

To date, Silicon Valley has enjoyed what should be considered a very light-touch regulatory environment. For us, there are two reasons for this.

Firstly, regulators and legislators simply could not keep up with the progress being made by the technology industry, or perhaps did not foresee the influence these giants might be able to wield. Whether it is a shortage of bodies, skilled workers being snapped up by private industry or simply too many different segments to regulate, the progress of technology leapt ahead of the rules which were supposed to govern it. The internet giants have been profiting greatly off this regulatory and legislative void.

Secondly, you have to wonder whether regulators and legislators actually wanted to put the reigns on the digital economy and the power houses normalising it in the eyes of the consumer. These companies are driving economic growth and creating jobs. The US is at the forefront of an industry which will dominate the world for decades to come; why would the Government want to stifle the industry which is keeping the US economy at the head of the international community.

With both of these explanations, perhaps it has gotten to a point where excess is being realised. The technology industry has become too powerful and it needs to be reigned in. Some might argue that Silicon Valley has more influence than Washington, which will make some in Government feel very uneasy.

Google confirms it is in the DoJ crosshairs

The technology industry is facing regulatory and legislative assaults from all angles, and Google has confirmed it is attempting to help the Department of Justice with its own investigation.

It should perhaps be considered second-nature for Google to be dealing with some sort of investigation. It has been the subject of dozens of probes over the last few years, though there are some weighty ones on the horizon.

“We have answered many questions on these issues over many years, in the United States as well as overseas, across many aspects of our business, so this is not new for us,” said Kent Walker, SVP of Global Affairs at Google.

“The DOJ has asked us to provide information about these past investigations, and we expect state attorneys general will ask similar questions. We have always worked constructively with regulators and we will continue to do so.”

In July, the Department of Justice announced an antitrust investigation, though the subjects were not explicitly named. The probe will focus on how online platforms achieve market dominance and whether they are stifling competition and therefore innovation.

Aside from this probe, momentum is gathering to attack Silicon Valley. New York Attorney General Letitia James is looking into antitrust violations at Facebook, which could set some pretty damaging precedent. The House Judiciary Committee’s antitrust subcommittee is also conducting its own investigation, and soon enough Texas might be entering the fray.

Texas Attorney General Ken Paxton has asked the press to gather on the steps of the United States Supreme Court Building in Washington DC later on today to be briefed on yet another antitrust investigation. Details are thin here for the moment, however it is another headache for Silicon Valley to consider.

The next couple of weeks will offer much more colour to the investigations, however it is becoming increasingly obvious the technology industry is going to be very different in a few years’ time. It does appear the days of the Wild West Web are coming to a close.

30 Attorney Generals on verge of announcing Google probe – sources

Sources familiar with the matter have suggested an antitrust probe involving more than 30 State Attorney Generals could be launched as soon as next Monday.

Although the specifics of the investigation are yet to make it into the public domain, the threat is looming large for Google. Three separate sources have suggested Google is in the crosshairs, according to the Washington Post, another incremental step in the US as lawmakers look to dilute the power and influence of one of Silicon Valley’s poster boys.

Comments are difficult to come by, though lawyers are seemingly ready to down weapons and reach across the political divide to address a growing debate. Bickering politicians can usually be relied on to be lethargic and ineffective, though it seems Silicon Valley is antagonising Washington enough to force friendships in an increasingly hostile and partisan political climate.

That said, it would surprise few if the investigation is officially launched next week, as there have been various public offices stating their disapproval over the power and influence Google wields.

The crux of the issue is a simple one; should a company like Google be able to access such vast amounts of information. If data is the new oil, Silicon Valley is OPEC. Combining this potential gold mine with the already bulging bank accounts could create a worrying position.

One question which remains is how responsibly companies like Google are exerting this power. Are the internet giants fuelling campaigns of defensive acquisition, swallowing up potential competitors to prevent a dilution of market share? Are initiatives being implemented to prevent growth of these rivals and kill an idea before it can even consider scaling? These are areas which could be deemed monopolistic, an abuse of a dominant position, a big no-no in today’s world.

The monopolistic accusations are just a single element of the mix though. Conservative voices have suggested the left-leaning internet giants are demonstrating bias, offering prominence to some political commentary and hiding certain opinions.

“If big tech companies are not living up to their commitments and representations regarding being open to all political viewpoints and free of bias and restrictions on the basis of policy preference, then they should be held accountable for their false, misleading and deceptive trade practices,” said Texas First Assistant Attorney General Jeff Mateer.

Mateer and the Texas Attorney General office believe Google has been restricting the advertisement of some Republican political events, while Facebook has been censoring pro-Trump articles and Twitter limited the visibility of Republican politicians. These are unproven claims right now, but they demonstrate the ‘us’ and ‘them’ mentality which is a common theme though the relationship between Silicon Valley and Washington.

For the politicians, the perceived preference of the internet giants on political matters is another reason power and influence should be diluted. An antitrust investigation, gathering 30 Attorney Generals behind the same cause, could be one way to tackle the problem.

Another area which is unclear is the extent of such a probe. Google has been named as the party of interest in this report, though it would surprise few if the likes of Amazon, Twitter or Microsoft were dragged into the fray also; Silicon Valley is increasingly becoming Enemy Number One in Washington.

Silicon Valley’s ‘ask for forgiveness, not permission’ attitude is wearing thin

Silicon Valley has often pushed the boundaries in pursuit of progress, but the it deserves everything it gets if it continues to try the patience of consumers and regulators with privacy.

‘It is easier to ask for forgiveness, than beg for permission’ is a common, if largely unattributable, phrase which seems to apply very well to the on-going position of Silicon Valley. It is certainly easier to act and face the consequences later, but it should not be right or allowed. This is the approach the internet giants are taking on a weekly basis, and someone will have to find the stomach and muscle to stop this abuse of power, influence and trust.

The most recent chapter in this on-going tale of deceit and betrayal concerns the voice assistants which are becoming increasingly popular with consumers around the world.

Apple is the latest company to test the will of the general public as it has now officially ended an internal process which is known as ‘grading’. In short, humans listen to Siri interactions with customers, transcribing the interaction in certain cases, to help improve the accuracy of the digital assistant.

“We know that customers have been concerned by recent reports of people listening to audio Siri recordings as part of our Siri quality evaluation process — which we call grading,” Apple said in a blog entry. “We heard their concerns, immediately suspended human grading of Siri requests and began a thorough review of our practices and policies. We’ve decided to make some changes to Siri as a result.”

Of course, it is perfectly reasonable for Apple to want to improve the performance of Siri, though it must ask for permission. This is the vital step in the process which Apple decided to leave out.

The new process will seek consent from users through an ‘opt-in’ system, making it compliant, while the default position for all Siri interactions will be to not store information. For those consumers who do opt-in to aid Apple in training Siri, the audio will only be transcribed and reviewed by permanent Apple employees.

This process should have been in-place prior to the ‘grading’ system being implemented. It is inconceivable that Apple did not realise this would break privacy regulations or breach the trust it has been offered by the customer. It decided not to tell the consumer or authorities this practice was in place. It muddied the waters to hide the practice. It lied to the user when it said it respects privacy principles and rights.

Apple acted irresponsibly, unethically and underhandedly. And there is almost no plausible explanation that it did so without knowledge and understanding of the potential impact of these actions. If it did not understand how or why this practice violated privacy principles or regulations, there must be an epidemic of incompetence spreading through the ranks at Cupertino.

What is worth noting is Apple is not alone; Google and Facebook are just as bad at misleading or lying to the user, breaking the trust which has been offered to these undeserving companies.

Google is currently under investigation for the same abuse of trust and privacy principles, this time for the Google Assistant.

“We have made it clear to Google’s representatives that essential requirements for the operation of the Google Assistant are currently not fulfilled,” said Johannes Caspar, Hamburg Commissioner for Data Protection and Freedom of Information. “This not only applies to the practice of transcribing, but to the overall processing of audio data generated by the operation of the language assistance system.”

The investigation from the Hamburg data protection authority has pressured Google into changing the way it trains its digital assistant. Earlier this month, Belgian news outlet VRT NWS revealed 0.2% of conversations with Google Assistant were being listened to by external contractors. At least one audio clip leaked to the news outlet included a couple’s address and personal information about their family.

Google has now said it has stopped the practice in the EU, but not necessarily elsewhere, and the Hamburg DPA has said it will have to seek permission from users before beginning anything remotely similar.

At the same regulator, Facebook has been dragged into the drama.

“In a special way, this also applies to Facebook Inc., where as part of the Facebook Messenger to improve the transcription function offered there a scheduled manual evaluation was not only the human-to-machine communication, but also the human-to-human communication,” said Caspar. “This is currently the subject of a separate investigation.”

Two weeks ago, reports emerged Facebook had hired external contractors to transcribe audio from calls made across the Messenger platform. Once again, users were not informed, while consent was not obtained, but what makes this incident even worse, is there does not appear to be any logical reason for Facebook to need this data.

The only reason we can see why Facebook would want this data to improve algorithms is to take the insight to feed the big-data, hyper-targeted advertising machine. However, this is a massive no-no and a significant (and illegal) breach of trust.

All of these examples are focused on transcription of audio data, though there are many other instances of privacy violations, and demonstrate the ‘easier to ask for forgiveness than permission attitude’ which has engulfed Silicon Valley.

We cannot believe there is any way these companies did not understand or comprehend these actions and practices were a breach of trust and potentially breaking privacy rules. These companies are run by incredibly smart and competent people. Recruitment drives are intense, offices and benefits are luxurious, and salaries are sky-high for a very good reason; Silicon Valley wants to attract the best and brightest talent around.

And it works. The likes of Google, Facebook and Apple have the most innovative engineers, data scientists who can spot the wood for the trees, the savviest businessmen, accountants who are hide-and-seek champions and the slipperiest lawyers. They consider and contemplate all potential gains and consequences from any initiative. We cannot believe there is any conceivable explanation as to why these incredibly intelligent people did not recognise these initiatives were either misleading, untransparent or non-compliant.

The days of appearing before a committee, cap in hand, begging for forgiveness with a promise it will never happen again cannot be allowed to continue. The judges, politicians and consumers who believe these privacy violations are done by accident are either incredibly naïve, absurdly short-sighted, woefully ill-informed or, quite frankly, moronic.

Silicon Valley must be forced to act responsible and ethically, because it clearly won’t do it on its own.

Macron softens digital tax stance after Trump lunch

The US has proved it can still throw its weight around the international community as French President Emmanuel Macron has taken a softer-stance on the country’s Digital Sales Tax.

Following lunch with President Donald Trump, Macron has stepped-down the aggressive moves against Silicon Valley and the creative accounting practices which has deprived countries around the world of valuable tax revenues. France took the brave step-forward to tackle the suspect status-quo, though it seems the threat of US tariffs was enough to ease the position of Macron.

“We’ve done a lot a work on the bilateral basis, we have a deal to overcome the difficulties between us,” Macron said to reporters following his meeting with Trump at the G7 Summit this weekend.

A lot has been said this weekend, though most of it avoided the technology, media and telco industry. This is perhaps the biggest news to emerge for our niche, though it does demonstrate the US still has some national leaders under the strain.

The 3% digital sales tax on companies which report more than €750 million worldwide, and also €25 million in revenue in France, will still be applied, though US companies could be entitled to a deduction when the OECD releases its own rules.

Following the G20 Summit in March, the OECD kicked-off a public consultation to address the tackle challenges in an increasingly digitally-defined society. After renewing the mandate of the Task Force on the Digital Economy (TFDE), the OECD has promised a draft proposal of the rules in 2020.

Should there be a difference in the definition of taxable monies or the amount which is due to France, the internet players will be granted to opportunity to deduct from the amount paid to the French Government. France’s 3% sales tax is to be applied from January 1 2019, though the question which remains is when the OECD will actually be able to propose a tax regime which all states can get on-board with.

This is the challenge which the OECD will face. There will not only be lobbyists in place from the internet giants, but also from the nation states which have an interest in maintaining the status quo. Ireland, for example, has benefitted from undercutting other countries, and without a surge of interest from the technology industry, who knows what state its economy would be in today.

One does have to wonder what Trump to Macron over Le Big Mac this weekend.

Alongside the UK, France was the first to take a tough stance against the creative accounting strategies of the internet giants. Few in Silicon Valley would have been happy with developments, as it would have held them accountable to fair and reasonable tax payments. The vast majority have been managing to avoid paying back the societies which have fuelled such extravagant bonus cheques for years.

Silicon Valley has been promising to help the development of society for years, though apparently this only counts when the revenues are directed towards its own bank accounts. When it comes to helping to build hospitals, buy school books, care for the elderly, fund fire departments and fill in pot-holes on roads, it has little interest.

Prior to the discussions over lunch, Trump had promised to hit back against France.

“France just put a digital tax on our great American technology companies. If anybody taxes them, it should be their home Country, the USA,” Trump tweeted in July. “We will announce a substantial reciprocal action on Macron’s foolishness shortly. I’ve always said American wine is better than French wine.”

Firstly, each country around the world should be entitled to tax companies when they reap financial benefits from its citizens; this is fair and reasonable, but Silicon Valley was better than most traditional industries of hiding profits from the tax man. Secondly, this tweet gave us some insight into the retaliation from the White House.

Following the tweet, the United States Trade Representative (USTR) opened an investigation under Section 301 of the Trade Act of 1974. This is the same first-step of the strategy which kicked-off tariffs against the Chinese and the subsequent trade-war. Wine, cheese and striped t-shirts were presumably being eyed-up, and it seems this was too much for Macron.

Although the digital taxation remains in place, this is a softened stance from the French President. The White House will certainly be happy with this outcome, although not completely satisfied, as it proves it can still act as a bully in international politics, throwing its monstrous weight around.

However, it is not as satisfactory an outcome as many in Silicon Valley would have wanted; they will still have to pay tax in France.

“Unfortunately, the enactment of France’s Digital Services Tax threatens to undermine the OECD process,” Google said in a statement to the USTR during the early stages of its investigation. “It is a sharp departure from long-established tax rules and uniquely targets a subset of businesses.”

The current tax rules are dated and allow the internet players to abuse the grey areas which are present in the law, or language which does not account for digital services. Of course, these companies are not happy, they will have to pay more tax.

As mentioned above, the companies will still have to pay the French tax. If Macron has been persuaded to drop the tax completely, there would have been plenty of time to bank an extra couple of hundred million and delay the implementation of the OECD rules. It would have been additional grace period.

What remains to be seen is what impact this will have on the approach to digital tax across the rest of the bloc. France was leading the charge, and this might well dent the confidence of other nations to follow suit, especially smaller ones which might be more susceptible to threats from the White House.

The tax is still going ahead, though Trump has proved he can still flex and make the French flinch.