EU divided on digital tax

Fears over a reaction from the US has sent Finance Ministers from Ireland, Sweden and Denmark cowering back to their spreadsheets as the EU digital tax hits an early stumbling block.

While the collective bargaining power and protection afforded by the European Union is certainly useful, the cumbersome nature of the bureaucratic beast and unanimous decision making ensures it is anything but. As with many proposed rule changes in the past, objections from a handful of member states have slammed the emergency brakes on the digital tax, aimed at holding the internet giants accountable.

According to the Guardian, the Finance Ministers of Ireland, Sweden and Denmark have all aired their criticism not on the concept of the tax, but fears over what President Trump might suggest as a retaliation. There’s a pragmatic approach to business and there’s spineless appeasement to a bully, we’ll let you decide which one this is.

Of course, it would be unfair to herd all of the EU member states into the same cowardly-corner as Ireland, Sweden and Denmark. 12 member states are already moving ahead with their own plans to create a localised digital tax, including the UK as was announced during the Autumn Budget, and some are acting somewhat hawkish about it. The French Government has suggested it would like the tax rates on the playing field by the end of 2018, though Germany seems to be favouring a more watered-down version of the rules.

The EU wide tax on those taking advantage of creative tax regimes, would be the best solution however. A united front against the slippery Silicon Valley internet giants, as well as those from other nations around the world, would of course be the best way to claim that 3% of local revenues, but it is becoming more difficult to imagine that a reality.

The fainthearted trio do of course have something to worry about. Despite Trump slapping tariffs on Chinese goods, and threatening to revamp tax laws so Amazon cannot take advantage of the US tax havens, he would most likely take the US tax as an attack on American values and a threat to the borders. The President is a man or rarely recognises consistency and before too long will probably be describing Jeff Bezos as a close family friend who have been relentlessly pursued by the penny-pinching Europeans.

Ireland also has a lot to lose. After proving it was incapable of managing its finances in a responsible way, the technology giants could be seen as somewhat of a saviour to the economy. Apple, Facebook and Google are just a few names who house a considerable base in the country. Ireland certainly has its own interests to protect.

It’s disappointing to see such weak behaviour in the face of an orange-hued, bullying politician, but at least there are some nations who are prepared to go it alone and hold the internet giants accountable to fair taxation.

UK government eyes up Silicon Valley for tax raid

Chancellor of the Exchequer Phillip Hammond has confirmed a ‘digital tax’ in the autumn budget aimed at holding the internet players accountable to reasonable tax rates.

In recent years, the internet giants of the US have become known as much for creatively sidestepping the tax man as they have for innovative products and services, but the playing field is shifting. The European Commission is currently attempting to align the interests of all member states to impose its own tax regime, though Hammond isn’t waiting for the boresome Brussels bureaucrats.

“The UK has been leading attempts to deliver international corporate tax reform for the digital age,” said Hammond in the House of Commons while unveiling the budget. “A new global agreement is the best long-term solution. But progress is painfully slow. We cannot simply talk forever.

“So we will now introduce a UK Digital Services Tax. This will be a narrowly-targeted tax on the UK-generated revenues of specific digital platform business models. It will be carefully designed to ensure it is established tech giants – rather than our tech start-ups – that shoulder the burden of this new tax.”

This is the tricky aspect of the new tax; how do you hold the internet giants accountable within placing too much of a burden on the start-ups? These are companies which need assistance to thrive, and an important segment for the UK. Start-ups, most importantly technology start-ups, have been targeted by the UK government to stimulate the economy in a post-Brexit world, but with the threat of digital tax, will these companies want to choose the UK?

The tax will be targeted at revenues generated through search engines, social media platforms and online marketplaces. Long story short, 2% of total revenues generated in the UK will be claimed by the tax man, generated £400 million a year, in theory. The new tax regime will come into place in April 2020, though should the European Commission come up with its own approach, the whole scheme might be scrapped.

For years the internet giants have been shifting profits around and claiming suspect charges to reduce exposure to the tax man. According to a Tax Watch UK study looking at Apple, Google, Facebook, Cisco Systems and Microsoft, the tax liability in 2017 was estimated at £1.26 billion, though only £191 million was paid.

Politically the digital tax is a win for the Conservative government, though at a time where the UK needs to make as many friends as possible while going through an expensive divorce, it is an interesting approach. With a no-deal Brexit looking increasingly likely, the UK needs to attract new investment into the economy and build relationships with trade partners. Taking a combative approach to tax is hardly going to get the internet giants on side, and might well irritate the US government.

Tackling the creative accountants in Silicon Valley has been a government discussion for years, though whether the aggressive approach from the UK will stimulate any progress through the rest of the world remains to be seen.

Europe lets Ireland off the hook after €13bn Apple tax collection

After the Irish government announced it has recovered Apple’s €13 billion tax debt, the European Commission has confirmed it will also drop its lawsuit against the country.

Having begrudgingly collected €13 billion in back taxes from the iLeader, it seems the Irish government has jumped through enough hoops to avoid the courtroom and having to explain why it was willing to help Apple’s tax avoidance strategy.

“In light of the full payment by Apple of the illegal State aid it had received from Ireland, Commissioner Vestager will be proposing to the College of Commissioners the withdrawal of this court action,” Commission spokesman Ricardo Cardoso said in an email statement to Reuters.

While the lawsuit, which was filed on the grounds Apple was receiving illegal tax benefits, was filed last year, Ireland did not collect the first payment until May. That said, the full amount has been collected, currently placed in escrow due to an Irish appeal, and it would seem this is enough for the European Commission.

“While the Government fundamentally disagrees with the Commission’s analysis in the Apple State Aid decision and is seeking an annulment of that decision in the European Courts, as committed members of the European Union, we have always confirmed that we would recover the alleged State Aid,” Irish Finance Minister Paschal Donohoe said.

Ireland is clearly not happy, though you can understand why. In allowing Apple to conduct ‘creative’ accounting practises, the technology industry has thrived in the country. Apple is not the sole reason for this recovery, though it would certainly be a contributing factor. €13 billion is of course a lot of money, though a technology renaissance has meant a lot more to the Irish economy and society. No wonder Ireland was content in keeping Apple happy.

What is always worth remembering is the employment history of European Commission President Jean-Claude Juncker. Prior to bagging the top job in Brussels, Juncker was the 23rd Prime Minister of Luxembourg and also the Minister for Finances, during which time the country turned into a major European centre of corporate tax avoidance. This was also a time Juncker spent a considerable amount of time secretly blocking EU efforts to tackle tax avoidance by multinational corporations.

But at least he’s willing to sue Ireland for facilitating tax avoidance now it suits his agenda.

Europe wants to hit internet giants with 3% revenue tax, for starters

The European Commission has picked a good time to try to tax internet giants more, starting with 3% of revenues made from advertising, data and digital interactions.

The most significant fall-out from the overblown, but persistent Cambridge Analytica story will be for internet giants to face far more scrutiny over how they use the extensive data they gather on all of us. What seems to upset people the most is when they’re reminded of the Faustian pact they have made with said giants by being reminded of the enormous profits they’re making by exploiting all of us.

This is therefore a good time to be shaking those companies down and the European Commission must be delighted this story has broken just as it unveils its initiatives to stop that exact type of company from avoiding paying tax in the countries in which it does business, as opposed to just where it’s headquartered. No doubt the nuances of transnational tax law are riveting, but it doesn’t really matter, because the EC has spoken.

The proposed remedy to this shocking lack of revenue into EC coffers comes in two phases. Ultimately Europe wants the whole world to come to an agreement on how to tax digital products according to where the value is generated, rather than banked. But until that happens the EC thinks it’s fair enough to slap a 3% tax on revenues (not profits, mind) on online advertising, the sale of user data and digital platforms that facilitate interactions between users.

“Digitalisation brings countless benefits and opportunities, but it also requires adjustments to our traditional rules and systems,” said Valdis Dombrovskis, VP for the Euro and Social Dialogue. “We would prefer rules agreed at the global level, including at the OECD. But the amount of profits currently going untaxed is unacceptable. We need to urgently bring our tax rules into the 21st century by putting in place a new comprehensive and future-proof solution.”

“Our pre-Internet rules do not allow our Member States to tax digital companies operating in Europe when they have little or no physical presence here,” said Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs. “This represents an ever-bigger black hole for Member States, because the tax base is being eroded. That’s why we’re bringing forward a new legal standard as well an interim tax for digital activities.”

As ever this is just the first inch forward by the glacial European bureaucratic machine and its will take sever hundred obscenely lavish lunches to really get to grips with it. More significantly things like this require all member countries to sign it off, which seems unlikely, so it could all be a massive waste of time. But if companies like Facebook know what’s good for them, they could do worse than show some goodwill when it comes to tax.

Here’s a handy vid from the EU Taxation and Customs Union explaining why tax is actually great in the kind of dumbed-down language that speaks volumes about how they perceive their client electorates.

 

France leads Europe’s tax charge against Silicon Valley

The European Commission is on the verge of kicking off a tax raid on Silicon Valley, unveiling a directive within weeks which would set the tax rate on tech companies between 2% and 6% of revenues.

French Economy Minister Bruno Le Maire told Journal du Dimanche the rumoured tax reforms are just around the corner, with the directive focusing on revenues derived from specific countries as opposed to profits. Taxing the likes of Facebook or Amazon has always been a complicated job but a draft document released a few weeks back looked to set the tone.

“A European directive will be unveiled in the coming weeks,” said Le Maire. “And it will mark a considerable step forward. The range is 2% and 6%, we (France) will be closer to two than six.”

In the initial 12-page draft document (initially uncovered by Politico) the Commission (hereafter known as the Gaggle of Red-tapers) sought to create interim and long-term rules which will stem the flow of money leaving the bloc. Of course this is all about tax and trying to figure out how the technology giants can contribute a bit more to the economies from which they are so handsomely profiting from.

“The starting point is the internationally accepted premise that taxation should take place where value is created,” the document reads. “Currently there is a mismatch between where taxation of the profit takes place and where value is created for certain digital activities.”

In short, the European citizens are providing the value for the internet giant’s spreadsheets, but these companies are taking advantage of tax havens around the world. There is of course nothing illegal about what the technology firms are actually doing, but you have to question whether it is ethically sound to bleed these economies of its cash while contributing very little back to the public service.

With Le Maire’s comments, there is seemingly confidence Europe will be able to reverse the on-going trends and hold the technology firms accountable.

This is of course not the first time the Gaggle has taken aim at Silicon Valley, and it is unlikely to go unnoticed by a political administration which is far more combative in its narrative than many before it. Europe has already punished many of the Silicon favourites with penalties for competition violations, it has waged war with Apple over its tax haven in Ireland and its pro-privacy stance is proving to be a thorn for both the internet giants and US intelligence agencies. Such a move could drive a wedge further between Europe and the US.

This is not a new story, but such a draft document is perhaps the most significant step forward thus far. The attack has a distinctly French-feel to it, and this is not the first time France has led the charge against the Silicon profit trail. French President Emmanuel Macron made strides forward last year, but felt resistance from some countries, Ireland being one of them, who profit considerably from alternative tax rules.

The Irish government might not be rolling in riches, but a favourable corporate tax environment has seemingly done wonders to reinvigorate the tech scene. Apple reportedly employs 5,000 people in the country, Dropbox has its European HQ in Dublin, Intel has a significant presence, Google uses the country to re-route taxes, as did Facebook until recently, while about a quarter of Synopsys’ employees worldwide are employed in Ireland. Why would Ireland want any change in the status quo? It certainly won’t be alone as Luxembourg is another who benefits from an alternative tax set-up, though Le Maire believes resistance is weakening in these countries.

While this has been a long-standing narrative for the Gaggle of Red-tapers this is not going to be an easy change to push through. Changes on this scale would have to voted-in unanimously and you can expect some pretty aggressive lobbying from the technology firms. These are some pretty big companies who have extensive legal teams.

‘Double Irish’ and ‘Dutch Sandwich’ loopholes save Google billions in tax

Apple might have gotten the majority of the European Commission’s attention for ‘creative’ accounting strategies, but Google is not innocent after shielding €16 billion from the tax man.

Over the course of 2016, the internet search giant saved itself as much as €3.7 billion by moving cash between various shell organizations in Ireland, the Netherlands and Bermuda. According to Bloomberg, Google is making use of various structures in Ireland and the Netherlands, known as ‘Double Irish’ and ‘Dutch Sandwich’ respectively, to duck and dive around the tax man.

Such tax strategies have become infamous over the last couple of years, as Silicon Valley giants reap the benefits of the shifting digital economy in various countries without paying (or a substantially smaller amount) local taxes. Many of these loopholes have now been closed, though the tech giants are free to continue using the ‘Double Irish’ structure until 2020.

Essentially, the strategy breaks down like this; advertising revenues from various countries in Europe is collected in Ireland (where there is a lower corporation tax), before being immediately shifted to a Dutch subsidiary, where it is held. The revenue is then eventually shifted onto another shell organization in Bermuda, a subsidiary of the Irish business, where it is reported. Google is finding tax relief in some countries as there isn’t a physical presence. This is certainly the case in France, where it won a legal battle over roughly €1 billion recently.

€3.7 billion could have been saved on €15.9 billion in revenues over the course of 2016, a 7% increase on the 2015 figures. Considering the growth which Google has been experiencing over the course of 2017, Q3 saw a 24% year-on-year jump for total revenues, it shouldn’t surprise many if this number was larger for the last 12 months.

Of course, Google has released a statement where it has said it complies will all local tax laws and regulations, though the question at whether this is an ethical way to do business in international markets still lingers.

While this is a common practise for international businesses, it could all be set to change over the next couple of months. With the introduction of President Trump’s new tax laws, companies like Google could see lower tax bars on overseas profits. The move has been made by the Commander-in-Chief to encourage the repatriation of profits, and hopefully investment in the US. That said, few organizations have made any substantial, concrete commitments to reinvest in the domestic market.

Perhaps it would surprise few if organizations such as Google move the cash back to take advantage of tax relief, before moving elsewhere when a better deal is available. President Trump seems to be putting a lot of faith into these organizations, few of which have demonstrated any precedent for really caring that much outside of the spreadsheets. These are the most profitable businesses on the planet for a good reason after all.

Amazon is latest focus of Europe’s tax raid on US tech companies

The European Commission has ruled that Luxembourg illegally let Amazon off €250 million of taxes and must now get them back.

This is the latest round of a general purge by the EC of European countries effectively bribing US tech companies to use them as their European hub by dangling the carrot of reduced taxes. Last year the EC ruled that Apple owed Ireland €13 billion in back taxes, on which more later.

“Luxembourg gave illegal tax benefits to Amazon,” said Commissioner Margrethe Vestager. “As a result, almost three quarters of Amazon’s profits were not taxed. In other words, Amazon was allowed to pay four times less tax than other local companies subject to the same national tax rules. This is illegal under EU State aid rules. Member States cannot give selective tax benefits to multinational groups that are not available to others.”

On one level this seems fair enough; why should big companies get special tax treatment? On the other hand you could argue that if a country wants to use the tax system to general local jobs then that’s its business, so this comes down to a matter of sovereignty. But unless countries are going to take the brave step of leaving the EU then they have to put up with it. Here’s a handy infographic if you’re struggling to get your head around the matter.

EC Amazon tax

The EC has also piped up on the matter of Apple’s Irish billions, grassing Ireland up to the European Court of Justice for dragging its feet over the matter. Ireland politely disagreed with the original decision and accordingly doesn’t seem to have acted on it, hence the referral to the ECJ.

“Ireland has to recover up to 13 billion euros in illegal state aid from Apple,” said Vestager. “However, more than one year after the Commission adopted this decision, Ireland has still not recovered the money, also not in part. We of course understand that recovery in certain cases may be more complex than in others, and we are always ready to assist. But member states need to make sufficient progress to restore competition. That is why we have today decided to refer Ireland to the EU Court for failing to implement our decision.”

While it’s safe to assume the phrase ‘feckin euro eejits’ may have been uttered at subsequent Irish cabinet meetings, it’s hard to see what alternatives they have. This escalation by Europe, however, may at least give Ireland more legal weapons to use in its bid to recover the cash and it wouldn’t be surprising if the sanctions against Apple start ramping if it doesn’t make more of an effort to resolve the matter.

Lastly, in other Ireland/ECJ news, the latter has been asked to rule on the case brought by Austrian Lawyer Max Schrems, challenging the Safe Harbour/Privacy Shield system whereby US companies can transfer European data to the US. This specifically concerns Facebook which, by complete coincidence, is based in Ireland. We’ve no doubt it pays absolutely loads of tax there but Ireland has nonetheless asked the ECJ to make a ruling on the matter, the details of which you can access here.

France is not making many friends with new tech tax idea

The French Finance Minister has put forward new proposals to shake-up the tax set-up for technology companies who are based outside of the European Union.

Under the current rules, internet giants such as Google or Facebook are taxed on profits which are generated in Europe, though French Finance Minister Bruno Le Maire is leading a charge towards chaos. The idea here, which is also supported by Germany, Spain and Italy, would see tax paid on revenues as opposed to profits, according to the Financial Times.

“The amounts raised would aim to reflect some of what these companies should be paying in terms of corporate tax,” a letter outlining the initiative reads. “We should no longer accept that these companies do business in Europe while paying minimal amounts of tax to our treasuries.”

The amount itself could be fixed at somewhere between 2-5% and could see the technology giants contributing monstrous amounts of cash into the bank accounts of the nations in which they operate. Just to put a bit of context onto the situation, AirBnB paid less than €100,000 in tax in France last year, despite France being the second largest market for the firm after the US.

And while this would certainly be a headache for the tech giants, Le Maire wants these rules to European Commission level. This is a move which could escalate into quite a row, but it is worth noting the French might have to send quite a few garlic related gifts to Ireland and Luxembourg before the spanner makes itself truly known.

For the idea to be made official by the European Commission, it would have to receive the thumbs up from every single member state. Considering Ireland and Luxembourg have essentially built their economies on being tax-havens for multinationals looking to save a bit of cash in Europe, it is far from a given. Should Ireland and Luxembourg vote yes, it would undermine the very reason companies base their headquarters there; we can’t see it happening in the foreseeable future.

But of course, the European Commission are thrilled by the idea. Considering the Commission is about to lose a majority contributor to its bank account following the Brexit vote, such a financial boost would certainly be of interest.

“We’re very happy to see political interest in the taxation of digital companies,” said Vanessa Mock, Commission spokesperson for Taxation and Customs Union. “We trust that this momentum can be harnessed to drive forward our efforts to find solutions to the taxation of the digital economy.

“What’s important now is that we move forward with a common approach that can protect the Single Market. It’s essential that we maintain a level playing field so that all companies pay their fair share and that profits are taxed where the value is created – as they should be. It’s on this basis that we proposed the CCCTB for the more traditional ‘bricks and mortar’ economy. Now let’s look ahead to having the same principle apply to digital multinationals.”

This is an issue which the European Commission has been eyeing up for some time, as traditional businesses have become sub-standard to the booming digital economy. Back in 2014, the Commission put together a task force to investigate how rules should be adapted to the digital economy, but there has been little progress to date, as the monstrous amounts of cash seemingly flows one way across the Atlantic.

Perhaps an interesting little quirky to take from this development is the role of European Commission President Jean-Claude Juncker. While he might be the head witch-hunter for the moment, this has not always been the case. Prior to joining the European Commission, Juncker was the Prime Minister of Luxembourg, and one of the individuals noted for raising the country’s profile on the international stage. Essentially he was one of the driving forces for making Luxembourg the tax haven it is today. An interesting position to find oneself in.

This is of course not the first time tax of the internet players has hit the press, and it certainly won’t be the last. Last year, Google faced a challenge from the French government, but it was ruled the baguette brigade could not touch Google’s Ireland-based subsidiary; these revenues were not taxable in France. However, the UK faired a bit better against Google, forcing the search giant to pay more tax on revenues generated from UK advertisers.

This is an argument which will rage on for some time, but we’re not too sure there will be any progress made on a pan-European scale in the foreseeable future. Considering the damage such a tax would put inflict on Ireland’s and Luxembourg’s relationships with the tech giants, we can’t see them being too happy about it, or voting for the rules to be adopted by the European Commission.