05/10/17

The Guardian view on taxing the digital economy: crunch time

The Guardian -- The EU’s faltering progress towards a common system of taxing the huge revenues of the new digital giants lurched forward this morning as Margrethe Vestager, the EU commissioner in charge of competition, declared that Amazon had received unfair state aid from Luxembourg through its tax arrangements, and demanded that it pay €250m (£222m) in back taxes. At the same time, Ms Verstager announced that the European commission would haul Ireland up before the European court of justice for its failure to demand €13bn of unpaid tax from Apple, identified in an earlier investigation.

The two events illustrate the gulf between the commission, together with some of the EU’s largest economies, and smaller members such as Ireland, Luxembourg and the Baltic state of Estonia, which hosted a summit on the digital economy last week. Both Ireland and Luxembourg defend their tax arrangements. Ireland in particular welcomes the thousands of good jobs that the tech giants bring and has no desire to find ways of extracting more tax from them in case it drives them away. The Irish government also insists that taxation is a sovereign matter, not an arena for EU interference.

Others are under pressure from voters who are outraged that any company can make so much profit in their country and pay so little tax on it. Revenue from Facebook’s UK operations, it has emerged, nearly quadrupled last year to £842m, through growth in digital ad sales; its corporation tax bill crept up from £4.2m to £5.1m.

The US inland revenue service is also keen to find transparent ways of taxing the new digital economy, and is watching jealously as the European commission draws up its plans, suspicious of any move that might be used by the tech giants to offset their US tax bills. Already, companies such as Google and Amazon hold billions of dollars in offshore funds, where they are out of reach of the taxman. The US defensiveness about its own tax revenues points to the need for a global rather than a merely European solution to the question of how, what and where to tax the digital economy, but progress through the OECD, the natural forum, is glacial, and would in any event only be advisory.

In the absence of common action, some countries are making their own proposals. Last week, Emmanuel Macron presented a sensible plan to levy a turnover tax on a country-by-country basis which now has majority EU support. Britain is a dissenter and, with some other critics, has fundamental questions about the wisdom of treating the digital economy in a different way from any other business.

The commission is still hoping to get agreement on a common corporate tax base that would help to identify the parameters of any new tax system, but progress has stalled because of complexities around double taxation. Meanwhile the American Chamber of Commerce in Europe is warning that any attempt to tax the tech giants more would threaten investment and expansion. But across most of the EU discontent is growing, not just over the failure to pay tax – which has already prompted some tech companies to become more transparent, and even pay more – but over many of their practices. The chief executive of the ride-hailing app Uber has been in London this week trying to patch up relations with TfL. Margrethe Vestager is right: enforcing regulations works.