Griffin on Tech: Will tech giants finally pay their fair share of tax?
Tech Blog editor Paul Brislen is taking a well-earned break this week. Brislen on Tech returns next week.
As we've reported numerous times over the course of the past year here on Tech Blog, the pandemic has been great for Big Tech companies.
In the year to March, Alphabet/Google, Amazon, Apple, Microsoft and Facebook alone generated US$244 billion in profits as the digital realm became the centre of our lives for shopping, working, communicating and entertaining ourselves.
Fair play to them, their innovations helped millions of people cope that little bit better with the forced confinement of lockdowns and work from home orders. But did those tech giants pay their fair share of tax?
Of course not. Many of them exploited completely legal tax provisions to send their profits to low tax jurisdictions such as Ireland. Take Google for instance. In 2020 it reported $43.8 million in revenue in New Zealand, a fraction of the ad revenue it collects from New Zealand advertisers on Youtube, Google Search and similar products. Google's tax bill here was $2.4 million. Much of Google's profitable revenue is booked in Ireland where subsidiaries around the world send royalty payments to a holding company.
In 2019, Google reportedly used the "Double Irish" tax loophole to move US$75.4 billion out of Ireland to tax haven Bermuda, where it was able to enjoy a 0% tax rate on profits harvested from around the world. It has since discontinued that particular tax practice but Ireland remains the go-to place for digital companies seeking to lower their tax exposure.
But a push by countries for greater equality in the global tax system is finally gaining ground. This week the powerful G20 nations endorsed an overhaul of tax laws that 132 OECD nations including New Zealand have already approved.
The multilateral tax treaty (MLI) has two key planks to it - requiring more revenue to be taxed where companies generated those sales and applying a global minimum tax rate of 15% to profit on that revenue.
It could see tens of millions of dollars of additional tax revenue generated here, much more in larger countries. The OECD wants the new arrangement in place by 2023. But it will require the support of each country's parliaments, including the US Congress and the European Union.
The latter is an easier prospect. This week the EU chose to shelve its own plans to slap a digital tax on tech companies in order to give the OECD plan a better chance of progressing. Congress is a different story, representing as it does the interests of people and companies who have benefited greatly from these tax arrangements. Even with the Democrats marginally in control, it will be touch and go to get a tax deal agreed. Without its support, countries face a stand-off with the US over their treatment of its wealthiest tech companies.
Most experts think the 2023 timeline for a new global tax arrangement is very optimistic, but the momentum for change is there. Only 3 or 4 countries have rejected the OECD proposal - Ireland included.
More pie? Yes please
Ireland's Deputy Prime Minister Leo Varadkar said the plan was about "big countries trying to get a bigger share of the pie". Not for us, it isn't. We are a small country trying to claim our fair share of tax from companies that have done quite nicely here.
If a global tax deal falls over at a late stage, our Government has a plan B - to go it alone with a digital services tax on the big tech companies and others such as Uber and Airbnb that have similar arrangements in place. In 2019, the Government estimated a digital services tax would generate $30 million to $80 million a year in tax revenue.
As we build back better after Covid, we need the tech companies to do what they are good at - providing the digital products and infrastructure they are so successful at creating. But we also really need them to show their commitment to us by contributing to the tax base to a greater degree. That now seems like having more than a snowball's chance in hell of happening.
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