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USA/Global: Taxing the Tech Giants

AfricaFocus Bulletin
March 8, 2021 (2021-03-08)
(Reposted from sources cited below)

Editor's Note

“How should we determine the corporate tax a big tech company should pay in each country where they operate? There are many ways that this could be calculated, but most recommendations suggest looking at their sales, their assets and the number of employees they have in each country. In the absence of transparent reporting, collecting such data is not easy, but we can get a useful estimate through looking at a proxy indicator: the number of users they have in each country. For example, in just 20 developing countries there are nearly 1.5 billion internet users accessing Google, about 900 million people using Microsoft on their desktops and over 750 million Facebook users. For these companies, the number of users is a good indicator of both their sales and their assets.” - ActionAid

This October 2020 report from ActionAid, focusing on developing countries, exposed a potential $2.8bn ‘tax gap’ which these three tech giants alone could be liable for in the developing world, if tax rules were fairer. But the issue of tax avoidance by tech giants is not limited to developing countries. A 2019 report from Fair Tax Mark estimated that six tech giants (including also Amazon, Netflix, and Apple as well as the three already noted above, paid over $100 billion less than their fair share worldwide over a ten-year period.

Taxing the digital economy is one of key strategies that governments at all levels are turning to in their efforts to meet the fiscal demands of fiscal crises, from national governments in Europe and Africa to state governments in the United States. A global debate is underway, with talks at the OECD continuing this year. In a significant step, the Biden administration has abandoned the previous U.S. demand that U.S. companies be allowed to opt out of any new multilateral regulation.

But the digital giants are fighting back on all fronts against such challenges. Last month the Maryland approved a digital tax that could bring in $250 million a year for schools in the state, overriding the Republican governor's veto. But the law will meet challenges in court. Similar battles are playing out behind the scenes as the global debate steps up.

This AfricaFocus Bulletin contains excerpts from the ActionAid report quoted above, as well as selected links on the global tax debate in general and on the issue of digital taxes in particular.

The outcomes of this debate will weigh heavily on the capacities of governments around the world to address today's intersecting crises, including the pandemic, transition to a green economy, and rising global inequality.

For previous AfricaFocus Bulletins on tax justice, visit http://www.africafocus.org/intro-iff.php

Note: AfricaFocus Bulletin is a strategic partner of the new US-Africa Bridge Building Project, featured in links on the global tax debate immediately below.

++++++++++++++++++++++end editor's note+++++++++++++++++

The global tax justice debate

https://www.us-africabridgebuilding.org/tax-justice/tax-justice/
The basic principle of tax justice is that everyone should pay their fair share.

https://www.us-africabridgebuilding.org/tax-justice/movement/
In the 21st century, a host of organizations around the world have emerged to fight back against inequality and tax injustice, beginning by exposing the secrecy behind which tax evasion and corruption are hidden.

https://www.us-africabridgebuilding.org/tax-justice/local-and-global-action/
Organizing for economic equality requires linking understanding and action not only at global and national levels, but at local community levels.

https://www.taxjustice.net/2021/02/25/a-tide-turning-moment-in-the-global-struggle-for-tax-justice/
It’s not often that you can celebrate an outright, global triumph for the advocacy efforts of a movement. Today, for tax justice, is one of those days. The high level UN panel report launched today, by a group of heads of state and ministers from around the world, may come to be seen as a pivotal moment in the world’s fight against illicit finance and tax abuse. If their envisaged changes follow, the $427 billion that we conservatively estimate to be lost in tax revenue each year may finally be curbed.

Nigerian activists lobby African Finance ministers meeting. Photo credit: ActionAid.

Taxing the digital economy

Overviews and background

https://www.ictd.ac/theme/taxing-the-digitalising-economy/

https://blog.taxamo.com/insights/africa-digital-services-tax

https://qz.com/africa/1976517/how-jeff-bezos-influenced-african-e-commerce/

Recent news and analysis - global

https://www.politico.eu/article/oecd-digital-tax-france-united-states-silicon-valley-bruno-le-maire-janet-yellen/

https://news.bloombergtax.com/daily-tax-report/scholz-says-u-s-drops-demand-that-digital-tax-must-be-optional

https://roarmag.org/essays/digital-colonialism-the-evolution-of-american-empire/

Recent news – local

https://www.nytimes.com/2021/02/12/technology/maryland-digital-ads-tax.html

https://www.natlawreview.com/article/maryland-enacts-first-digital-advertising-services-gross-receipts-tax-now-what

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How just three Big Tech companies could address nurse shortages in 20 poor countries by paying their fair share of corporate tax

26 October 2020

https://actionaid.org/opinions/2020/how-just-three-big-tech-companies-could-address-nurse-shortages-20-poor-countries

By David Archer, Head of Participation and Public Services for ActionAid International

For years, the World Health Organisation has flagged the desperate shortages of nurses in developing countries. A quick review of just 20 nations battling Covid-19 with limited resources shows that 1.7 million nurses are needed to get them on track to achieve their health-related sustainable development goals by 2030. With Covid-19 there is added urgency in addressing these shortages, to ensure a comprehensive public health response to an unprecedented pandemic.

But how can governments stretch their resources to fund 1.7 million new nurses? They can’t. They have to find new sources of income and one way is by increasing tax revenue.

New ActionAid research looks at Facebook, Alphabet Inc (the parent company of Google) and Microsoft and exposes a potential $2.8bn ‘tax gap’ which these three tech giants alone could be liable for in the developing world, if tax rules were fairer.

But to make that happen we need urgent international action. Sadly, we are witnessing the opposite. The OECD was supposed to come up with the solution for taxing the digital economy, for agreement by the G20 in November, but recently kicked this down to road to next year. The EU said they’d go it alone on taxing the digital economy if no global agreement was reached. This remains to be seen.

It is clear that present tax rules are not fit for purpose when it comes to taxing big technology companies like Google, Facebook and Microsoft. The nature of their businesses gives them the ability to shift profits to tax havens even more easily than other multinational companies.

Little is known about how much tax these companies are currently paying in developing countries, as they are still not required to publicly disclose this information. ActionAid’s new research shows that billions could be at stake in the long overdue reform of international corporate taxation – enough to transform underfunded health and education systems in some of the world’s poorest countries.

The world desperately needs a global tax agreement which ensures companies are taxed according to their real economic presence. Developing countries offer tech businesses new markets, increased global brand recognition and billions of new users’ data, which translate into continuing revenue growth.

How should we determine the corporate tax a big tech company should pay in each country where they operate There are many ways that this could be calculated, but most recommendations suggest looking at their sales, their assets and the number of employees they have in each country. In the absence of transparent reporting, collecting such data is not easy, but we can get a useful estimate through looking at a proxy indicator: the number of users they have in each country.

For example, in just 20 developing countries [including 12 in Africa – see list below] there are nearly 1.5 billion internet users accessing Google, about 900 million people using Microsoft on their desktops and over 750 million Facebook users. For these companies, the number of users is a good indicator of both their sales and their assets. For digital companies, user data is perhaps the most valuable commodity – something that is mined in multiple ways and can be sold onwards.

Our $2.8 billion calculation was based on the share of the three tech giants’ global profits, relative to their number of users and adjusted for countries’ GDP per capita, which accounts for users’ relative values across the 20 countries studied. Any actual tax would of course need to be more carefully designed but this is a useful indicator of the scale of resources that could be raised and is likely to be the tip of the iceberg.

Those 1.7 million nurses needed in countries battling the coronavirus pandemic Their salaries could be paid for in just three years if global rules meant these ‘silicon three’ and other companies paid their fair share.

On this basis, setting fair global tax rules for big tech companies is not an obscure discussion for technocrats to have behind closed doors or be terminally delayed. It is a matter of life and death.

The task of developing global tax rules for the digital economy should never have been given to the club of rich nations, the OECD. It is unsurprising then that they have failed in this urgent task. Instead governments should urgently get behind a representative UN led process that is resourced and empowered to set and enforce global tax rules. And as global reforms will take time, governments should also take immediate steps to tax big technology companies in their countries on an interim basis. Covid-19 has made this more urgent than ever.

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$2.8bn ‘tax gap’ exposed by ActionAid research reveals tip of the iceberg of ‘Big Tech’s big tax bill’ in the global south

ActionAid

26 October 2020

https://actionaid.org/news/2020/28bn-tax-gap-exposed-actionaid-research-reveals-tip-iceberg-big-techs-big-tax-bill-global

New research from ActionAid International reveals that 20 developing countries could be missing out on as much as $2.8bn in tax revenue from Facebook, Alphabet Inc. (parent company of Google) and Microsoft due to unfair global tax rules.

Potential taxes raised from these three ‘Big Tech’ companies alone could address the World Health Organisation’s (WHO) estimated shortages of more than 1.7 million nurses in these countries within just three years.

$2.8bn could pay for 729,010 nurses, 770,649 midwives or 879,899 primary school teachers each year in 20 countries across Africa, Asia and South America.

The research is released as the G20-mandated and OECD-led corporate tax reform process failed to meet the original deadline amidst political and technical challenges; and in advance of Alphabet Inc. publicly reporting its latest quarterly financial results on 29 October, following today’s shareholder conference.

ActionAid International has today (Monday, 26 October) published new research on the scale of potential tax revenue that could be raised from ‘Big Tech’ companies operating in the global south.

ActionAid’s new research analyses Facebook, Alphabet and Microsoft and the potential tax revenue that their market activity could generate, if the tax regime and resulting corporation tax bills better reflected these companies’ economic presence. ‘2020 Quarter Two’ reporting of ‘Big Tech’ companies revealed how shares have soared as a result of increased sales during the outbreak of the pandemic.[1]

Little is known about how much tax these companies are currently paying in developing countries, as they are still not required to publicly disclose this information. This research shows, however, that billions could be at stake in the long overdue reform of international corporate taxation – enough to transform underfunded health and education systems in some of the world’s poorest countries.

The world desperately needs a global tax agreement which ensures companies are taxed according to their real economic presence. Developing countries offer tech businesses new markets, increased global brand recognition and billions of new users’ data, which translate into continuing revenue growth.

ActionAid is also calling for a global minimum rate of corporate tax to resolve the issue of multinationals using tax havens to lower their tax bills. Governments urgently need this money to fund public services such as healthcare and social protection for the billions of people affected by the Covid-19 pandemic.

Yet, the OECD has proven unable to deliver a new global tax deal.[2] A new UN-led process could be a solution to ensuring poorer countries have a seat at the table in developing global tax rules that affect their ability to invest in public services.

Given the urgent needs of women and young people impacted by Covid-19, hunger and unemployment, governments should take steps to tax tech companies, in lieu of a global deal being agreed. These taxes should be progressive, targeting the enormous profits of tech giants, ensuring the costs aren’t passed to the users.

If all governments compelled all companies to publicly report their financials in each country where they have a presence, a clear route to fair taxation would be possible.

The potential $2.8bn ‘tax gap’ calculation is based on the share of the three tech giants’ global profits, relative to their number of users and adjusted for countries’ GDP per capita, which accounts for users’ relative values across the 20 countries studied.[3]

India, Indonesia, Brazil, Nigeria and Bangladesh are the markets studied with the highest ‘tax gaps’ from these three companies. The total ‘tax gap’ for the 20 countries contained in the research is $2.8bn, equivalent to 729,010 nurses, 770,649 midwives or 879,899 primary school teachers.

The WHO estimates that the 20 countries studied by ActionAid need to employ at least 1,790,000 more nurses by 2030 to achieve their benchmark of 40 nurses per 10,000 people. These shortages of nurses could be fully covered in just three years if global tax rules allowed fair taxing of these three ‘Big Tech’ companies and the revenue was allocated for this purpose.

David Archer, global taxation spokesperson for ActionAid International, said:

“Women and young people are paying the price for an outdated system that has allowed big tech companies, including giants like Facebook, Alphabet and Microsoft, to rack up huge profits during the pandemic, while contributing little or nothing towards public services in countries in the global south.

“The $2.8 billion tax gap is just the tip of the iceberg – this research covers only three tech giants. But alone, the money that Facebook, Alphabet and Microsoft would be paying under fairer tax rules could transform public services for millions of people”.

Commenting on the research findings Alex Cobham, CEO, Tax Justice Network, said:

“The Covid-19 pandemic has confirmed the urgent need to reprogramme our tax systems. In 2013, the G20 asked the OECD to deliver reforms that would make sure taxable profits were declared where companies’ real economic activity takes place.

“Eight years later, ActionAid’s research shows there has been no progress – so that even in countries where public services are desperately short of resources, the excess profits made by digital companies during the pandemic, while local businesses are ordered to lock down, are not giving rise to a fair tax contribution.”

Data is revealed in advance of Alphabet reporting its latest quarterly profits on 29 October. It is expected that Alphabet will reveal huge profits which depend significantly on the 1.5 billion people in these 20 countries who use their products.

In the absence of more transparent reporting requirements it is impossible to determine how much tax, if any, Alphabet or other big tech companies pay to the governments in these countries. If global rules were fair and effective, they could raise enough in tax from Alphabet alone to employ 244,360 nurses, transforming the public health response to Covid-19 in these 20 countries.

[1] The Guardian July 2020

[2] The OECD was mandated by the G20 to deliver a ‘consensus-based solution to tax challenges arising from the digitalisation of the economy’ by the end of 2020. It has now clear there is no consensus, and the process has been extended until at least mid-2021. From the outset, the process was criticised as lacking legitimacy due to the failure to adequately involve developing countries. The current proposals have been further criticised for lacking ambition.

[3] The 20 countries contained in this research include: Bangladesh, Brazil, Ethiopia, Ghana, India, Indonesia, Kenya, Malawi, Mozambique, Myanmar, Nepal, Nigeria, Senegal, Sierra Leone, South Africa, Tanzania, Thailand, Vietnam, Zambia, Zimbabwe.

Editor’s Notes [available at https://actionaid.org/news/2020/28bn-tax-gap-exposed-actionaid-research-reveals-tip-iceberg-big-techs-big-tax-bill-global]


AfricaFocus Bulletin is an independent electronic publication providing reposted commentary and analysis on African issues, with a particular focus on U.S. and international policies. AfricaFocus Bulletin is edited by William Minter. For an archive of previous Bulletins, see http://www.africafocus.org,

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