TAXING BIG TECH
H
ow to tax big tech firms? This question has been a major source of transatlantic tension and international friction, with various loopholes supporting global tech giants for years. Taxation is currently a hot topic in Europe and understanding and unravelling the complex structures used by multinationals to reduce their tax rates is the aim of the game. These firms make billions of pounds from European citizens every year, yet the tax paid does not reflect the astronomical profits. For example, in the UK, Amazon paid just £14.4m corporation tax in 2019, despite generating a revenue of £13.7bn in the country. In the absence of a complete overhaul of the entire international tax system, a few European nations have introduced new taxes aimed specifically at targeting these companies.
34 europeanbusinessmagazine.com
The growing frustration directed at tech companies generating profits in countries where they don’t have a physical presence has ensured that digital tax has been a huge talking point, especially since the COVID-19 pandemic. The Organisation for Economic Co-operation and Development has been hosting negotiations with more than 130 countries to reassess the global tax system. The current proposal requires multinational businesses to pay some of their income taxes where their consumers or users are located. The European Union was also planning to propose a 0.3% tax on the goods and services sold online by all companies operating in the EU with annual sales of at least €50m, but this idea has been temporarily shelved.
Digital companies have increased their profits during the COVID-19 crisis, yet current tax rules are obsolete and are unable to tax multinational tech companies appropriately. The global tax system needs to be fit for purpose for a digital age, and importantly, needs to be fair and realistic. From a dramatic increase in app use to taking window shopping online, how consumers buy products and services is shifting. The existing international tax system does not properly capture the digitalization of the economy, and the COVID-19 pandemic has brought this huge misalignment into even clearer focus. Tech giants rack up big profits but pay little into government funds. Now things look like they may be shifting. The UK imposed a 2% digital services tax last year – and is far from the only
