Are tech giants paying their fair share of tax?

As the world's tech giants continue to achieve impressive revenues globally, many experts question whether it's time to impose more appropriate taxes on them and how this can be achieved.

The world's largest tech companies are increasingly coming under pressure over their tax affairs. In 2019, a report claimed that Amazon, Google, Facebook, Apple, Microsoft and Netflix have "aggressively" avoided a worldwide tax bill of $100 billion in the last 10 years.

From the UK to France, many countries are beginning to take steps to clamp down on this issue by introducing digital services taxes. But with European lawmakers recently reversing a decision to thrust a €13bn Irish tax bill onto Apple, are these efforts destined for failure and will tech giants ever pay their fair share of tax?

Thomas Husson, an analyst at Forrester, believes that American tech giants will eventually be faced with larger tax bills despite Apple's successful appeal in Europe. He says: "If Apple clearly won the battle, the EU commission and some European governments have not lost the war yet. It will take a lot of time to adapt regulation and fiscal rules to the new digital order, but eventually, I think US tech giants will end up paying more local taxes."

His view is that large tech firms risk angering consumers by paying small tax bills despite making huge profits. "Let's not also forget consumer sentiment and perception. They are increasingly aware of these issues in the various European countries and it is also increasingly damaging for the brand equity of these digital platforms." he says.


Tackling tax avoidance

While Apple may have been successful in getting the Irish tax bill thrown out of court, Husson expects the European commission to launch its own appeal. He tells IDG Connect: "The EU's General Court (the EU second-highest court) said it had annulled the EU commission decision because there was not enough evidence to show Apple broke EU competition rules.

"To be more specific, there was not enough evidence to show Apple had received illegal state aid from the Irish government or minimised its tax bill. However, it is likely the EU commission will appeal against the decision at the EU's supreme court, the European Court of Justice."

Right across Europe, governments are working to end tax avoidance in the technology sector. "Beyond EU commission initiatives, several governments among which the French government are continuing to put pressure on US tech giants (including Alphabet, Amazon, Microsoft and Facebook) for them to pay more local taxes," he says.

"The current negotiations within OECD are on hold with the current US government and I think they are not likely to resume before early next year after the US Presidential election."


Not an easy task

Even though governments are taking the issue of tech avoidance seriously, getting global tech companies to pay more tax won't be easy. Dr Maggie Cooper, lecturer in management accounting at Henley Business School, explains: "Current tax laws struggle to be effective in relation to companies, largely digital, where it is possible to obscure, or change, the location where sales are made.

"The EU Commission has tried to tackle some of these issues through its legal challenges including companies such as Apple and Google, arguing that the low effective tax rates imposed by the governments involved gave those companies an unfair advantage over their competitors."

She says that due to the recent failure of such cases and the US withdrawal from the OECD talks, policy makers have had to rethink how they will tackle these issues. "It looks like in the short-term, individual countries will continue to act, imposing revenue taxes, but under the threat of retaliatory tariffs from the US government," she says.

"The UK government, for example, is pressing ahead with plans to implement a 2% revenue tax on sales to UK customers by tech companies. The EU is also taking a new position, using article 116 of the EU Treaty, to take action to prevent distortions in the single market.

But Cooper warns that it will take years to work out if these efforts have been a success. She adds: "In the long run the only real solution must be multilateral. Governments should press on under the auspices of the OECD or other international bodies to tackle the problems that arise from an out of date tax system."


A long process

Alex Barnes, head of tax at full-service international law firm Memery Crystal, agrees that imposing appropriate taxes on tech giants is inevitable but that it will take time. He says: "For many countries, the unilateral introduction of a digital sales tax without some sort of global political consensus is simply too high risk.

"The U.S. have made it very clear that it considers the digital services taxes (DST) introduced by the likes of France and the UK as discriminatory to U.S. tech firms and this has led to the announcement of additional duties on certain French imports into the U.S. and possible recriminations when UK/U.S. trade talks commence."

He says that the OECD is already looking at different ways it can transform the international tax system and impose more appropriate taxes on tech giants, but notes that it'll be a slow process and that many countries will wait until common solutions have been agreed so they don't upset the US government.

What's clear is that cooperation between governments and the industry is paramount to creating fairer taxes. Paolo Pescatore, a technology analyst, says: "There needs to be a collective effort to ensure fair competition for all parties. Striking the right balance of creating the right regulatory environment and fostering a competitive environment is no easy feat."

Pescatore warns of increasing divisions between the US and Europe. "This is dividing opinion with countries taking matters into their own hands. Look at France, implementing its own digital services tax which will inevitably lead to a counter response from the US, while the US is also looking at other countries," he says.

"Arguably this is seen as a move to raise much needed funds as well as a means to curb the growing dominance of the tech giants. The lack of a universal agreement will only fuel growing tensions between the US and the EU at a challenging time with an uncertain future."

With the tech industry rapidly growing and many tech giants reaching trillion-dollar valuations, it's understandable that governments are conscious about imposing appropriate taxes on them. But a global consensus on this issue seems paramount and doesn't look like it'll happen anytime soon.