Big Tech must pay more tax to help our post-COVID societies

Josie Wexler and Rob Harrison focus their attention on the gross disparity between the tax paid by the big tech companies and what they can afford to pay to help out during the COVID-19 crisis.

The financial cost of tackling the coronavirus crisis in the UK alone is going to be enormous – somewhere in the region of £300 billion or more. At the same time, profit-shifting to tax havens is costing the UK something like £7 billion per annum in lost corporation taxes. This is the equivalent of a year's pay for around 180,000 nurses.

As we see below, some of the most high-profile avoiders of corporation tax are Silicon Valley mega-corporations such as Facebook and Google. The same companies are also turning out to be some of the biggest winners from the COVID-19 pandemic.

We think that most people will find it particularly jarring that some of the companies who have most egregiously failed to pay their way while cuts have depleted NHS capacity, are now raking it in while society buckles under the worst public health crisis for a generation. It, therefore, makes sense to start talking about how they might make a fairer contribution to the public services on which they, just like the rest of us, rely.

How are the tech companies performing?

Netflix, Amazon Prime Video and Google-owned YouTube have faced such an enormous surge in demand that they have had to downgrade the quality of their streaming services across the EU. Microsoft said in mid-March that it had added 12 million daily users in one week to its collaborative working Teams platform. Facebook said that messaging activity over the platform increased by 50% in those countries hit hard by the virus.

The tech companies aren’t getting off entirely scot-free – supply chains for some physical tech products have stalled, which hit Apple. And online advertising spending has fallen. But overall, they are doing well and all of their shares have outperformed the market since late January.

This puts them at a huge competitive advantage over many smaller businesses and positions them to be able to pick some of them off in their weakened state.

The tax avoidance of the tech companies

The big tech companies deal substantially in intangible things like patents which can be located anywhere, which makes it easy for them to avoid tax. And they have long been some of the companies most heavily implicated in it.

It’s always very difficult to put figures on tax avoidance because it is about the spirit rather than the letter of the law. However, the Fair Tax Mark’s 2019 ‘Silicon Six’ report did an analysis of the global cash tax paid by big tech companies and found that:

“Overall, the Silicon Six paid just 15.9% of corporation tax (cash) on their declared profits over the period 2010 to 2017 inclusive, at a time when the headline rate [in the US] was 35%. The levels of tax paid are well below those paid by the majority of other businesses in the United States, which studies have found to be a mean of between 29.1% (1995-2004) and 26% (2008-2014).”

bar chart: tax paid by the silicon six

Putting some figures on the UK tax avoidance of the tech companies

The figures opposite are global, and the bulk of the shortfall arose outside the United States. However, we wanted specific figures for the UK.

A couple of years ago, the organisation Tax Watch UK made rough estimates of how much tax some of these companies are avoiding in the UK through shifting profits into tax havens. It used figures for the revenue raised in the UK and the companies’ global profit margins, to calculate how much profit would be earned here if profits were being distributed evenly across regions.

It didn’t do Amazon – Amazon is so opaque that there are hardly any proper figures available for anything. However, we weren’t happy leaving it out, so we did a very rough calculation using the same methodology, on the basis of the (dodgy) figures available.*

Here are the figures for 2017:

  Google Cisco Facebook Microsoft Apple Amazon (our calculation)
Tax paid in 2017 £49m £42m £16m £29m £55m £4.9m

Estimated UK tax in 2017 lost to profit shifting

£307m £40m £112m £119m £490m £52m

This isn’t how much tax companies legally owe. Profit shifting is legal, and HMRC does not count it in its tax avoidance calculations, as it regards it as something that “cannot be addressed under UK law and that will be tackled multilaterally through the OECD”.

That does not, however, mean that it is okay. It should also be noted that one reason that Amazon’s figure looks small is that a key way that Amazon avoids tax isn’t shifting profits around in space, it is shifting them in time. Amazon keeps its profits low while it invests everything into pursuing total market domination. As it is profits that are taxed, it pays very little tax, and can undercut other businesses.

This is immoral even if not illegal – besides the monopoly issues, even if it were to pay lots of tax when its megabucks bonanza plan finally comes to fruition, society needs money now. However, it is very hard to take it into account in any kind of calculation.

Lobbying against digital sales taxes

Of course, the problem of systematic avoidance of corporation tax by increasingly successful tech companies is not restricted to the United Kingdom. This fundamental economic problem has troubled international institutions like the OECD and the IMF, which have been working in this area for nearly a decade now.

However, their failure to act (to date) and the consequent public disquiet, has lead around 14 countries in Europe alone to introduce special taxes on sales rather than profits. The UK's 'Digital Services Tax' is levied at a modest 2% of UK revenues for digital companies over £500 million and came into effect on April 1st 2020.

However, news stories in the Times and published by TaxWatch UK suggested that the industry group 'TechUK' was lobbying the Treasury to postpone the implementation of the tax because of the coronavirus crisis.

Google UK's chief executive Matt Brittin famously told a House of Commons Select Committee, in 2012, that the company pays "all the tax we're required." However, since companies also appear to be using their not inconsiderable power to lobby to make sure the requirements don't change, this argument begins to look a bit weak. Similar lobbying against a recently proposed digital sales tax in India has also been reported.

Digital sales taxes elsewhere are much higher at 7.5% in Turkey and 7% in the Czech Republic. We therefore feel that, during the period when countries are rebuilding economies after the pandemic, and because of historic tax avoidance over many years, a higher digital sales tax rate of 10% should be required until some kind of stability is regained.

How do we get there?

With the Trump administration putting pressure on countries not to implement any digital sales taxes which affect American businesses, there are complex geopolitical issues at stake here.

Nevertheless, political changes always remain possible if there is concerted action from a wide range of players. Ethical Consumer thinks the following would be useful:

For governments

  • Increase digital sales taxes to 10% as a post-COVID emergency action until such time as agreement is reached internationally.

For tech companies

  • Wind down all tax avoidance schemes and begin to make reasonable contributions to the post- COVID societies in which you operate. l Do not contribute to industry groups lobbying to prevent ethical tax reforms and interventions which may affect your business.

For consumers

  • Write to your political representatives asking them to increase digital sales taxes as described above.
  • Contact tech companies asking them to publicly justify continued use of tax avoidance schemes in a post- COVID world.
  • Use Ethical Consumer guides to help avoid participating, as much as is practical, with the products of the worst big tech tax avoiders.

*Amazon raised £10.9 billion of revenue in the UK during 2017. Amazon’s global revenue 2010-2019 was $960.5bn and profit was $26.8bn, making a global profit margin of 2.8%. So, if profit were spread evenly across regions, Amazon’s UK profit would be 2.8% of £10.9 billion – about 300 million. At the UK corporation tax rate of 19%, that would make £57 million in tax owed. Amazon’s two main UK subsidiaries, Amazon UK Services and Amazon Web Services UK Ltd, paid £4.7m and £155,000 tax in 2017, so a total of £4.9 million. This leaves a tax gap of £52 million.