John Harris in The Guardian attempts to claim that if we don’t tax the tech giants then civilisation will fail. No, really. We get some small fraction – under 10% – of total tax revenue from corporations. The tech sector is still a minor part of the overall economy. Call it 10% maybe, just to have some sort of number. So, those tech giants dodging absolutely every penny of their just and righteous dues would mean a loss of 1% of total tax revenue. This is not a number which presages anything other than rounding errors in government accounts, certainly it’s a long way from the destruction of all that is held dear.
But then, you know, someone at The Guardian on the subject of economics.
The upshot is obvious: while big tech is reshaping societies and economies at speed – think of what Amazon is doing to our high streets or, looking ahead, the huge disruption that could be sown by driverless transport – it gives woefully inadequate financial help to the governments whose job it is to manage the fallout.
Now put that 1% of revenue into that complaint. It’s just not a reasonable complaint, is it? But of course this is The Guardian – even if John Harris is often better than this – so we know this is going to get worse.
The tech companies don’t share the wealth:
The problem is compounded by the fact that, almost by definition, tech companies do not spread their wealth via employment – and, as consequence, income tax – to anything like the extent that traditional firms once did.
That’s certainly possible. But look at how they reduce their tax bills:
In 2017, Amazon’s US profits were more than $5.6bn, yet it paid almost no federal income taxes, partly thanks to “excess stock-based compensation deductions” .
Amazon, like all of the tech giants, pays the staff partly in stock. They get shares in the company that is. Which the rational would claim is spreading the wealth via employment – possibly to a greater extent than traditional firms ever did.
Oh, and paying the staff in stock is a cost of employing the staff. That is, a cost of being in business. Which is why those costs are deductible, because costs of being in business are known as costs. We deduct costs from revenues to leave us with profits which are then taxed. It’s only an oddity of accounting convention which makes this a little mysterious, that profits are declared, costs of paying in stock deducted, then that gives us taxable profits. We’re still just deducting the costs of paying the staff before we get to the profits which are taxed.
Oh yes, of course it does, it gets worse again:
Outside the US, the disparities between takings and tax are even more glaring. In 2016, Apple paid $2bn of tax on $41bn of profits generated elsewhere, an effective rate of 4.8%. This year, a report by the new thinktank Taxwatch dug into the mess of complexity that surrounds the UK tax affairs of some of the biggest tech firms. Facebook, Google, Apple, Microsoft and Cisco, it said, generated UK profits in 2017-18 of more than £6.6bn, but paid a combined tax bill of £191m – as opposed to the £1bn Taxwatch says they ought to have contributed. In the same period, Airbnb paid a mere £600,000 in corporation tax, and questions have been asked (but not yet answered) about whether Uber should be charging VAT on its booking fees and paying it to HMRC. Meanwhile, the branch of Amazon that runs its UK fulfilment centres paid £1.7m in taxes, despite declared profits of £72m. The companies insist they abide by tax laws and pay the amounts due from them.
This is all down to the way the international corporate taxation system works. Some taxation takes place where the business is done. The backstop to this being that tax avoided there gets paid in the country where the company lives. The Americans had this odd bit, where if you left the profits abroad then they weren’t taxed – until you brought them into the US when they paid tax just like any other profits.
So, obviously enough, the money just stayed outside the US and wasn’t taxed. Which is how we get those low tax rates. The moment they did come onshore – as e-Bay did one year – then they pay. So those rates are “tax paid so far” not “tax that will be paid.”
Oh, and they’ve changed the law too. Those overseas profits now pay tax even if they’re still overseas. So, even if the complaint has any validity it’s already solved anyway.
Wouldn’t it be interesting if Britain had a left wing newspaper which actually knew anything? Or even journalists who worked for one who did?