Europe takes aim at digital giants’ tax swerves

digitax.jpg

Multinational technology companies such as Apple, Google and Amazon were a key focus of EU leaders' attempt to clamp down on aggressive tax avoidance at their summit on Wednesday (22 May).

The broad European initiative against tax fraud arising from the summit – a push to create global bank information sharing – is modelled closely on the US Fair and Accurate Credit Transactions Act, which requires American taxpayers to report their foreign financial interests, and has galvanised EU countries to act.

The action also reflects US concerns that digital multinational companies are in the vanguard of corporations failing to shoulder their fair burden of tax.

Apple is a ‘complex web’

On 21 May, the US Senate's Permanent Subcommittee on Investigations said Apple Inc had used "a complex web of offshore entities" to avoid paying billions of dollars in income taxes. Apple had paid 2% tax on $74 billion in overseas income, largely by exploiting a loophole in Ireland's tax code. The panel said there was no indication the firm had acted illegally.

This followed reports that the British unit of Amazon paid €2.9 million tax on sales of €5 billion in 2012, and similar revelations concerning the British operations of Google.

In all, officials estimate that EU governments miss out on around €1 trillion a year through legal tax avoidance schemes and via illegal tax evasion.

Digital companies told to contribute their fair share

This week's EU summit conclusions, adopted unanimously by all 27 EU heads of state government, did note that "efforts are required to respond to the challenges of taxation in the digital economy."

The European Commission said it intends to assess these issues further in advance of an October discussion among EU leaders on the European digital agenda.

After the summit both British Prime Minister David Cameron and French President François Hollande alluded to the technology giants and their fiscal responsibilities.

“There are large companies that are based in Europe and do not pay as much tax it would be desirable even though these companies make huge profits,” Hollande said.

“So everything will be done to find the modes of action that will allow these companies to pay the contribution that is expected of them.”

Google insists it is paying enough

Cameron, who has put tax at the top of the agenda for a meeting of the G8 in Northern Ireland next month, was equally clear about the need for coordination steps.

Cameron met Google boss Eric Schmidt on Monday. Questions have been raised in the UK about whether Google’s sales staff are based abroad, as the company maintains, or in the country, which would create a liability to UK tax.

Google says it follows tax rules everywhere it operates and that references to selling in job ads for British-based staff reflect the fact that it likes people with sales skills.

Asked after the summit whether he had raised the issue of tax avoidance with Schmidt, Cameron said: "I raised the issue very directly."

Cameron: Tax is a ‘moral’ issue

"I asked Eric Schmidt to comment on that and he did in the meeting. I don't think we're going to solve this if we simply take one company or another company that is registered in Europe, this one in Ireland,” said Cameron.

The prime minister acknowledged that tax avoidance may done within legal parameters, but warned large companies that the tax planning choices they made were ‘moral’ decisions, affecting a range of stakeholders including not only their shareholders, but also consumers of their products.

France has already shown its willingness to take on major US digital companies, with authorities raiding Google in a 2011 investigation into whether its Paris office conducts sales work. The company was asked to pay €1.7 billion in back taxes.

Tax evasion deprives EU governments of roughly €1 trillion annually, according to estimates.

France, in particular, wants to underscore its determination to tackle tax fraud.

Although limited in scope, action to tackle tax evasion at European level has proven to be effective. Under the EU Savings Directive, for example, member countries exchange information on non-resident tax-payers to the value of €20 billion.

The challenge now is to deepen such cooperation and strengthen common tools. In this respect, agreement by member states on the revised Savings Directive is essential.

  • Oct. 2013: EU summit dedicated to the European digital agenda. European Commission expected to report on the issue of taxation in the digital economy.
  • Dec. 2013: EU ministers to report back on the topic of tax evasion and avoidance

Subscribe to our newsletters

Subscribe
Contribute