The threat of Big Tech revenue taxes
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Illustration: Sarah Grillo/Axios
Facebook and Google should be afraid of being taxed on their annual revenues, rather than their profits.
What's happening: The UK is proposing a 2% tax on the British revenues of any profitable tech company with more than £500 million in global revenues. The European Commission is proposing a similar tax, which could reach 3%. Spain's version of the tax could raise as much as $1.4 billion next year. Nine Asia-Pacific countries, including South Korea and India, could follow suit, as could Mexico and Chile.
The problem is that the current international taxation regime is based on profits, rather than revenues.
- Digital companies can sell their products across international borders without being physically based in the countries that account for much of their revenues.
- They can also move profits around the world by licensing their intellectual property to low-tax regimes.
The Organization for Economic Cooperation and Development started an international discussion on how to deal with this problem in 2012. That discussion now involves 116 different economies, according to Josh Kallmer, senior vice president for global policy at the IT Industry Council. Predictably, little progress has been made.
- One winner under the current regime is the United States, where all the tech giants are domiciled. The U.S. also has effective veto power at the OECD. So no one expects the process to speed up anytime soon.
The UK, Spain and other countries are attempting to light a fire under the OECD process. If a first-best international solution can't be found, they're saying, they will implement a second-best unilateral revenue tax.
- A revenue tax would mean double taxation for internet companies, which would get taxed first on their revenues and then on their profits. But there's no doubt they can afford it.
The bottom line: The tech giants are extracting value from countries' populations much as oil companies extract value from countries' oil fields. If ExxonMobil can pay a royalty based on revenues, then why not Facebook?
