It’s long been a source of contention that the large tech companies don’t pay enough tax. They’re among the highest grossing businesses in the world, and yet pay some of the lowest taxes.
In particular, companies like Amazon and Apple have used loopholes in international tax laws to reduce the amount of tax they pay. This is “Tax Avoidance” rather than “Tax Evasion” which is a completely different matter. Tax Evasion is the act of illegally circumventing tax collection, whereas Tax Avoidance is the act of adhering to the tax laws but minimizing the amount you have to pay.
In 2016, Apple were investigated by the EU over a tax agreement based in Ireland. They had agreed a lower rate tax with the Irish government – a so called “sweetheart deal”, due to the fact they’d based their European headquarters in the country. This meant that every iPhone sold in Europe was not taxed in the country it was sold in. Instead, it was taxed at the lower rate Irish value. The investigation lead to the EU declaring that the special Irish rate was illegal and ordered Apple to pay Ireland $15 billion in owed taxes!
What makes this case even more interesting is the fact that Ireland didn’t want the money and argued the case on behalf of Apple.
Even though the $15 billion was enough to fund the entire Irish health system for a year, Ireland stood firm behind their deal with Apple. They lost, and as of January 2017, Apple started paying the funds back (albeit into an escrow, pending appeal (a process that could take several years).
Fast forward a few years, and the situation hasn’t improved, so the G20 are proposing new laws to close these tax loopholes.
The G20 is an international organization of countries, made up of the 19 largest economies in the world, plus the EU. Together this comes to 47 countries, which account for around 90% of the gross world product.
At a meeting in Tokyo, the 20 members agreed to put together a solution by 2020 to put an end to these international tax loopholes. To start with, they’re looking to force companies into paying tax on profits made within the countries that goods are sold.
Secondly, they want to enforce a global minimum tax rate, which would stop countries like Ireland from allowing cut-rate taxes to attract large businesses.
The Telegraph reports :
“Those companies that continue to book profits in offshore tax havens will then be subject to a global minimum tax rate […]
Changes to the global corporate tax framework made by the G20 ministers would see low-tax havens find it increasingly difficult to attract foreign direct investment.”
Any countries that do not agree to the minimum tax rate would be boycotted by the G20 member states, resulting in lost investment.
It may not come as a surprise, but even though the US is a member of the G20 – they’re opposing the changes. The US Treasury Secretary Steve Mnuchin said the US “has significant concerns with the two current taxes that are being proposed by France and the UK”.
It’s still early days for the agreement, but we should see the result of the process next year. If it goes through, we should see a fairer distribution of taxes and a significant increase in the tax bills for some of the largest giants in tech.
Afterall, in 2018 I paid more corporation tax than Amazon despite their yearly profits of $11.2 billion, and that doesn’t seem right!