Digital giants dubbed the ‘Silicon Valley Six’ have avoided paying over $100 billion in tax globally over the last decade, according to a report released by the Manchester-based Fair Tax Mark (FTM), a campaigning organisation for fairer and more transparent tax systems.
The FTM report comes at a crucial time, just before a general election in which both the main political parties have proposed policies on taxing digital behemoths. With austerity-driven cuts to social services hitting people hard across the country, previous UK government tax deals are increasingly regarded as being too easy on tech giants.
Amazon, Facebook, Google, Netflix, Apple and Microsoft are accused by FTM of ‘aggressive’ tax avoidance by shifting profits and revenue through tax havens or low tax countries, also referred to as ‘secrecy jurisdictions.’ FTM has also identified delaying tactics for the payment of taxes the companies have not managed to avoid. These practices deny millions of pounds to national economies, including that of the UK.
FTM said it chose to investigate the Silicon Valley Six because of their enormous market worth: together, the six companies had a combined worth of $4.5 trillion in autumn 2015; bigger than the annual economies of Germany, France, India or the UK, and bigger than all African economies added together. Microsoft and Apple are each alone valued at over $1 trillion.
The figure of $100.2 billion, or £75 billion, in tax avoided is the gap between the cash taxes paid on profits by the six multinational corporations between 2010-19, and the actual amount of ‘booked’ tax they should have paid according to their Form 10-K annual tax filings in the United States. Top of the FTM’s ranking of ‘poor tax conduct’ is Amazon, which declared $960.5 billion in overall revenue and $26.8 billion in profits, but only paid $3.4 billion – 12.7 per cent of revenues – in income tax globally.
Responding to the provisional findings of the FTM report last week, all six of the companies disputed its figures, each releasing statements that they had paid the correct taxes. No specific challenges have yet been presented to the figures reported by the FTM, however.
While these are global figures, the FTM report also presents data showing loss of taxes from these hugely profitable companies in the UK and Europe. For example, Amazon EU Sarl (an operating name that differentiates the company from Amazon.co.uk, which it bought in 2006), is based in Luxembourg. That company reported a pre-tax 493 million euro loss on a total 27.9 billion euro revenue in 2018. Following an European Commission investigation, however, the Luxembourg government was ordered to recover 250 million euro in tax from Amazon after it was found to have given the corporation an ‘undue tax benefit’ by allowing its profits to be shifted to a shell company that was tax-exempt due to the careful wording of its services.
While other EU countries have secured back taxes from Amazon, including France (200 million euros) and Italy (100 million euros), the UK as yet has failed to do so. Following bad press in previous years, Amazon released a statement that their total tax contribution to the UK was £220 million in 2018, but admitted that labour taxes and business rates – not income tax – made up the largest proportion of that figure.
The immense wealth amassed by the Silicon Valley Six gives them huge political clout. The six spent 20 million euros on lobbying the EU Parliament between January 2017 and July 2019. Similarly extensive lobbying in the United States resulted in the 2017 Tax Cut and Jobs Act, which lowered the headline rate of corporation tax from 35 to 21 per cent. FTM states that the Act ‘mainly benefited big technology companies that had large overseas cash piles’.
The UK has also granted businesses large drops in corporation tax, which was 28 per cent in 2010. Under the Lib Dem-Conservative coalition government, and Chancellor George Osborne, the rate was steadily cut down to the current figure of 19 per cent. The rate is set to fall further under the current Conservative government’s plans, to 17 per cent next year – despite HM Revenue and Customs warning that this two per cent cut will cost the Treasury £6.2 billion in lost revenue. That figure is equal to five per cent of the entire NHS England budget in 2018/19 (£115 billion).
These reductions in the corporation tax rate have coincided with ten years of austerity-driven cuts to social services and local authorities across the country – cuts which the UN has described as, ‘entrenching high levels of poverty and inflicting unnecessary misery in one of the richest countries in the world’.
Over the same period, the UK government has offered significant ‘tax deals’ to Silicon Valley Six companies. In 2016, for example, Google’s UK subsidiary agreed a deal with HMRC to pay £69 million in unpaid back taxes. While George Osborne declared the deal a ‘major success’, the payment was equivalent to payment at corporation tax rate of just three per cent. MP calls for a European Commission investigation into the deal were unsuccessful. Thinktank Tax Watch estimates that Google have avoided paying £1.3 billion in UK taxes over five years between 2012-17.
Labour’s 2019 manifesto commits to tackling ‘corporate tax dodgers’ by creating a ‘fairer taxation system’ that will ‘crackdown on tax avoidance and evasion’ and ‘promote fairer international tax rules’. Labour also pledge to ‘reverse some of the Tories’ cuts to corporation tax while keeping rates lower than in 2010’.
Although the manifesto does not specify how Labour would achieve a fairer tax system, Shadow Chancellor John McDonell has previously backed a unitary taxation system, in which companies are taxed on the basis of where their workforce, assets and sales are located rather than where they decide to record their profits. Under a unitary system, multinationals composed of subsidiary companies in different countries would also be classed as one ‘unitary entity’, rather than each subsidiary being taxed as a separate company, which is the case under the current system. The estimated increase to annual UK tax revenue under such a system is, from multinational tech giants alone, £6 – £14 billion.
The Conservative 2019 manifesto conversely celebrates the Party’s previous cuts to corporation tax, but promises to introduce a ‘new anti-tax avoidance and evasion law,’ which would aim to make ‘major multinational companies… pay their fair share of tax’. It also promises the introduction of a Digital Services Tax, initially conceived under Theresa May, which from April 2020 would create ‘a new two per cent tax on the revenues of search engines, social media platforms and online marketplaces’, according to HMRC. Whether this proposal will be implemented post-Brexit is doubtful, however, given the problem it potentially raises in securing trade deals with the US.
For its part, FTM regards the Digital Sales Tax as the usual stop gap measure to deal with the problem and instead advocates for a unitary taxation system to be implemented. Alex Cobham, Chief Executive of the Tax Justice Network, concludes that the FTM report ‘demonstrates why we need a fundamental reprogramming of the world’s approach to tax, based on a unitary taxation. By ensuring multinational corporations pay their fair share locally for the wealth created locally by people’s work – based on an agreed formula and supplemented by a minimum effective tax rate – governments can strengthen their economies to run smoothly and make a good life possible for everyone.’
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