US Shields Its Digital Companies Against Tax Reform

Max 'Beast from the East' Smolaks covers open source, public sector, startups and technology of the future at TechWeekEurope. If you find him looking lost on the streets of London, feed him coffee and sugar.

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The White House could resist closing loopholes in international tax law

US politicians are “watering down” proposals for new international tax rules to apply to companies which sell digital products, due to be presented at this week’s G20 summit in St Petersburg.

Sources at the White House told the Guardian that the US will not back the changes – arguing that they would disproportionately target some of the country’s fastest growing businesses.

The changes to the tax system are advocated by France, in response to political and public pressure after it emerged that several well-known tech corporations were paying very little tax on huge profits, both in Europe and the US.

Difference of opinion

Last week, the Organisation for Economic Co-operation and Development (OECD) published a draft plan which included a list of proposed changes to the international tax system. The document is also aimed at the G20 summit, having been drawn up for the attention of  the 20 top world economies. It targeted a range of loopholes in tax regulation used by companies like Apple, Google, eBay and Amazon to minimise their corporate tax bill.

CreativaAll are agreed the businesses accused of tax avoidance are  not actually breaking the law, just trying to cut their expenses using rules that were devised for the pre-Internet economy.

The OECD’s plan was expected to force companies to pay tax in the countries where they have “major activities” and conduct sales, even if they do not have a formal (taxable) corporate office there. It listed a total of 12 problem areas, and its proposers hoped to get it into force in one to two years.

While the US politicians admit that the tax rules have to be changed, they advocate a moderate approach with less focus on digital companies. Meanwhile, France is promoting tough measures, and has even proposed a tax on personal data collection. In the past, French tax authorities have raided the offices of several firms including Google, Microsoft and LinkedIn.

Since the OECD, which includes members from 34 countries and has its headquarters in France, was designed to find compromise, the initial plan is now expected to be watered down in response to American interests.

In the UK, much of the debate around tax avoidance has focused on Google. In August 2012, it emerged the US corporation’s tax bill stood at just £6 million in the UK, on revenues of around £395 million. Some MPs branded the company’s tax practices “immoral” and an investigation by the Public Accounts Committee (PAC) was launched.

In November 2012, Google’s VP for Northern and Central Europe Matt Brittin testified that his company was conducting all of its sales from outside the country, mainly from its European headquarters in Dublin.

Brittin returned to face the PAC and clarify some of his comments in May 2013, when Margaret Hodge, chair of the committee, called Google’s behaviour “devious, calculated and, in my view, unethical”. Despite this, Brittin once again said the company was not selling from the UK.

Several independent investigations, including one by Reuters, have questioned Brittin’s statements after it emerged that Google’s own website said its sales teams are based in London, and the company regularly posted job vacancies for staff with sales experience in the UK.

After Brittin’s second encounter with the PAC, Eric Shmidt wrote a public letter to the Observer, in which he stated that Google was a law-abiding company, and if the government wanted to tax Google more thoroughly, it should change the law.

Whether the UK will side with France or the US will be clear on Friday, when the G20 summit will begin.

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