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Is This The End of Tax Avoidance For Tech Giants, Google, Amazon, Apple And Facebook?
Tech giants may soon no longer be able to accrue the benefits of tax havens, as regulators in Europe work on measures designed to recover a significant amount of taxes from their earnings. Amazon, Google, Apple and Facebook are among those who have consistently exploited a lack of physical offices in countries of operations to book low taxes.
Authorities in the region have proposed new measures that they say will raise £200 million every year in taxes from the companies, starting 2019. The new measures are meant to combat a tax avoidance strategy that has seen the tech giants pay substantial royalties to subsidiaries in low tax jurisdictions.
Britain on its part has also hinted at the possibility of introducing ‘tax on royalties’ as a way of generating significant tax from royalty payments that tech giants normally siphon to low tax jurisdictions.
The move has however not gone well with companies who feel they are being wrongfully targeted.
Here are some of the corporations that could see their profits take a hit in the coming years as regulators swing into action.
Amazon
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Amazon has been in the spotlight both for the right and the wrong reasons. Most recently, the e-commerce giant came under scrutiny and criticism, over concerns that it has not been paying its fair share of taxes in Europe.
A study showed that the tech giant tax bill in the U.K was 11 times smaller than what bookstores normally pay. Last year, the company was forced to unwind its complicated tax structure in Britain, after coming under immense pressure from legislators, on claims that it had paid a mere £7.4 million in corporate taxes, on £1.5 billion worth of sales.
Amazon was able to get away with paying very little in taxes because it attributed payments in the country to its subsidiary in Luxembourg. Britain is not the only country where the company has found itself at loggerheads with regulators.
The company has agreed to pay US$118 million to settle tax fraud claims in Italy. The settlement covers the company’s operations between 2011 and 2015. Reports indicate that the company had found a way of declaring as much as €130 million euros of Italian profits in Luxemburg, which has a lower corporate tax rate than Italy.
In the wake of the settlement, authorities in Italy say they will seek new ‘preventive agreements’ that will prevent Amazon from repeating such practices in future. The e-commerce giant on its part says it has created an Italian branch in which, all revenues, expenses, profits, and taxes will be accounted for tax purposes.
“More than two years ago, we began the process of establishing local country branches of Amazon EU Sarl. As of 1 May [2015], Amazon EU Sarl is recording retail sales made to customers through these branches in the UK, Germany, Spain, and Italy. Previously, these retail sales were recorded in Luxembourg,” said Amazon in a statement.
Source: Shutterstock
Google is by far one of the tech giants that has had the most turbulent relationship with regulators in Europe. The mere fact that the company operates as a monopoly in the search business means it will always be under scrutiny from authorities.
It is alleged that the search giant moved about US$12 billion from its Dutch arm to a Bermuda based subsidiary dubbed Google Ireland holdings, as part of its tax avoidance strategy. The play allowed the company to pay a tax of 6% compared to a much higher tax rate of 12.5% it would have paid.
It has also emerged that the company paid £164 million in taxes last year despite declaring a gross profit of £19.4 billion.
The company has no options other than to rethink its corporate structure after being hit with a US$181 million fine to settle tax disputes in the UK alone. Authorities in France and Italy are also pursuing their own investigations regarding the company’s tax payment malpractices.
Apple
Source: Shutterstock
Apple finished last year with $216 billion in cash and marketable securities held by foreign subsidiaries. Amidst the huge pile of cash, the company is now the subject of investigations in the U.S, over claims that it used its subsidiaries to avoid paying taxes on revenues outside the U.S.
Should the company be found liable over the tax avoidance claims, it could be hit with an US$8 billion fine. In the worst case scenario, the company could be hit by a US$19 billion charge, if the Irish government is forced to recoup the taxes.
European authorities have also upped the tempo as they seek to take a substantial amount of taxes from the iPhone maker’s cash reserves. The European Commission has already asked Irish authorities to collect as much as £13 billion in back taxes from the tech giant.
Source: Shutterstock
Facebook has also come under criticism in the U.K after it emerged, that it paid £5.1 million in taxes last year despite its revenues rising to record highs of £842.4 million from £210.8 million a year ago. The company was later forced to change the amount of taxes it pays after mounting pressure from campaigners.
As a result of the changes, the company paid £207 million to staff, up from £165 million paid a year earlier. The amount covered wages, salaries, social security pensions, and share award schemes.
What’s going to happen next?
The crackdown on tax havens is expected to gain momentum as regulators swing into action after years of tough talk. The European Commission has already taunted the possibility of introducing a common set of tax rules in all the countries, as a way of preventing the hiding of profits from tax authorities.
While such a move could result in a substantial amount of taxes being collected, there is already concerns that it could have serious repercussions.
The American chamber of commerce has warned that pushing to take more taxes from tech giants could damage the region’s economic growth. Companies that are aggressively targeted may be forced to shut down operations as a way of protecting their margins.
A high tax regime could also make the continent less attractive to investors at a time when investments are highly needed to help accelerate economic growth after years of slowdown.
This article first appeared on ZUUonline.
ZUUonline is an Asia-based financial education online portal. Founded in Japan by Kazumasa Tomita, a former private banker at Nomura Securities, the portal seeks to fill the information gap between institutional research houses and the private investor.
(By Neha Gupta)
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