The Brussels Tax on the FANG Companies is Correct in intention, But Not in Form

Only a few days ago we learned that the European Union is finalizing the creation of a new tax on the “New Economy.”  This tax would try to put a stop to the intra-European fiscal practices of the great American technology companies, and more specifically those known as the Four (Google, Apple, Facebook and Amazon), as NYU professor Scott Galloway recently wrote about.

The tax in question would be taking shape in a range of between 2% and 6% of corporate income, but far from fixing the puzzle of how to tax the economy of the future, the reality is that this new tax is lame. The problem is being attacked from the wrong flank.

A well-intentioned tax, but poorly designed

The truth is that the big problem is how to tax the companies that champion the future of our increasingly technological society appropriately.

In fact, it is true that it has been precisely the internet big who have woven complex fiscal frameworks in countries with low taxation, at the expense of the fiscal coffers of the countries where they truly develop their commercial activity and/or retail sales…cough…Apple. We already argued at the time that the legality of these novel ways of transferring taxes does not make them far from ethically acceptable activities, and even less within the regulatory framework of the affected countries.

Europe has finally realized this, and has set to work. But apart from being late, when these companies have already benefited greatly from the fiscal asymmetries of the European Union for years, the truth is that everything seems to indicate that the future tax does not address the root problem.

With this new tax, in Brussels they will be able to hit a fiscal dart somewhere in the bull’s-eye that gives them some points in the form of Euros, but they will not achieve the objective that should be the primary one: the efficient design of taxes  for a future that is coming or rather, one that is already here.

Asymmetric taxation as the main concern in Europe

The truth is that the announcement of this new taxation does nothing but try to put an end to a string of millions of dollars in fines to US tech companies, because they put pressure on the European tax system, by taking profits from here and putting them there. Among these fines is that imposed on Apple and that amounted to 13,000 million Euros, or the recently imposed one on Amazon worth 250 million.

Coming from Denmark, the arrival of the courageous and determined Margrethe Vestager as European Competition Commissioner has marked a before and after in the conception of Europe as a single market. With politicians like her, that spirit of the strong and united Europe, with which the European Union was conceived in its beginnings is reborn, and that has brought the longest period of prosperity and peace that Europe has seen in many centuries – Brexit not withstanding.

However, the truth is that the European institutions should redesign from top to bottom a common tax system. The problem is not simply that this or that company stops paying millions by moving money around. The problem has much more depth, and is a major challenge that can not be avoided.

The fact is that we have avoided entering into the eternal debate of whether high taxes or low taxes would be better for the economy. We have limited ourselves to affirming that the current tax model is not valid for the Data Economy, and that there must be some tax for the sake of consistency with companies from other sectors that pay a lot of taxes.

Everything that is behind a new sector that is barely regulated

Obviously, our socioeconomies have changed radically in recent decades, and we still have yet to see more profoundly disruptive changes with this speed of exponential progress. Indeed, if the economy changes, it must also change the way of taxation in order to adapt to new forms of economic activity, and to maintain a sustainable socioeconomic system. 

What you have to attack is that you have to regulate the Data Economy as a whole, for the FANG  as well as for all the other companies and startups. It makes no sense to tax only large technology companies. Each company, both small and large, must pay its fair share.

As many have stated before, data is the new raw material of the 21st century. The FANG are just the tip of the iceberg.

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