Silicon Valley is losing its war against paying tax on big-tech revenues

Google CEO Sundar Pichai, left, and Facebook CEO Mark Zuckerberg.

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Google CEO Sundar Pichai, left, and Facebook CEO Mark Zuckerberg.
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Getty/Business Insider composite

  • Silicon Valley’s war on paying a new type of tax on their revenue, and not just their profits, just took a losing turn.
  • The Organization for Economic Cooperation and Development, which sets international tax standards, on Wednesday outlined a huge overhaul of tax rules that would hit tech giants including Google, Facebook, and Amazon with much bigger tax bills.
  • These major tech firms have until now reduced their tax burdens by booking sales and profits through low-tax countries like Ireland.
  • Countries such as France have been pushing for stricter rules that would force the tech giants to pay more tax.
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Silicon Valley’s war against paying tax on revenue as well as profits isn’t going well.

The Organization for Economic Cooperation and Development, which sets international tax standards, has proposed an overhaul of cross-border tax rules that would give governments more power to tax major multinationals doing business in their countries. The OECD published the proposals in a consultation document Wednesday.

The rise of big internet companies like Google and Facebook has pushed existing tax rules to the limit as such firms can legally book profit and park assets like trademarks and patents in low-tax countries like Ireland regardless of where their customers are.

Earlier this year more than 130 countries and territories agreed that a rewriting of tax rules largely going back to the 1920s was overdue and tasked the Paris-based OECD public-policy forum to come up with proposals.

The issue of taxing big cross-border multinational firms has become all the more urgent as a growing number of countries have adopted plans for their own taxes on digital companies in the absence of a global deal.

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“The current system is under stress and will not survive if we don’t remove the tensions,” the OECD’s head of tax policy, Pascal Saint-Amans, told journalists on a conference call.

Some OECD countries have been pushing for the tech giants to pay tax in all countries where they have users.

France in particular has been vocal on the subject, passing a digital services tax that levies a 3% tax on French sales for a select group of 30 companies including Facebook, Google, and Amazon. US President Donald Trump was incensed by the tax, ordering an investigation into whether it unfairly targeted US companies.

The UK proposed a similar 2% tax in October 2018, which could come into force in 2020, and now-Prime Minister Boris Johnson expressed support for the idea at the time. “It’s deeply unfair that high-street businesses are paying tax through the nose … whereas the internet giants, the FAANGs – Facebook, Amazon, Netflix, and Google – are paying virtually nothing,” Johnson said.