The coronavirus is not an excuse for tech giants to cash in on taxpayer generosity

Throughout the coronavirus crisis, technology companies have played an important role in efforts to combat the disease. Google has been using its data to monitor movements amongst the population and test the effectiveness of lockdown measures. Amazon has partnered with the government to deliver Covid-19 testing kits.

But will all of this work come at a price?

In the UK, TechUK, the industry group that represents Facebook and Google as well as many others has asked for the government to delay the start of the Digital Services Tax. The Times reports today that the argument being deployed by TechUK is that recent changes to the tax have widened the scope of the tax, causing an unexpected compliance burden that companies can not meet during the crisis. Tax experts consulted by the paper, as well as our own research, have found no such changes to the UK legislation.

The Digital Services Tax is a new tax that has been imposed on the revenues of social media companies, search engines and online market places – Facebook, Google, and Amazon. The tax, which came into effect just a few days ago, places a 2% charge on revenues generated by these companies from UK customers. Although it is a new tax, it is in effect an anti-avoidance measure designed to counter some of the aggressive tax avoidance schemes used by these companies. It only applies to companies with global revenues of more than £750m, meaning that only the very largest companies are caught by it. There is a generous £25m tax free allowance built into the scheme.

The UK is not the only country to implement such a tax. According to the US Tax Foundation, 14 countries in Europe have either implemented or proposed a Digital Services Tax at rates ranging from 2%-7.5%.

The proliferation of Digital Services Taxes is a direct result of the failure of the OECD to agree on a comprehensive solution to the problem of tax avoidance by large multinational tech companies. A failure that has resulted in governments losing billions of pounds a year in tax revenues. In the UK we estimate that just five companies manage to avoid taxes of £1bn a year by shifting profits offshore.

Looked at in this context, the UK’s Digital Services Tax is a relatively modest measure, with the government estimating that it will collect around £400m a year from around 30 companies. Staggeringly, this estimate includes a 30% allowance for companies putting in place measures to avoid paying the tax. These figures are speculative, and the Office for Budget Responsibility say they come with a high degree of uncertainty.

At TaxWatch, using information published by the Treasury setting out how the tax operates, combined with our research estimating the revenues that large tech companies derive from UK customers, we estimate that a delay to the Digital Services Tax would benefit Google to the tune of £187m and Facebook £39m.

If implementation was delayed it would offset a significant chunk of the total amount companies are giving to governments to fight the coronavirus. The bill for Google is almost as much as the total amount of free ad credits Google has offered to the World Health Organisation and over 100 government agencies around the world ($250m (£203m)) as part of their response to the Coronavirus. A survey of what some tech companies have offered as part of the effort to fight coronavirus is set out here – https://www.taxwatchuk.org/tech_company_covid_donations/ 

Unfortunately, TechUK’s lobbying efforts appear not to be just the actions of one overzealous industry group in the UK. There appears to be a concerted effort by tech companies to use the coronavirus as an excuse to loosen regulations in a number of countries.

Reuters recently reported that in India, industry lobbyists representing the same companies are co-ordinating a similar campaign to defer the Indian version of the digital services tax.

Back in the United States, the New York Times reports how a number of tech companies have used the coronavirus to lobby against a range of government policies from labour laws to privacy protections.

Lobbyists may have thought the coronavirus outbreak an opportunity to realise long standing campaign aims, but they may have underestimated the reputational damage their clients could suffer if they are seen to be exploiting the crisis. The Times of London today ran a lead article heavily critical of the move from TechUK.

Government support mechanisms are supposed to be in place to help businesses in distress. Given that large tech companies are set to do relatively well out of the crisis, perhaps now is not the time for them to be looking for a hand-out. It is certainly not the time for governments to get rid of policies designed to combat tax avoidance by the tech industry.

We asked TechUK for a comment, they did not respond.