Silicon Valley has launched a last-ditch attempt to derail plans devised by the G20 group of countries to close down international loopholes that are exploited by the likes of Google, Amazon and Apple to pay less tax in the UK and elsewhere.
The Digital Economy Group, a lobbying group dominated by the leading US digital firms, has written to the OECD, the Paris-based thinktank tasked by G20 leaders with drawing up reforms, saying it is not true that communications advances have allowed multinational groups to game national tax systems.
Suggesting that any leakage of tax revenues flowing from the complex corporate structures of digital groups is merely coincidental, the Digital Economy Group says: “Enterprises that employ digital communications models do not organize their business operations differently as a legal or tax matter.”
Their denial of tax engineering follows a string of tax scandals in Europe and the US in the past two years. In the UK, Google bore the brunt of criticism from Margaret Hodge, who chairs the public accounts committee, after it emerged that Google – which the Guardian understands is a member of the DEG – had been allowed to pay £3.4 million in tax to HMRC in 2012 despite UK revenues of £3.2 billion.
Above all the DEG letter insists international tax rules should not be altered specifically to target digital companies, a move it says would be penalizing their operational innovation. “We believe that [digital] enterprises operating long-standing business models, subject to established international tax rules, should not become subject to altered rules on the basis that they have adopted more efficient means of operation.”
Sol Picciotto, a Lancaster University law professor, said the DEG’s stance was hard to sustain. “I don’t think you could fairly say that they don’t organise their business differently [to secure tax advantages] … I don’t think it’s true … It’s rubbish.”
The DEG paper and other submissions to the OECD have been published in advance of a progress update from the thinktank on Thursday. The update comes amid concern the political will for tackling tax avoidance by online and hi-tech groups is fading. Reform had been a hot topic at the World Economic Forum in Davos this time last year but, as business and political leaders reconvene this week, it is not expected to feature prominently.
Twelve months ago, David Cameron was among the most outspoken critics of multinational tax avoidance. “Some forms of avoidance have become so aggressive that I think it is right to say these are ethical issues and it is time to call for more responsibility and for governments to act accordingly,” he told an audience at Davos last January. “This is an issue whose time has come … [Multinational companies should] wake up and smell the coffee.”
He is not expected to return to the topic this week. One source close to No 10 said Cameron believed Britain’s presidency of the G8 last year had scored successes elsewhere on tax policy – specifically in the battle against individuals using offshore havens for evasion – so there was no need to return to the subject of corporate tax, which is handled by the G20.
The DEG’s hostility to the G20 reform agenda is in contrast to the more conciliatory tone previously adopted by Google. Last year executive chairman Eric Schmidt insisted he “understands why Google is at the center of [the] debate” following criticisms of the search group’s controversial tax structuring in the UK. Writing in the Observer he conceded “international tax law could almost certainly benefit from reform”. He said he hoped that politicians “seize the initiative and make meaningful tax reform”.The DEG submission was signed by three top US tax lawyers at Baker & McKenzie acting on DEG’s behalf, one of whom had been poached in 2011 from the OECD, where she had been played a senior role in tax policies affecting global online and hi-tech groups. The letter describes the DEG as “an informal coalition of leading US and non-US software, information/content, social networking, and e-commerce companies”.
Baker & McKenzie did not respond to a request for further information on DEG membership. When asked if they were members of the lobby group, Amazon and Apple were either unavailable or declined to comment. One source with knowledge of the DEG said: “It is largely if not exclusively made up of tech companies, mainly from Silicon Valley … Most of the big guys are there.”
The G20 tax reform project was announced last summer, billed as the “once in a century” opportunity to overhaul the global tax system. While the work has the backing of all G20 nations, it has been most enthusiastically championed by France, with strong backing from Britain and Germany. America’s support has been conspicuously lukewarm.
France has been pushing hard for tax reforms specifically targeted at digital groups. It has argued that new technologies have opened up a host of possible corporate structures previously unimaginable.
In the UK many leading retail groups have called for reform, highlighting what they see as unfair tax advantages afforded to multinationals such as Amazon by outdated tax treaties. Some of Britain’s largest high street chains — including Sainsbury’s, John Lewis, Dixons and Mothercare — have all called for a crackdown on Amazon’s tax arrangements.