For years, the U.S. tech giants have played a cat-and-mouse game with the U.S. and Europe over billions of dollars in taxes.
So far, the tech giants have won.
Despite their best efforts, European and American politicians have been unable to close the tax loopholes that allow Google, Facebook, Amazon and other companies to hang on to the vast majority of their earnings. The companies and their tax experts have used a list of evolving strategies with exotic names such as the “Double Irish,” the “Dutch Sandwich” and more recently the “Single Malt” and the “Green Jersey” to significantly cut down their tax liabilities.
“Every time I learn more and learn the strategies, I’m just blown away,” said Alexandra Thornton, the senior director of tax policy for economic policy at the Center for American Progress, a left-leaning think tank in Washington.
“There are such smart tax people that have devoted their careers to helping companies in a quote-unquote legal way.”
But the game is not over. France is preparing a new digital tax that will go into effect on Oct. 1, raising potentially hundreds of millions of euros for the country every year. It’s an approach that has already galvanized U.S. opposition from tech companies, politicians and even tax proponents who worry that a piecemeal approach will make it harder to solve the problem comprehensively.
France’s so-called GAFA tax, a reference to Google, Amazon, Facebook and Apple, charges a 3 percent tax on any company that has a global revenue of more than 750 million euros ($832 million) and at least 25 million euros (about $28 million) of revenue in France.
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The aim of the new policy is to lessen large companies’ long-standing practice of legally and substantially reducing their tax burden by moving billions of dollars of revenue through various subsidiaries and other legal entities often in other tax-friendly countries and jurisdictions.
The tax is enough of a threat to have elicited a response from the U.S. tech industry. On Monday, tech lobbying groups and some companies testified before the Office of the United States Trade Representative that this new tax is unfair. The tax has also caught the attention of President Donald Trump, who in July threatened to tax French wine in retaliation.
Despite the pushback, it is still not clear how effective such a tax plan will be in raising money directly from these massive corporations. Amazon said in a recent filing that it is planning to pass along this 3 percent tax on to its sellers, who may in turn pass it on directly to consumers. The French government has claimed that consumers will not be affected by the new tax.
“Amazon, to the extent they have market power, can push it to someone else,” said Mark Mazur, the director of the nonpartisan Tax Policy Center, who formerly served as the assistant secretary for tax policy at the Treasury Department during the Obama administration.
Europe is not alone in trying to figure out a way to extract more tax dollars out of tech companies.
For more than five years, governments around the world — primarily at the Organisation for Economic Co-operation and Development (OECD), a Paris-based research group representing mostly advanced economies — have been trying to come up with a set of rules that would mitigate the practice of profit shifting.
And the U.S. has also been flummoxed by tech tax strategies. In a 142-page report in 2013, a Senate subcommittee concluded that from 2009 to 2012 Apple used loopholes to shift “$74 billion in worldwide sales income away from the United States to Ireland where Apple has negotiated a tax rate of less than 2 percent.” Much of its so-called offshore income, which is kept in American banks, is used to “minimize its corporate tax liabilities.”
Likely as a result of scrutiny by American and European lawmakers, Apple has subsequently modified its financial strategy to what has been dubbed the “Green Jersey,” as Apple moved its overseas cash stash to be “resident” in the Island of Jersey, a British crown dependency. A 2018 study by the European United Left party found that Apple may have paid as little as 0.7 percent tax in the European Union from 2015-17.
But with little in terms of global success, France has struck out on its own. Brad W. Setser, a fellow at the Council on Foreign Relations, and another former Treasury official during the Obama administration, said the taxes that companies like Apple do pay are “abusively low, and so it invites things like the French tax.”
Indeed, tech giants now fear that if France’s tax is successful, other countries will follow suit and will impose a similar tax.
Google’s top trade lawyer, Nicholas Bramble, wrote in a filing last week that if other countries follow France’s lead, “a series of cascading unilateral measures would have dangerous repercussions for the OECD’s multilateral process and for a wide range of U.S. export sectors.”
Mazur, the former Obama-era tax official, said that a consistent, international approach would be best, but that there’s little chance the Organisation for Economic Co-operation and Development, will be able to come to an agreement anytime soon.
And with companies able to pay top-dollar for tax lawyers, even national governments that can move faster than the OECD face a notable disadvantage, he said.
"What’s likely to happen is that a lot of countries doing things individually, independently, until that ticks off enough countries’ taxpayers and individuals, and they’ll figure out something else,” Mazur said. “The companies will almost certainly move faster than the government.”