The big tech companies’ local representatives must demonstrate, with more than just words and philanthropic gestures, that they are committed to their communities, wherever they may be.
ANALYSIS: “Don’t be evil.” Remember when that was Google’s slogan?
The public image of tech giants like Facebook, Apple, Amazon and Google has moved a long way from their idealistic beginnings. Now, around the world, they are constantly explaining themselves and excusing themselves (and very occasionally apologising) for their roles in promulgating false information, enabling malign interests to influence elections, sharing hatred and terror, and dodging tax.
The chair of the UK Public Accounts Committee previously accused Google of being “calculated and unethical” over its use of contrived distinctions to avoid paying billions of pounds in corporation tax owed by its UK operations. “I think that you do evil,” she told the company’s UK boss.
That was then. But this week, after the G7 nations agreed a landmark deal to pursue higher global taxation on multinational businesses, the big players have been anxious to portray themselves as good global, corporate citizens.
Nick Clegg, Facebook’s vice-president for global affairs and a former British deputy prime minister, says: “We want the international tax reform process to succeed and recognise this could mean Facebook paying more tax, and in different places.”
And a spokesperson for Google’s parent company, Alphabet, says: “We strongly support the work being done to update international tax rules. We hope countries continue to work together to ensure a balanced and durable agreement will be finalised soon.”
They were putting on brave faces as the Group of Seven large advanced economies agreed to back a minimum global corporate tax rate of at least 15 percent and also require companies to pay more tax in the countries where they make sales – a move that analysts say could raise hundreds of billions of dollars to help governments cope with the aftermath of Covid-19.
Most of the same countries had tried to reach a consensus on the two pillars of tax reform last year, in the 37-member OECD, but that was not possible – in large part because former US president Donald Trump opposed the minimum tax rates. But the Biden administration has taken a different approach, leading to the G7 deal.
British finance minister Rishi Sunak, who chaired the two-day meeting in London, described it as “a historic agreement to reform the global tax system to make it fit for the global digital age”.
Facebook doesn’t disclose its earnings in New Zealand, but the G7 agreement does coincide with Google NZ filing its annual accounts with this country’s Companies Office.
“In the 2020 calendar year Google New Zealand made a pre-tax profit of NZ$10.19 million resulting in a current income tax expense of NZ$3.3 million,” a Google NZ spokesperson says. “We have continued to work constructively and collaboratively to ensure that we comply with New Zealand’s legislative requirements.”
The $3.3m Google NZ will pay in tax is on par with the previous year. The company says it will pay US$7.81b in corporate income tax worldwide, most of that in the US where it also performs the majority of its US$27.6b in research and development.
What the spokesperson did not highlight in her statement was the $517m that Google NZ has paid its US parent company in service fees – an expense that it books against its gross New Zealand earnings in order to report a laughably small taxable revenue in this country.
Google’s parent company Alphabet made NZ$48 billion in net revenues last reporting year, earning more than Facebook or Amazon to make it the 8th most profitable company in the world. Technology manufacturers Apple and Microsoft were also ranked in the top five companies.
Apple plays a different game, again. It’s basically up to the company to declare where it makes its money. And what it does, naturally, is claim that its profits accrue to subsidiaries in countries with low tax rates on those profits, Ireland in particular.
What this shows is that the international tax system offers huge scope for corporate tax avoidance, writes Paul Krugman in the New York Times today. And when nations try to compete with one another by cutting corporate tax rates — the so-called race to the bottom — they aren’t really fighting about who will get jobs and productivity-enhancing investments. There’s very little evidence that cutting profit taxes actually induces corporations to build factories and expand employment. They’re really just fighting about where profits will be reported and hence taxed. And with tax rates falling and tax avoidance flourishing, the result is that tax revenue keeps dropping.
Here in New Zealand, Revenue Minister David Parker says the Government would prefer to agree a consistent approach in the OECD, but those international negotiations have been moving at a snail’s pace. “Countries like New Zealand are getting a bit impatient and we’re reserving the right to proceed with our own digital services tax if we get sick of waiting,” he said last month.
He was responding to Google NZ country director Caroline Rainsford, who had told Newsroom her company didn’t support New Zealand unilaterally setting its own digital services tax, though it would support a consistent, internationally-agreed taxation regime.
Now, it’s crunch time. All the parties are supporting (or at least paying lip service to) an international agreement like that emerging from the G7 this week.
No doubt, the big tech companies could continue playing their different games to avoid contributing to the economies from which they profit – but they face a crisis of public confidence. Every few months, there’s another international campaign (ironically, hosted on social media) in which more and more increasingly prominent voices quit platforms like Facebook.
They risk losing their social licence to operate.
Buried right down the end of its corporate code of conduct, Google still espouses that old motto: “And remember… don’t be evil, and if you see something that you think isn’t right – speak up!”
That should be a rallying call for country-level employees of Google and the other tech companies dispersed around the world. They must demonstrate – with more than just words and philanthropic gestures – that they are committed to their communities, wherever they may be.
