Tech Reality Check? Europe Wants Big Tax Increases, US Politicians Propose Breaking Cos Up

Taxes based on revenues are harder to evade or obfuscate. And Senator Warren's calls for breaking up Facebook, Google, Amazon and Apple have so far been met not with outrage - but with general agreement.

What may be most important are not the specific proposals or their details, but that while the big tech companies have - so far - been artful in avoiding the worst of the threats pointed their way, the combination of calls for significant tax increases and dismantling the biggest tech companies suggest that a consensus may be forming around the need for globally coordinated regulatory remedies. JL 

Hamza Shaban reports in the Washington Post, Ben Brody and Molly Schuetz report in Bloomberg:

France moved to impose a 3% tax on Google, Apple, Facebook and other tech giants to advance an international clamp down on corporate tax avoidance. Major tech companies pay, on average, 14% less tax than European companies. The cost to individual American tech companies could be significant, especially if the European Union establishes its own bloc-wide tax on tech firms. (In the US) presidential candidate Warren is proposing to break up the largest technology companies. Even some Republican lawmakers, who generally oppose government regulation of the economy, have flirted with antitrust for tech.

Washington Post France moved to impose a 3 percent tax on Google, Apple, Facebook and other tech giants in a bid to advance an international agreement to clamp down on corporate tax avoidance.

The proposed levy would affect Web companies that bring in more than €750 million ($848 million) in global revenue and €25 million ($28 million) in French receipts, and it would be applied only on domestic sales.

More than two dozen companies meet that threshold, Finance Minister Bruno Le Maire said during a news conference in Paris, according to the Associated Press. Most are U.S.-based, though some large European and Chinese firms also would be compelled to pay.

The tax will raise an estimated €500 million euros ($566 million) a year, Le Maire said.

The French proposal, like others from European nations, comes amid broader efforts to modernize the international tax system. The Organization for Economic Cooperation and Development is developing a plan to close global tax loopholes that allow billions of dollars to escape government coffers. Critics say that tech giants generate enormous wealth, but are not appropriately taxed where they do business.

These giants have created much value and they have created many jobs, and I will never denounce their success,” Le Maire said, according to Bloomberg. “But we must fight against the distortions that these giants have created, especially on tax optimizations and on the dominant positions many have created. We must create taxation for the 21st century.”

Le Maire cited EU figures that show major tech companies pay, on average, 14 percent less tax than other European companies, according to the AP report. He said the tax would exclude transactions that involve the direct sale of products online but would mostly target firms that use data to sell digital advertising.

The French parliament is expected to pass the tax proposal later this year.

The cost to individual American tech companies could be significant, especially if other nations follow suit or the European Union establishes its own bloc-wide tax on tech firms. Facebook, for instance, does not break down revenue by country, but it took in nearly $14 billion in Europe last year. According to the company’s earnings reports, Facebook paid an effective tax rate of 12.75 percent, on average, in 2018.

Facebook said in a statement that it pays all taxes required by law wherever it operates. “We hope that the OECD will finish its work and create a clear, sustainable global agreement on tax,” the company said.

Google said it pays the vast majority of its corporate income tax in the U.S., noting in a statement Wednesday that it has paid a global effective tax rate of 23 percent for the past 10 years. “We always pay all of the taxes due and comply with the tax laws in every country we operate in around the world,” Google said.

Apple and Amazon did not immediately respond to requests for comment.

Bloomberg

Democratic presidential candidate Elizabeth Warren is proposing to break up the largest technology companies, including Amazon.com Inc., Alphabet Inc.’s Google and Facebook Inc., calling them anti-competitive behemoths that are crowding out competition.

The Massachusetts senator is calling for legislation that would designate the companies as “platform utilities” and the appointment of regulators who would unwind technology mergers that undermine competition and harm innovation and small businesses.

“Twenty-five years ago, Facebook, Google, and Amazon didn’t exist,” Warren wrote in a post on Medium Friday. “Now they are among the most valuable and well-known companies in the world. It’s a great story -- but also one that highlights why the government must break up monopolies and promote competitive markets.”

Facebook declined to comment. Representatives of Google and Amazon didn’t immediately respond to a request for comment. Amazon was down about 1 percent at 11:56 a.m. in New York. Facebook and Google were little changed. The stocks were already lower after disappointing payrolls data.

Warren proposes that some mergers by the biggest tech companies be unwound, including Amazon’s purchase of Whole Foods and Zappos; Facebook’s acquisition of WhatsApp and Instagram, and Google’s deals for Waze, Nest and DoubleClick.

Under her proposal, so-called designated platform utilities with more than $25 billion in global revenue would be prohibited from owning any of the participants on their own platform. That means that Amazon Marketplace and AmazonBasics would be split apart, as would Google’s ad exchange and its businesses on the exchange. Google Search would have to be spun off as well.

“Today’s big tech companies have too much power -- too much power over our economy, our society, and our democracy,” Warren wrote. “They’ve bulldozed competition, used our private information for profit, and tilted the playing field against everyone else. And in the process, they have hurt small businesses and stifled innovation.”

Heightened Scrutiny

Years of privacy lapses and revelations that the Russian government used social media in its attempts to sway the 2016 presidential election have led for calls for intensified scrutiny and greater regulation of the companies in Washington. In addition to the movement for more antitrust enforcement, Congress is moving ahead with privacy legislation that could impact vast swaths of the data economy.

At the end of February, the Federal Trade Commission announced it was creating a task force

led by senior competition officials to investigate potentially anticompetitive conduct by technology companies. The agency said it would consider all options, including scrutiny of completed mergers, raising the prospect that it could unwind deals such as Facebook’s acquisition of Instagram.

Hipster Antitrust

Beyond regulation, sentiment for antitrust enforcement and actually breaking up existing companies gathered steam under a movement that some derisively called Hipster Antitrust. But breaking up companies goes against decades of antitrust policies and would face multiple challenges.

Matt Stoller, a fellow at the Open Markets Institute, which pushes for increased antitrust enforcement and stricter rules, tweeted that Warren’s proposal is “smart and practical” and “a big deal.” As companies consolidate across industries, policy activists such as Stoller are seeking to challenge the traditional focus on business efficiency and consumer benefits.

These developments mark a dramatic change from the years when big internet companies such as Google and Facebook wowed lawmakers, impressing Republicans as American business success stories and pleasing Democrats with their socially progressive ethos.

Even some Republican lawmakers, who generally oppose government regulation of the economy, have flirted with antitrust for tech. They cite concerns over both privacy and unsupported allegations of systematic silencing of conservative voices on social media, although those are separate policy issues from antitrust.

‘Creepy’ Revelations

“Is it really any wonder that there is increased pressure for antitrust enforcement activity, for privacy activity when these companies behave in the way that they do, when they spy on their consumers,” Republican Senator Josh Hawley of Missouri said at a March 5 hearing. “Every day brings some creepy new revelation about these companies’ behaviors.”

In September, then-Attorney General Jeff Sessions convened a meeting of state attorneys general to discuss a cooperative approach to investigations into the industry, although many of those present said they preferred to focus on privacy probes that have also spread to several states.

Warren contends that the U.S. antitrust case against Microsoft Corp., which began in the 1990s, opened a pathway that allowed Google to emerge. Now she says there’s a conflict between the search giant’s roles selling and buying online ads and notes that Amazon may abuse its ability to compete with the third-party vendors that sell through its site. She also held up antitrust as a way to tackle privacy, reasoning that companies would be better stewards of data if they faced more competition.

‘Weak Enforcement’

Warren said “weak antitrust enforcement” has resulted in a reduction of competition and innovation in the tech sector. She also said there is lax venture capitalist investment in new startups to compete with big tech companies “because it’s so easy for the big companies to either snap up growing competitors or drive them out of business.”

Warren is scheduled to hold a campaign event Friday in Long Island City, New York, which was the proposed site of Amazon’s second headquarters before local opposition scuttled the plan.

Carl Szabo, vice president of the free-market tech trade group NetChoice, said in a statement that the “proposal would increase prices for consumers, make search and maps less useful, and raise costs to small businesses that advertise online.” Szabo, whose group counts Google and Facebook as members, said that consumers have never “had more access to goods, services, and opportunities online.”

Warren’s economic populism, which includes attacks on corporations and wealthy Americans who she says are rigging the system for self-interest, is at the heart of her campaign amid a crowded field of contenders for the Democratic presidential nomination in 2020.

2020 Challengers

She has sought to set herself apart from the dozen or more Democrats vying to challenge President Donald Trump in next year’s presidential election with a flurry of policy proposals at an early stage of the campaign. She’s also competing directly with Vermont Senator Bernie Sanders for the votes of the party’s progressive wing, a key constituency in the months-long series of caucuses and primaries leading to the nomination.

She has sought to set herself apart from the dozen or more Democrats vying to challenge President Donald Trump in next year’s presidential election with a flurry of policy proposals at an early stage of the campaign. She’s also competing directly with Vermont Senator Bernie Sanders for the votes of the party’s progressive wing, a key constituency in the months-long series of caucuses and primaries leading to the nomination.

Warren’s proposal to break up technology companies also moves into territory staked out by another one of her colleagues and competitors in the 2020 nomination race. Senator Amy Klobuchar of Minnesota is the top Democrat on the Judiciary Committee’s antitrust subcommittee. She has released proposals to increase the government’s ability to scrutinize settlements and take into account wages and the prices paid to suppliers in merger reviews. Earlier in March, she told The Washington Post that the U.S. has a “major monopoly problem” in the technology and pharmaceutical industries.