Silicon Valley has launched a last-ditch attempt to derail plans devised by G20 countries to close down international loopholes that are exploited by the likes of Google Inc, Amazon.com Inc and Apple Inc to pay less tax in the UK and elsewhere.
The Digital Economy Group (DEG), a lobbying group dominated by the leading US digital firms, has written to the Organisation for Economic Co-operation and Development (OECD), the Paris-based think tank 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 Public Accounts Committee Chairperson Margaret Hodge after it emerged that Google had been allowed to pay ￡3.4 million (US$5.58 million) in tax to Her Majesty’s Revenue and Customs in 2012 despite UK revenues of ￡3.2 billion.
Above all the DEG letter says 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,” it said.
Sol Picciotto, law professor at Lancaster University, said the DEG’s stance was hard to sustain.
“I don’t think you could fairly say that they don’t organize their business differently [to secure tax advantages] ... I don’t think it’s true... It’s rubbish,” he said.
The DEG paper and other submissions to the OECD have been published in advance of a progress update from the think tank 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.
The DEG letter was signed by three top US tax lawyers at Baker & McKenzie acting on the group’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 hghi-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.”