Europe: Bring the digital world down to earth

JON VAN HOUSEN and MARIELLA RADAELLI

It is certainly a battle of titans. The European Union, the world’s largest trading bloc, continues to question, oppose and fine business practices by global tech companies that are so dominant several could be called monopolies.

The latest skirmish line is with Amazon, the US-based e-commerce juggernaut. Last week the foreign ministers of France, Germany, Italy and Spain put forward a plan to raise the tax on Amazon. On Friday, France said nearly a third of EU states back a plan to tax digital multinationals that was discussed during a meeting of euro zone and EU finance ministers in Tallinn, the Estonian capital.
EU taxes online giants
EU antitrust chief Margrethe Vestager has led investigations that fined Google 2.42 billion euros and demanded Apple pay $14.5 billion in back taxes.

On a continent where retail sales and services are subject to VAT taxes ranging from 20 to 25 percent, EU lawmaker Paul Tang estimates that Google paid at most 0.8 percent on its EU revenues between 2013 and 2015. He says lost taxes from Facebook and Google totaled 5.1 billion euros over the three years.

“Challenges presented by the digital economy are not addressed in the current tax system,” says Tang. “It is time for a modern system so tech giants like Google, Apple, Facebook and Amazon pay their fair share.”

Facebook, which like Google is based in Ireland where it enjoys a low tax rate, reportedly paid as little as 0.1 percent in the same period, while Luxembourg-based Amazon paid almost nothing as it reported nearly no profits.

As a result EU finance ministers want an “equalization tax” based on revenues rather than profits.

European operations for Apple, Facebook and Google are headquartered in low-tax Ireland, which fiercely resists pressure for higher rates because the policy has created a boom in well-paid tech jobs.

The EU ministers meeting in Tallinn came just as Google appealed a record 2.42 billion euro fine levied by the European Commission in June. In its decision, the commission said Google “abused its market dominance as a search engine by giving an illegal advantage to another Google product, its comparison shopping service”.

The EU began its investigation of Google all the way back in 2010 after British price comparison site Foundem, French legal search engine eJustice.fr and Microsoft-owned Ciao from Bing complained that Google's practices put competitors at a disadvantage.

The commission analyzed the results of 1.7 billion real Google search queries and concluded that, on average, the company placed results from competing online shopping services only on the fourth page of its results.

Also in play is the impact on tax-paying brick-and-mortar businesses that create jobs for a range of skills, not only for just the tech savvy.

“We must oblige Internet giants to pay taxes in each country — it is not just a matter of justice and a way to protect competing companies, but also to lower the tax burden on citizens," says Italian politician Francesco Boccia, chairman of the budget committee in the lower house.

“Everything is now a digital economy. The value chain of production has been revolutionized by the Web,” says Boccia. “Take Airbnb for example: With only 3,000 employees it already has a value of 30 billion compared to Marriott Hotels, which has 4,000 traditional hotels, hundreds of thousands of employees and a worth of 16 to 18 billion,” says Moccia. “Politics must impose rules, otherwise we already know who wins and who loses. It is a disadvantage to companies and employees, to citizens, that pay taxes competing against those who do not.”

The EU has already cracked down on US-based technology companies. France fined Facebook 150,000 euros for privacy violations, and several other EU countries are investigating the company's privacy practices. Last year the EU ordered Apple to pay 13 billion euros plus interest in back taxes, saying that Ireland had given the company preferential tax treatment. The “right to be forgotten” EU regulation now requires Google and other companies to purge inaccurate or outdated personal information from their search results. Sites in Europe have long carried EU-mandated warnings to consumers that cookies are used to track online habits.

U.S. Federal Trade Commission staffers actually recommended a lawsuit against Google over unfair business practices back in 2012, according to documents acquired by The Wall Street Journal in 2015. It decided not to pursue a lawsuit after Google made a few changes.

But in the country that gave rise to the internet revolution, EU sanctions are often seen as harassment and themselves unfair.

While in office President Barack Obama called the EU’s actions protectionism. “(Americans) have owned the internet. Our companies have created it, expanded it, perfected it,” Obama said in an interview with Recode in 2015. “And oftentimes what is portrayed as high-minded positions on issues sometimes is just designed to carve out some commercial interests.”

As the digital revolution changes our lives, business gurus have coined a term for what is desirable: In a world of startups populated by so-called investment angels and unicorns, the value of “disruptive innovation” is supreme.

But many in Europe and across the globe need non-tech jobs, not another app. Indeed it is time to bring the digital world down to earth.

A version of this story appeared in the Khaleej Times of Dubai.