Global digital taxation is not necessarily something you’ve probably thought a lot about, but now that France’s Champagne and cheese are at stake, it’s time to discuss.
Earlier this year, French lawmakers passed a 3% digital services tax on revenues of large tech firms like Google, Apple, Facebook and Amazon. The Trump administration argues that the tax unfairly targets U.S. companies, and now the United States is threatening steep tariffs on popular French products, like Champagne and cheese, in retaliation.
The United Kingdom and other countries have considered a similar digital tax. And they have a point — Big Tech companies generate a lot of revenue from users in France, the U.K. and beyond, and it’s all going home to the United States.
That gets to a bigger conversation about the global nature of the digital economy. I had that chat in “Quality Assurance,” the Friday segment where I take a closer look at a big tech story. I spoke with Mark Scott, Politico’s chief technology correspondent, based in the U.K. The following is an edited transcript of our conversation.
Mark Scott: I think people look at the idea that this is a tax dispute and roll their eyes, but it’s not really about tax, it’s about who sets the rules for the digital world. Right now, the French and the Americans are having this beef over [whether] Google, Amazon and Facebook pay more tax in France or in the U.S., but you could extrapolate that over a variety of other topics. It comes down to [this]: Without a global set of digital rules, people [are] just going to take unilateral action and pursue their own sets of rules for their own country, which, frankly, may go against those of other countries.
Molly Wood: What does that start to look like? What does that mean for companies, just in the realm of taxation, that might have to pay a 3% tax in France and a 7.5% tax in Turkey and manage all of these different patchworks of regulation in different countries all over the world?
Scott: It’s very difficult for some of the Silicon Valley companies now to get much sympathy for what’s going on in the last couple years, but it is a legit thing to say that this makes their lives more difficult. Therefore, to be honest, it potentially [makes it more difficult for] the consumers — you and me — because I’m sitting here in Europe and my experience with Amazon may be very different going forward if it pulls back because of its tax situation here in Europe than it does in the U.S. Therefore, what happens to the universal experience that people have online if things start going wrong or go in different routes, say in France versus the U.S.? That for me raises some legitimate questions about: Is the internet broken? How do we fix it? What are the rules? More importantly, who has the right to set the rules?
Wood: I feel like that’s a fundamental question, because, yes, it makes a lot of sense to say we need a global standard of some sort, whether it’s for behavior or taxation — we’ve talked about the [Organization for Economic Cooperation and Development] — but is there anybody who is capable of fixing this problem?
Scott: Short answer is no. The OECD and what they’re doing around the digital tax stuff is the closest we can get. In the end, that is just about 30 or so mostly wealthy countries getting together and agreeing to a voluntary standard. That doesn’t really mean that you have the same rules like it took 60 years to get the [United Nations] maritime rules in place. We don’t have 60 years for the digital world, because if we wait to midway through this century, it’s going to look very different than it did even a couple years ago. Right now no one has the authority to do this, which is why we are seeing the Austrians, the Turks, the French all pushing forward their own plans, because in the absence of a global consensus of what to do, people are thinking, “Well, we have to do something.” There’s a lot of domestic pressure to “do something.” So instead of waiting, and frankly, maybe years, for this to happen, people and government are just moving ahead on their own.
Wood: Do you think it’s possible that the internet is the thing that gets us the Star Trek global government — the Federation? Because it’s true that there really, arguably, is no such thing as a U.S. tech company if it is a company whose services are used by some very large portion of humanity.
Scott: You’re not staying for my CliffsNotes? That, for me, is the biggest thing about the U.S. tech companies, they’re not U.S. tech companies, that they have more users outside of the U.S. right now. Therefore, Mark Zuckerberg and whoever is now going to take over Alphabet — I think Sundar [Pichai] has taken over — has to deal with the fact that they are no longer U.S. companies. You have to deal with this very difficult and diverse set of rules [that have] come together outside of the U.S. Right now the U.S. companies aren’t doing a good job dealing with that.
Wood: How so? What do you mean when you say the U.S. companies aren’t aren’t doing a good job? In terms of kind of marketing?
Scott: The marketing is there, but they again, not to pick on Facebook, they seem to be the pinata of the moment. But Mark Zuckerberg has made several trips to D.C. to talk to U.S. lawmakers about some of the issues that Facebook has faced. He’s made one trip overseas publicly at least to talk to some of the Europeans, and that’s it. Twitter, Google, even Amazon are the same way. There is still a view that we are U.S. companies — we pay tax in the U.S., we must comply with the U.S. law, which they all do. But there are a variety and diverse set of international rules being set right now. As much as they do send the lobbyists and public policy people to talk to international lawmakers, they don’t send their CEOs, and that sends a message to everyone else in the world that as much as the Mark Zuckerbergs of this world do want to do the right thing — and I legitimately do think they want to do the right thing — they’re not putting their money where their mouth is.
Wood: Got it. So if you’re going to be a global company, you also have to be a global CEO?
Scott: Yeah, the banks have realized this. That would be, for me, the most arguably the most similar global industry compared to tech. When it comes to access to markets, the regulation that differs between borders and all the banking CEOs, both those who are based in the U.S. and those in Europe, they spend all their time talking to international lawmakers because that’s where their customers are. I think the value right now is going through this very difficult stage where, as much as they realize this is going to happen — and some of them are doing it better than others — that hasn’t really trickled down to action yet. I think what we’ve seen, particularly the French situation coming at the digital taxes, some of the CEOs have gone to France. They’ve set up domestic French R&D operations, frankly, to woo [Emmanuel] Macron and some of the French lawmakers because they’ve realized that if they don’t play ball domestically in, say, France or somewhere else, they’re not going to have a seat at the table. It was just, frankly, too late this time around with the French tax. When it comes to the next round of whatever proposals Paris and whoever else would like to do, I would suggest that maybe the U.S. firms might have a greater say what happens.
Wood: It’s funny, because we talk a lot about how these companies’ products transcend borders. But the way that you’re describing the fact that a CEO of Facebook or Google or Twitter needs to do this diplomatic work, it really makes them sound like their own kind of heads of state.
Scott: They are, if you look at them purely as economic entities and the level of [gross domestic product] that would equate to as a country. A Google and Amazon or Facebook are relatively sovereign, and that raises legitimate democratic questions about their role in society. But when it comes to the level of engagement that they need to do, both with politicians worldwide, but more importantly, people on the ground, people like you and me, that needs to happen. Because they are so pervasive, rightly or wrongly, in everyone’s lives right now. The idea that people see the [Silicon] Valley as this city upon the hill, and frankly, even a gated community, that does no one any good, either those based in the [Silicon] Valley or anywhere else, because the continuing disconnect between both sides isn’t helpful just to figure out some of these questions that we’re discussing.
Related links: More insight from Molly Wood
Italy has also passed a digital tax set to start at the beginning of January. Turkey, Austria, Spain and Belgium are also considering levies. Like Mark Scott said, it currently isn’t exactly anyone’s job to figure out a global taxation standard for tech companies.
The European version of such a body is the Organization for Economic Cooperation and Development — it’s like an economic and social forum that helps set standards for about 36 member countries. Back in October, the OECD unveiled a big global tax proposal for multinational businesses that make more than $830 million a year. It would include not only tech companies, but also luxury goods and carmakers, although it would exclude oil, gas and mining, and potentially financial services firms. More work to be done, I guess.
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