It’s the Data, Stupid: How to Tax Tech Companies

​Tax is never far from corporate decision-making.
Paul Lewis
Nov 13, 2017

As well as helping to determine everything from HR remuneration policy to decisions on corporate locations, it has now become a huge public affairs and social responsibility issue, especially for US tech giants. While many of the arguments around who should benefit most from tax reform are currently being voiced in the US Congress, ‘it’s all a distraction from the debate we should be having,’ writes FT’s global business columnist Rana Foroohar, ‘which is how to come up with a fair, growth-enhancing method of taxation for an age in which most wealth is going to reside in intellectual property that can be located anywhere.’

Ms Foroohar notes that half of all US overseas profits come from tax havens. Many people, understandably, view this is an example of companies not paying their fair share, and is giving rise to anti-democratic forces. Unfortunately, there are no easy answers when the ‘vast majority of wealth is being captured by companies that have no need of a major physical presence in their various markets, or even a fixed national headquarters.’ Some tax experts propose lowering rates to encourage US firms to repatriate their cash hoards. But this approach would also require legislators to close loopholes, which many would deem politically unfeasible, and could trigger an international tax race to the bottom, which would once again send companies off in search of more lucrative tax locations.

It’s not just a question of where value is created, but also what value is being created. ‘In the age of digital commerce, data really is the new oil: consumption of online goods and services is what generates the user data that companies can then monetise.’ It’s the data not the algorithm that creates the value—and the ordinary tax payer now wants to know how these large tech companies are using their data and why this isn’t being taxed fairly.

Paul Lewis

Editorial Director at Headspring