Big Tech companies like Facebook, Alphabet (Google’s parent company), and Microsoft were recently called out for allegedly shortchanging developing countries of potential revenues estimated at $2.8 billion.
The research conducted by ActionAid International and announced on Monday (October 26) showed that developing countries could raise potential tax revenue from ‘Big Tech’ firms operating in these developing countries.
ActionAid’s research analyzed Facebook, Alphabet, and Microsoft if the tax regime and resulting corporation tax bills better reflected these companies’ economic presence and the potential revenue the countries can generate from various market activity.
The research also scrutinized the three tech giant’s second-quarter of 2020 financial reports which revealed how these Big Tech companies have not been affected by the pandemic and instead flourished and soared during the outbreak.
According to the research, there is little knowledge on how much tax these Big Tech firms are actually paying developing nations as they are not required to publicly disclose this information.
The ActionAid research, however, shows that billions could be at stake in the long overdue reform of international corporate taxation and enough to transform underfunded health and education systems in some of the world’s poorest countries.
“If all governments compelled all companies to publicly report their financials in each country where they have a presence, a clear route to fair taxation would be possible,” Action Aid said.
The total ‘tax gap’ for 20 developing countries mentioned in the research is $2.8 billion which is equivalent to 729,010 nurses, 770,649 midwives or 879,899 primary school teachers that can be hired to help these developing nations.
The potential $2.8 billion ‘tax gap’ calculation is based on the share of the three tech giants’ global profits, relative to their number of users and adjusted for countries’ GDP per capita, which accounts for users’ relative values across the 20 countries studied.
Among the developing countries with highest tax gaps from the three firms are India, Indonesia, Brazil, Nigeria and Bangladesh.
Global Tax Agreement sought for Big Tech revenues
According to the study, to address these so-called tax gaps, the world desperately needs a global tax agreement which ensures companies are taxed according to their real economic presence.
Developing countries offer tech businesses new markets, increased global brand recognition and billions of new users’ data, which translate into continuing revenue growth, the group said.
ActionAid is also calling for a global minimum rate of corporate tax to resolve the issue of multinationals using tax havens to lower their tax bills.
Governments of developing countries urgently need this money to fund public services such as healthcare and social protection for the billions of people affected by the Covid-19 pandemic, the group stressed.
The WHO estimates that the 20 developing countries studied by ActionAid need to employ at least 1,790,000 more nurses by 2030 to achieve their benchmark of 40 nurses per 10,000 people. These shortages of nurses could be fully covered in just three years if global tax rules allowed fair taxing of these three ‘Big Tech’ companies and the revenue was allocated for this purpose.
David Archer, global taxation spokesperson for ActionAid International, said:
“Women and young people are paying the price for an outdated system that has allowed big tech companies, including giants like Facebook, Alphabet and Microsoft, to rack up huge profits during the pandemic, while contributing little or nothing towards public services in countries in the global south.
“The $2.8 billion tax gap is just the tip of the iceberg – this research covers only three tech giants. But alone, the money that Facebook, Alphabet and Microsoft would be paying under fairer tax rules could transform public services for millions of people,” Archer said.
Commenting on the research findings Alex Cobham, CEO, Tax Justice Network, said:
“The Covid-19 pandemic has confirmed the urgent need to reprogram our tax systems. In 2013, the G20 asked the OECD to deliver reforms that would make sure taxable profits were declared where companies’ real economic activity takes place.”
“Eight years later, ActionAid’s research shows there has been no progress – so that even in countries where public services are desperately short of resources, the excess profits made by digital companies during the pandemic, while local businesses are ordered to lock down, are not giving rise to a fair tax contribution,” Cobham said.
The ActionAid study also highlighted that Organisation for Economic Cooperation and Development (OECD) has been unable to deliver a new global tax deal. To address this, they said a new UN-led process could be a solution to ensuring poorer countries have a seat at the table in developing global tax rules that affect their ability to invest in public services.
Action Aid also stressed that given the urgent needs of women and young people impacted by Covid-19, hunger and unemployment, governments should take steps to tax tech companies, in lieu of a global deal being agreed. These taxes should be progressive, targeting the enormous profits of tech giants, ensuring the costs aren’t passed to the users.
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