The Brutal Capitalism of US Digital Companies
With anti-competitive domination of entire value chains and ruthless tax avoidance, Google, Apple and Co. are skimming off billions in profits from Europe.
The big tech companies from the US are generating ever higher multi-billion profits in Europe. They’ve brought the digital value chains under their control and can easily transfer generated profits out of the EU. The lucrative online advertising market, for example, is almost entirely dominated by Google and Facebook. They’re ruthlessly exploiting the data of European users without EU countries like Germany or France receiving a fair share of the added value.
The US monopolists not only threaten competition through their market power and the boundless collection of our data. They also threaten our prosperity. The business with our data earns them huge profits, but all of them go overseas. Moreover, they don’t even pay taxes in most EU countries.
US Companies Shift Profits to Tax Havens – at the Cost of the EU
Virtually all multinational corporations have been bypassing the tax authorities and shifting hundreds of billions of profits to tax havens for years – albeit mostly legally (by rigorously exploiting tax loopholes). According to a study by scientists of the University of Copenhagen and the UC Berkeley, the aggressive tax avoidance practices of multinationals lead to a 20 percent drop in tax revenues across the EU. US companies, in particular, shifted their profits on a large scale to low-tax countries.
According to the study, 40% of multinationals’ profits – approximately $600 billion – are shifted to tax havens. Small countries with low tax rates such as Ireland, Luxembourg or Singapore are the main beneficiaries. The main losers are non-haven EU countries such as Germany or France – and the EU as a whole.
The Tax Avoiders’ Favorite Trick
A tax avoidance scheme popular with Google, Apple, Facebook, Amazon and Co. is called “Double Irish with a Dutch Sandwich”: Large parts of profits generated in Europe are shifted between several Irish and Dutch subsidiaries as royalties. This allows multinationals to keep their tax burden in Europe very low.
From 2020, however, this tax avoidance scheme will cease to apply because Ireland has had to adapt its tax law primarily to pressure from the EU. But the multinationals certainly already have new tax tricks up their sleeves.
The EU Is Losing Hundreds of Billions Every Year
In 2017 alone, Google (or its parent company Alphabet) booked approximately €20 billion of foreign profits in Bermuda, where foreign companies don’t pay taxes. That’s according to documents from the Dutch Chamber of Commerce. Recently, Alphabet only paid an effective tax rate of 6 percent on its profits outside the United States. By comparison, the effective tax rate for companies in Germany is 20% on average. Google’s aggressive tax avoidance is estimated to cost the EU between €50 billion and €70 billion per year.
Apple also booked their entire European profits in Ireland. According to the European Commission, the Irish government granted the US company undue tax benefits for years. In 2014, Apple’s effective tax rate was only 0.005%. They paid only €50 in taxes on €1 million in profits. Margrethe Vestager, European Commissioner for Competition, called on Apple as early as 2016 to pay €13 billion ($14 billion) in back taxes in Ireland. To this day, the iPhone manufacturer is fighting against this order in court.
Will the EU’s Digital Tax Become a Non-Starter?
In the EU, there have been plans since 2017 to restore tax fairness with a digital tax. Instead of profits, EU member states should tax advertising revenues and other revenues from the digital businesses of large corporations in their country at a rate of 3%. In Germany, politicians officially want a digital tax too: the coalition agreement provides for “measures for an appropriate taxation of the digital economy”.
However, Europe-wide implementation of the plans is proving difficult. On the one hand, they are meeting with resistance from low-tax countries such as Ireland, the Netherlands and Luxembourg. On the other hand, Google, Apple and Co. with their gigantic lobbying in Washington have ensured that the Trump administration stands in front of “their” companies and threatens the EU with countermeasures. This would include, for example, punitive duties on German cars. The dependence of the German economy on traditional industry and the export of goods is once again becoming an obstacle here.
Europe Must Finally Receive a Fair Share
Not only Germany, but the whole European Union has so far failed to build its own digital infrastructure. US companies have thus been able to secure supremacy across the entire value chain. In addition to our data, also all profits generated with it flow to the other side of the Atlantic. In addition, the digital companies from Silicon Valley pay virtually no taxes in Europe and thus avoid making a fair contribution to the financing of the community.
To ensure that Europe finally receives a fair share of the added value of the data of European users and doesn’t end up as a digital colony, there is an urgent need to invest in an independent digital infrastructure. European digital companies would then pay appropriate taxes in the countries where they actually make their profits. This would secure Europe’s long-term prosperity in the digital era.
