For years, the World Health Organisation has flagged the desperate shortages of nurses in developing countries.[1]A quick review of just 20 nations battling COVID-19 with limited resources[2] shows that 1.7 million nurses are needed to get them on track to achieve their health-related sustainable development goals by 2030[3]. With COVID-19 there is added urgency in addressing these shortages, to ensure a comprehensive public health response to an unprecedented pandemic.
But how can governments stretch their resources to fund 1.7 million new nurses? They can’t. They have to find new sources of income and one way is by increasing tax revenue.
New ActionAid research[4] looked at Facebook, Alphabet Inc (the parent company of Google) and Microsoft and exposed a potential $2.8bn ‘tax gap’ which these three tech giants alone could be liable for in the developing world, if tax rules were fairer.
But to make that happen we need urgent international action. Sadly, we are witnessing the opposite. The OECD was supposed to come up with the solution for taxing the digital economy, for agreement by the G20 in November, but recently kicked this down to road to next year. The EU said they’d go it alone on taxing the digital economy if no global agreement was reached. This remains to be seen.
It is clear that present tax rules are not fit for purpose when it comes to taxing big technology companies like Google, Facebook and Microsoft. The nature of their businesses gives them the ability to shift profits to tax havens even more easily than other multinational companies.
Little is known about how much tax these companies are currently paying in developing countries, as they are still not required to publicly disclose this information. ActionAid’s new research shows that billions could be at stake in the long overdue reform of international corporate taxation – enough to transform underfunded health and education systems in some of the world’s poorest countries.
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.
How should we determine the corporate tax a big tech company should pay in each country where they operate? There are many ways that this could be calculated, but most recommendations suggest looking at their sales, their assets and the number of employees they have in each country. In the absence of transparent reporting, collecting such data is not easy, but we can get a useful estimate through looking at a proxy indicator: the number of users they have in each country.
For example, in just 20 developing countries there are nearly 1.5 billion internet users accessing Google, about 900 million people using Microsoft on their desktops and over 750 million Facebook users.[5] For these companies, the number of users is a good indicator of both their sales and their assets. For digital companies, user data is perhaps the most valuable commodity – something that is mined in multiple ways and can be sold onwards.
Our $2.8 billion calculation was 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. Any actual tax would of course need to be more carefully designed but this is a useful indicator of the scale of resources that could be raised and is likely to be the tip of the iceberg.
Those 1.7 million nurses needed in countries battling the coronavirus pandemic? Their salaries could be paid for in just three years if these ‘silicon three’ paid their fair share.
On this basis, setting fair global tax rules for big tech companies is not an obscure discussion for technocrats to have behind closed doors or be terminally delayed. It is a matter of life and death.
The task of developing global tax rules for the digital economy should never have been given to the club of rich nations, the OECD. It is unsurprising then that they have failed in this urgent task. Instead governments should urgently get behind a representative UN led process that is resourced and empowered to set and enforce global tax rules. And as global reforms will take time, governments should also take immediate steps to tax big technology companies in their countries on an interim basis. COVID-19 has made this more urgent than ever.
References:
[1] WHO State of the World’s Nursing report 2020
[2] India, Indonesia, Brazil, Nigeria, Bangladesh, Vietnam, Thailand, South Africa, Ethiopia, Myanmar, Ghana, Tanzania, Kenya, Nepal Mozambique, Zambia, Senegal, Zimbabwe, Malawi, Sierra Leone.
[3] WHO State of the World’s Nursing report 2020
[4] ActionAid press release 26.10.2020 “$2.8bn ‘tax gap’ exposed by ActionAid research reveals tip of the iceberg of ‘Big Tech’s big tax bill’ in the global south”.
[5] https://datareportal.com/reports/digital-2020-global-digital-overview