Hello. It looks like you’re using an ad blocker that may prevent our website from working properly. To receive the best Tortoise experience possible, please make sure any blockers are switched off and refresh the page.

If you have any questions or need help, let us know at memberhelp@tortoisemedia.com

Sensemaker: How to tax

Wednesday 7 July 2021

What just happened

Long stories short

  • A Hungarian law came into effect banning the dissemination of online content deemed to promote homosexuality or gender reassignment.
  • Viktor Babariko, a Belarusian opposition leader, was jailed for 14 years and fined €15 million after being convicted of accepting bribes.
  • Emma Raducanu said she was feeling better after withdrawing from her fourth-round Wimbledon match on medical advice, and Italy went through to the final of the Euros after beating Spain on penalties.

How to tax

There’s an almighty arm-wrestle under way between the US and the EU over how to tax the world’s biggest companies. For now it’s civilised, but diplomatic smiles could turn to grimaces on Friday, when G20 finance ministers meet in Venice. 

At stake and at risk is the international corporate tax plan unveiled last week to make it harder for multinationals including the tech giants to avoid tax by booking profits in tax havens. The big six tech firms alone paid $149 billion less between 2011 and 2020 than they would have if they paid the headline tax rates in the countries where they operate, according to the Fair Tax Foundation. They paid an effective tax rate of 3.6 per cent on revenues of more than $6 trillion in a period when US corporate tax rates ranged from 40 to 21 per cent. 

The plan, backed by President Biden and the OECD, is the closest thing to progress on global tax reform in decades. It would mean a minimum 15 per cent tax rate for companies with profit margins of at least 10 per cent (and Amazon even though its margins are lower) in 130 countries including plenty of hitherto notorious havens. But it has a long way to go.

The obstacles:

Europe. The EU has its own plan for a digital levy on tech firms, due to be unveiled later this month. The Biden administration is begging the European Commission to postpone or scrap it as incompatible with theirs, but the European Parliament is determined to keep it and it’s one of three new levies the commission is depending on to repay the €800 billion it’s borrowing to dig the continent out from under Covid. 

The Republicans. They see the Biden plan as cover for his administration’s efforts to raise the US corporate tax rate from Trump’s 21 per cent back up to 25, and they see that as a gratuitous hit to American competitiveness. Kevin Brady of the House Ways and Means Committee has called it “a dangerous economic surrender”. They will fight any attempt to get congressional approval for the Biden plan via budget reconciliation, which requires only 51 votes in the Senate, insisting instead on 60 votes, which the Democrats don’t have.

Ireland. Low corporate tax – currently 12.5 per cent – is a pillar of the Irish economy and while Dublin is up for discussions with the OECD, it is by no means signed up to the plan. Expect special pleading for a carve-out, and an indulgent hearing from the Heaney-quoting Biden, who traces his roots back to Louth, Mayo and Meath.  

There will be other calls for carve-outs, not least from the UK on behalf of its financial services industry, which under the new arrangements would have to start paying more of its tax elsewhere. But that is a fringe irritant compared with the trial of strength between the US and the EU, which has long reserved the right to police America’s tech giants even if it can’t seem to grow any of its own. 

For their own part, Facebook et al are with Uncle Sam. “We want the international tax reform process to succeed and recognize this could mean Facebook paying more tax, and in different places,” Nick Clegg tweeted for Facebook last month. What they don’t want is to have to go from paying almost nothing to being taxed twice. Oh, to be an international tax lawyer in Menlo Park in 2021. 

Belonging identity, society, beliefs, countries

Justice for Samuel
Protests have been held by LGBT+ groups and their supporters in cities across Spain after the killing of a man outside a nightclub in A Coruña in what appears to have been a homophobic hate crime. Samuel Luiz was found unconscious after being beaten while making a video call; he died later in hospital. Friends say his attackers could be heard using derogatory language the during the beating, which came at the end of Pride week in Spain, as Hungarian authorities prepared to enforce an anti-LGBT+ law at the other end of Europe. Police have questioned suspects in Luiz’s case but made no arrests. Spain would “not tolerate” a step backwards in rights and freedoms, Prime Minister Pedro Sánchez said. Hate crimes related to sexual orientation rose by nearly 9 per cent in Spain in 2019.  

New things technology, science, engineering

Ransomware as service
The US IT company targeted by Russian hackers in an attempted $70 million online heist last week says it’s gradually getting its servers back online. It’s not clear if the company, Kaseya, or any of its hundreds of clients – which also ended up as targets – have paid up, although if experience is any guide at least some will. What is clear is that “ransomware as service” is a booming business in Russia. As explained by experts at a Tortoise ThinkIn last night, the hacking outfit known as REvil will in this case have acted as intermediary for clients keen either to paralyse rivals elsewhere in the world, or extort large sums quickly, or both. The hackers have rate cards for clients and hotlines for victims, to help them pay. A former top UK counter-terrorism official was asked if it was possible to track and trace these crimes to individuals and hold them accountable. The short answer: in principle, yes, but they’re in Russia.

The 100-year life health, education, living, public poliCY

UK Covid numbers
A Guardian analysis of Covid infection rates in the UK suggests 2 million people could be infected over the summer, leading to up to 10 million people in self-isolation within six weeks. In reality, new rules from 16 August will mean double-vaccinated people will not be required to self-isolate even if they’ve been in contact with confirmed cases – meaning the number isolating could be lower and the number infected even higher. Sajid Javid, the new health secretary, admitted in the Commons on Monday that case rates could rise to 100,000 a day, which would be higher than at any point in the pandemic. Let’s think about a) the 60 per cent of hospitality workers who are aged 16-34 and therefore unlikely to be double vaccinated yet, and b) long Covid, which can stick around for years and maybe for life. We don’t know yet, and yet we’re doing this.

Our planet environment, natural resources, geopolitics

Lion bridge
California has budgeted $7 million for a wild landscaped bridge over the 101 freeway intended principally for mountain lions. It would be huge – nearly as wide as the eight-lane freeway itself – and would cost much more than has been earmarked so far, but it would realise what has been the dream of environmentalists for generations: Southern California’s most splendid natural predators able to roam freely from the coastal Santa Monica mountains to wider open spaces inland, barely aware of greater LA reaching out below them. Similar bridges have been proposed but not yet built for bears in Montana and the Pacific Northwest. This one needs another $65 million.

Wealth investment, fairness, prosperity

Chinese checks
What are the rules now for Chinese companies wanting to list shares for sale abroad, and western investors wanting to buy them? It’s anyone’s guess. Didi, China’s Uber, had its app pulled from Chinese app stores at the weekend, three days after raising $4.4 billion in the biggest listing on the New York Stock Exchange since Alibaba in 2014. When markets reopened on Tuesday after the July 4th holiday, Didi shares fell by nearly a quarter. It now appears that Chinese authorities urged Didi to delay its flotation last week pending a cybersecurity review, but didn’t warn anyone they were going to pull the app until after western investors had piled in. The FT generously concedes Beijing may have genuine cybersecurity concerns (£). Either way, overseas investors are watching a slo-mo brawl between Chinese business and Xi’s authoritarianism, and they’re getting burned.

Thanks for reading, and please share this around.

Giles Whittell

Photographs Getty Images

Slow Views