Rise in Robotics Requires New Tax Approach, EU Report Warns

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By Linda A. Thompson

June 29 — European lawmakers warn that the growing use of robots and artificial intelligence may cause job losses across the continent, threatening to result in plummeting tax revenues if current tax frameworks aren't revised to account for the rise of the robotic workforce.

Practitioners told Bloomberg BNA that taxing robots as “electronic persons,” as the EU contemplates in a recent report, would hinder innovation and that other ways of taxing the value that robotics create should be explored.

The recent European Parliament Committee on Legal Affairs draft report recommends the European Commission adopt a resolution to require companies to report on “the extent and proportion of the contribution of robotics and AI to the economic results of a company for the purpose of taxation and social security contributions.” Its first paragraph references Frankenstein, and comes amid mounting concerns that the rise in automation and artificial intelligence in the workplace will fundamentally alter economies, destroy jobs and jeopardize social welfare programs such as social security.

Such a motion would need to be passed by the European Parliament to become a non-binding resolution and could be used by the European Commission as a basis to draft future legislation related to robotics and artificial intelligence.

No Consensus

Policy makers, academics and business executives take diverging views on the threat robotics pose to the economy. A 2013 report by Oxford University's Carl Benedikt Frey and Michael A. Osborne estimates 54 percent of jobs in the EU are at risk of disappearing under the influence of computerization in the next two decades while more recent research by the OECD estimates the job loss to be much lower, with 9 percent of jobs automatable on average across 21 OECD countries.

Rinie van Est, a research coordinator at The Hague-based Rathenau Institute, told Bloomberg BNA the conflicting scenarios make it difficult to predict how the rise in robotics will affect the economy, jobs and social security systems.

“If you talk about jobs, the government has to show that it's aware of the different uncertainties and they should show that they have different policy options, that they could react to different types of situations—that's very important,” van Est said in a phone interview June 29.

He said the increasing robotization of labor isn't inevitable, as companies need to see a compelling benefit to use robots. “It's not only technology that will decide whether we robotize labor; it's the economic picture as well. ‘What's the business model? What's the demand of the customer?' And especially, ‘What's the type of production and work process?' ”

However, “in a situation of uncertainty, you should take all the plausible scenarios seriously,” he said.

Academic: Don't Tax Robots

Dirk Lefeber, a robotics professor at the Free University of Brussels, points to the flawed performance of humanoid robots in a recent challenge organized by the U.S. Defense Advanced Research Projects Agency (DARPA), and says many more breakthroughs are needed before fears of massive job losses become legitimate.

Robots in the DARPA challenge “couldn't even get through a door, so it'll be a while before a robot will completely cognitively replace you at your desk,” he said.

In a phone-interview with Bloomberg BNA June 29, Lefeber said taxing companies' use of robots would hinder innovation. The solution to compensate for lost tax revenue, he said, is to explore how humanoid and assistive robots might actually create more jobs, such as keeping older workers in the workforce by taking over some of their tasks.

“By creating extra jobs through automatization, more tax revenue will automatically go to the state—not the other way round. You shouldn't tax robots to create extra revenue.”

Holistic Approach Needed

Practitioners acknowledged companies' increasing use of robotics muddies questions about taxation, much like digital products and services do. Digital technology and robotics remove human work hours from the traditional value-creation equation built on the principle that products and services capture value—and that monetary value of the transaction is key, said Carlo Gagliardi, a partner at PwC Strategy & UK Digital Lead.

In principle, companies' use of a robotic entity creates value, with this value in turn creating a taxable event. “But when you add technology, you are creating a substantial amount of value in way that is sometimes fundamentally difficult to capture,” he told Bloomberg BNA June 28, noting that some data transactions create value yet can't be quantified by using money as proxy to define the taxable event.

He noted that lawmakers should think about ways “the spare labor talent that technology has made idle” could be stimulated to create new products and services instead of introducing a new tax on companies' use of robots, as the European Parliament report appeared to suggest.

Gagliardi called on governments to pursue a more holistic approach by aligning their taxation policies with their economy-boosting strategies. Overtaxing companies that use robotics would stall both their growth and hamper their ability to explore how excess human talent might produce new jobs and services, he said.

Conversely, a government that adopts “a more encouraging tax policy with high-octane innovators,” Gagliardi said, might see those companies create “new products and services for the next 10 to 15 years that then will generate tax income for the government.”

“The tax philosophy today needs to look further ahead and say: ‘How can I develop the overall economy so that I can have a fair tax income?' Those two things unfortunately are very much linked,” he said.

To contact the reporter on this story: Linda A. Thompson in Brussels at correspondents@bna.com

To contact the editor on this story: Rita McWilliams at rmcwilliams@bna.com

For More Information

The European Parliament Committee on Legal Affairs' draft report is at http://src.bna.com/gnE.

The Frey and Osborne report is at http://www.oxfordmartin.ox.ac.uk/downloads/academic/The_Future_of_Employment.pdf.

\The OECD report on risk of automation for jobs is at http://src.bna.com/gnF.

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