Google Warns on False Assumptions in Big Tech Revenue Tax Debate

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By Ben Stupples

Google has publicly warned about incorrect assumptions on the role of user data in its search engine business amid efforts to impose a new tax on such activity.

“When it comes to search engine advertising, which is obviously our core business model, the role of user data in that is vastly overestimated,” Andrew Ure, head of trade and economic affairs for Alphabet Inc.'s Google, said July 2 at a University of Oxford business tax conference.

Ure’s comments follow a European Union proposal in March to impose a new tax on the revenue of internet-based businesses that derive significant commercial value from user data.

In a March 21 memo, the European Commission grouped “search engines” alongside social media companies, like Facebook Inc., as an example of user-generated value for businesses. The same month, the U.K. Treasury also indirectly cited Google in its own plans for a revenue tax on digital companies, arguing that grouped user data can boost a search engine’s efficiency.

However, in the panel discussion held at the Oxford University Centre for Business Taxation’s summer tax conference, Ure stressed that Google itself provides the most value to its search engine.

“A huge amount of the value that is created is in relation to the engineers who are building our products, testing the products, trying and failing, trying again, and investing in R&D to create something that is actually going to be valuable to users,” he said. “What is valuable to users is that, when they ask a question, they get a result that is highly relevant.”

Worldwide Divisions

Globally, lawmakers are currently split on how to tax internet-based companies like California-based Google.

The OECD is aiming to find a global consensus on the issue in 2020. Ahead of that date, though, some countries are seeking to introduce temporary measures to compensate for what they perceive as lost corporate taxes. While the U.K. is exploring a revenue-based tax, India and Italy have already adopted similar measures.

The European Commission’s revenue-based levy would apply to businesses with global annual revenue of at least 750 million euros ($870 million), and annual EU revenue of more than 50 million euros, according to a March 21 news release. Overall, the measure is expected to raise as much as 5 billion euros a year for member states.

Policymakers are opting for revenue-based levies on digital companies because sales are easier for tax authorities to pinpoint than profits as user-generated value in their jurisdiction.

“This interim tax ensures that those activities which are currently not effectively taxed would begin to generate immediate revenues for Member States,” the commission said March 21.

‘Coherent Framework’

Within the past five months, though, smaller countries like Luxembourg and Ireland have argued that the bloc risks putting itself at a competitive disadvantage unless a global deal is reached on the taxation of the digital economy. The opposition is significant, as the European Commission needs member states’ unanimous approval for tax issues.

At the conference, Ure declined to comment when asked by Bloomberg Tax on how else the commission’s proposed tax may affect Google if it wouldn’t hamper its search engine business.

Instead, equally acknowledging divisions on the proposal and the risk of countries enforcing more individual measures, he outlined an ideal outcome from the current global scenario.

“The overwhelming majority of people in the business community want to see an agreement that is a coherent framework and agreed multilaterally,” Ure said.

User Data Monetized

In its memo for a revenue-based tax, the European Commission cited an individual “liking” a social media webpage as an example of user-generated value. Companies like Facebook can monetize this information through displaying targeted advertisements to their users.

Advertising made up 86 percent of Alphabet’s 2017 revenue of $110.9 billion, according to its latest annual report.

“The goal of our advertising business is to deliver relevant ads at just the right time and to give people useful commercial information, regardless of the device they’re using,” it said.

To contact the reporter on this story: Ben Stupples in London at bstupples@bloombergtax.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bloombergtax.com

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