Trust Bloomberg Tax's Premier International Tax offering for the news and guidance to navigate the complex tax treaty networks and business regulations.
European lawmakers are grappling for answers to a question that until recently seemed like the stuff of science fiction: If robots take our jobs, who will pay taxes?
In an age of unprecedented technological change occurring at a faster rate than the Industrial Revolution, concerns over the growing robotization and automation of work have prompted fears about mass unemployment and plummeting tax revenue in the near future, pitting companies and robotics manufacturers against lawmakers and worker advocates.
The issue is taking on new urgency ahead of a Feb. 16 vote before the EU Parliament’s Legal Affairs Committee on whether to create a robotics agency to deliberate on tax and liability issues.
Companies from Google to Boeing, from Siemens to Foxconn Technology Group, have jumped on the automation bandwagon in the last few decades (Chart 1). At the forefront of the robotization drive, which has been dubbed the “Fourth Industrial Revolution,” are countries like Germany, the U.S., South Korea and the U.K. (Chart 2), and such manufacturing industries as automotive parts suppliers and the electrical and electronics industry.
For companies, the math is simple—use of robotics reduces their labor costs and increases productivity as robots have become cheaper and easier to program. According to a 2013 article in the MIT Technology Review, warehouses equipped with robots manufactured by Amazon Robotics, for instance, can process four times the amount of orders as unautomated warehouses.
Robots—then still large, unwieldy and expensive—first entered the marketplace in Europe, Japan and the U.S. in the 1960s. Boston Consulting Group estimates approximately 1.4 million industrial robots are today in use around the globe, a number that is projected to increase to 1.9 million in 2017. Robotics manufacturers, unsurprisingly, are riding a sales boom, with many of them reporting two-digit percentage increases in revenue (chart of Denmark’s largest robot manufacturer, Universal Robots, revenue between 2013 and 2015). The robotics industry today represents a $15 billion sector, which is expected to increase to $67 billion by 2025, also according to Boston Consulting Group figures.
How many jobs will be lost in this inexorable drive toward automation is a question that no one can quite seem to agree on.
A 2016 report by the Organization for Economic Cooperation and Development estimates the job loss to be low, with 9 percent of jobs automatable on average across 21 OECD countries. A 2013 report by Oxford University’s Carl Benedikt Frey and Michael A. Osborne meanwhile estimated 54 percent of jobs in the EU to be at risk of disappearing under the influence of computerization in the next two decades, while a follow-up 2016 report pronounced 47 percent of US employment to be at high risk of imminent automation, “perhaps over the next decade or two.”
The answer to this numbers question matters because the fear of massive job losses is one of the central arguments used by those in favor of a robot tax.
“Who will buy products and services realized through use of robotics if those taken out of a job by them have no income?” said Barb Jacobson, a board member of Universal Basic Income Europe, a lobby group promoting basic income in Europe.
Noting in a Jan. 31 e-mail that the basic research resulting in new technology patents is often funded with public money, she said: “It is only fair that those who profit from the use of patents pay some of that back, and that the revenues from a ’robot tax’ be shared by all in the form of a basic income.”
But rather than focusing on diminishing employment prospects, some say, we should be examining the relationship between unemployment and automation.
“I think we need to have proper evidence that robots have a negative effect on employment and right now we’re not really seeing anything in the data to suggest that,” said Gregory Claeys, a research fellow at the Brussels-based think tank Bruegel, in a Feb. 3 telephone interview.
This view was echoed by Patrick Schwarzkopf, director of the Brussels-based EUnited Robotics trade association, who pointed to data (Chart 3) from the International Federation of Robotics indicating high employment rates for countries with high robotization levels.
“Empirically, the evidence doesn’t really show that high robotization means lower employment. That’s the counterintuitive thing about it,” he told Bloomberg BNA in a Feb. 1 telephone interview. “Introducing a robot tax is basically a solution to a problem that doesn’t exist.”
Both robotics manufacturers and economists moreover tend to point out that automation also creates jobs. A 2015 Deloitte report for instance concluded that technology potentially played a part in the disappearance of 800,000 lower-skilled jobs between 2001 and 2015, but also contributed to the creation of almost 3.5 million higher-skilled jobs.
Extensive studies by consultancy firms such as Deloitte, McKinsey&Company and Accenture indicate that jobs in highly structured and predictable environments such as manufacturing, transportation and logistics, as well as in office and administrative support are most at risk of automation. In other words, the wide net of jobs most at risk of disappearing includes assemblers of electrical products and bank clerks, typists and personal assistants, retail cashiers and couriers, tax preparers and data entry specialists.
No matter their scope, sizeable job losses due to the automation of work are likely to result in not just an idle workforce, but also plummeting tax revenues for governments since companies, employing fewer people, would result in fewer social security and income tax take, causing erosion of governmental tax bases.
A European Parliament report released in May 2016 was the first serious effort on the part of European lawmakers to address these mounting concerns, discussing such robotics-related issues as liability, compliance with ethical standards and the viability of European Union countries’ social security systems if the current taxation basis isn’t revised.
A resolution based on the report, submitted by the Parliament’s Legal Affairs Committee and scheduled to be voted Feb. 16, calls for the creation of a European Agency for robotics and artificial intelligence, and urges the European Commission to monitor “new employment models and the viability of the current tax and social system for robotics.”
A “yes” vote would require the commission to present a legislative proposal in response, or state its reasons if it refuses to do so.
The May 2016 report was penned by European parliamentarian and member of the Group of Progressive Alliance of Socialists and Democrats, Mady Delvaux.
She said it was important to both analyze all the possible scenarios and launch a debate on new employment models and the sustainability of European countries’ tax and social systems in light of robotics developments.
“Taxing the work of robots is definitely not necessary at this stage and probably not even in the near future. But it is crucial to reflect on it and I want Europe to be prepared in case we are facing job displacement by robotics in the future,” she said in a Feb. 9 statement e-mailed to Bloomberg BNA.
Benoit Hamon, a Socialist Party candidate running for the French presidential elections, would beg to differ. Citing figures that projected a loss of 3 million jobs due to automation in France by 2025, he recently called for the introduction of a robot tax to fund a 750-euro ($799) basic income. His office didn’t respond to requests for comment.
Such a robot tax would kill many birds with one stone, said Paul Miller, chief executive officer and founder of the London-based consultancy Digital Workplace Group. “If the tax take is only from corporate tax paid based on profits, then this is subject to all the myriad smart avoidance and minimization methods we see today,” he said in a Feb. 1 e-mail. “Taxing software means that as well as corporation tax, there is a new version of ’tax at source’ and micro payments are received in real time by the tax authorities.”
Practitioners say lawmakers like Hamon raise pertinent questions about the need for a rebalancing of the tax system as robots increasingly begin to execute tasks that, until recently, were performed by humans. But, they warn, a levy that taxes companies’ use of robotics will be difficult to design and tricky to implement because it would require a practical and workable definition of “robots” and a clear-cut method of assigning profits to a particular robot or automation program.
Carlo Gagliardi, a U.K.-based partner at PwC Strategy, and John K. Steveni, U.K. tax communications leader and tax digital leader at PwC, said the chief challenge would be to establish a definition for the types of robots that ought to be taxed “which can survive contact with the real world.”
“Where does the value sit in a robot? Is it in the hardware or the software learning algorithms? This is a part of the BEPS issue on where businesses should pay tax,” they said in a Feb. 2 e-mail, referring to the OECD’s sweeping action plan to combat base erosion and profit shifting.
Others warned that the difficulty of designing a workable definition for robotics and determining where they create value would increase uncertainty for the companies leading the automation charge.
“My everyday experience of dealing with corporate clients is that the biggest problem of taxes for them isn’t actually the amount of it; it’s not knowing how much they might have to pay,” said Robert Leggett, a partner at Ensors Chartered Accountants, in a Jan. 31 telephone interview.
A robot tax would further compound these uncertainties because the amount in profits a robot generates for a taxpayer and the corresponding number of human workers displaced won’t always be “obvious”, he said.
“So you’re going to almost have to come up with some much more arbitrary way of deciding what that tax is, and I’d be very worried that if that’s not absolutely clear, you get into certainty for the business that doesn’t actually know how much tax it’s going to have to pay,” he said.
Practitioners, industry groups and economists have warned that a robot tax would also reduce the incentive for companies to innovate and potentially prompt them to relocate to other jurisdictions that don’t levy taxes on automation technologies.
“Taxing robots would increase the cost of automation in some industries,” Carl Benedikt Frey, who leads research on robotics at the University of Oxford, told Bloomberg BNA. “Although it might incentivize companies to rely on cheap labor instead in certain cases, such a tax would be harmful to economic growth.”
The road ahead might look uncertain, Gagliardi and Steveni added, but European countries should only consider running with Hamon’s idea if they can come up with a tax definition of a robot that isn’t so broad as to include all machines, or so narrow as to require constant revisions as technology evolves.
“The tax system will need to adapt and the current tax share between labor and capital may well need to change, but at the detailed policy level trying to define and tax robots does not look like a practical answer.”
To contact the reporter responsible for this story: Linda A. Thompson in Brussels at firstname.lastname@example.org
To contact the editor responsible for this story: Penny Sukhraj at email@example.com
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)