Global Minimum Tax: How Big Tech Has Saved Taxes So far

Earn billions, hardly pay taxes: this should come to an end with the global minimum tax. Especially the big tech companies from the USA like Facebook, Apple, or Microsoft now have to rethink.

They are proud, the finance ministers of the largest industrialized countries at the beginning of June. The word historical comes up again and again, for example by the British Minister Rishi Sunak. The tax system will finally be brought into the 21st, digital, century. Olaf Scholz, the Federal Minister of Finance, speaks of “colossal progress in the area of ​​international corporate taxation”.

Democratic countries can now decide for themselves about appropriate taxes, said Scholz. The big tech companies such as Google, Apple, Amazon and Facebook have so far found particularly creative ways to save billions.

This is how the tech giants avoid taxes

It’s very easy, says Gabriel Zucman. Originally from Paris, he is an economics professor at the University of Berkeley in California and one of the leading experts on tax havens. “They move their profits to countries where they hardly have to pay taxes or no taxes.”

Take Google as an example. Google has moved its most valuable digital property to Bermuda. Google Bermuda was thus the official owner of the important search engine technology. Google subsidiaries such as Google Germany or Google France had to pay high license fees every year in order to be able to use this technology from Google Bermuda.

For Google Germany that means: less taxes because less profit. The profit from Google Bermuda is huge, but does not have to be taxed. “They are now using other avenues, but by 2020 Google will have made billions in profits on an island where actually nothing is going on.”

Far-reaching change in the tax system

That should change. The very large billion-dollar companies such as Google, Apple, Facbook or Amazon are expected to pay at least 15% taxes in at least 131 countries in the future. Not only where they are based, but also where they do their business.

Each country can still set its own tax rates. However, if a company pays only 10 percent abroad, for example, the company’s home country could demand the five percent difference to the minimum tax.

This is how the tech companies rule on the minimum tax

The tech companies react surprisingly relieved, relaxed, almost benevolent. After all, the point is that they should pay more. Facebook says, “We want global tax reform to be a success.” Google said: “We hope countries will continue to work together to achieve a balanced and long-lasting settlement.” And for Amazon the reform is: “A welcome step forward.”

“They’re happy,” says Berkeley Professor Gabriel Zucman. The compromise of 15 percent is not enough, it could have hit them much harder. “Amazon, Facebook, Google parent Alphabet, they are already paying 12-15 percent taxes. Now it may be a little more, but at the same time they are still so profitable. They just don’t care.”

Significant additional income for the state

For Germany, Zucman is assuming six billion additional income. A calculation by Deloitte’s economic advisors comes to only around one billion. “15 percent is too little. Why should the main winners of globalization, international corporations, pay less than the normal average household? That doesn’t make any sense.”

The minimum tax is to be levied from 2023. Before that, however, it also has to be decided in the individual countries and the EU. The OECD, which is coordinating the reform, estimates that the states could then earn around 150 billion a year worldwide. “I hope at some point there will be an agreement after which large corporations will say: We are angry and disappointed because we have to pay more,” said Zucman. “That would be the sign of a good deal.”