Europe targets Facebook, Google with new regulations

Europe targets Facebook, Google with new regulations

U.K Treasury Treasury Chief George Osborne is looking at his budget for the next year, and he doesn’t like what he sees; namely, that overseas corporations are making a killing in his country. He’s proposed a new tax in an effort to make sure “big multinational businesses pay their fair share” in exchange for access to a budding tech market.

Some tech companies like Google and Facebook have been using creative procedures to lower their tax bills on operations based in the U.K., which means that without a new regulatory structure, U.K. officials will essentially be leaving millions of dollars on the table.

The Wall Street Journal explains why European officials like Osborne want this tax to happen:

“Some of the largest companies in the world, including those in the tech sector, use elaborate structures to avoid paying taxes,” he said. “That’s not fair to other British firms. It’s not fair to British people either. Today we’re putting a stop to it. My message is consistent and clear: low taxes, but low taxes that will be paid.”

The tax, dubbed a “Google tax” by the British press, is expected to raise more than £1 billion ($1.56 billion) over five years, Mr. Osborne said.

It’s still unclear exactly what will constitute taxable activity in the U.K. and how it might change the tax bill of companies like Google GOOGL +1.05% and Facebook FB +0.40%. Representatives from several tech companies weren’t immediately available to comment.

Google and other companies have been targeted by France and other European governments for not paying enough taxes. The issue is complicated by the companies’ setup: They can have sales representatives in one country selling online services, like ads, that appear in others, while the company’s residence for taxation purposes might be elsewhere still.

Meanwhile, the Eurozone at large is in an all-out war over who should have the authority to regulate these tech giants. What’s making the decision so difficult to hammer out? They simply have too many agencies to choose from:

Amid a turf war over who gets to regulate some of the world’s biggest companies, justice ministers have dropped proposals to give sole power to regulators where companies have their EU headquarters. As they met in Brussels today, splits emerged over an alternative plan that would see powers spread out, giving other nations the right to veto decisions taken by the lead authority.

The compromise proposal “effectively allows each authority to exercise a veto over the decision of the lead authority,” said Wes Himes, a director at the European Digital Media Association, whose members include Google, Facebook and Microsoft Corp. “All we want is one decision, one outcome.”

With U.S. companies such as Facebook, Apple Inc. (AAPL), and LinkedIn Corp. (LNKD) having Ireland as their main European base for data-protection purposes, policing privacy violations already resembles a battle between David and Goliath for thinly staffed agencies in some of the EU’s smallest nations.

Wes Himes’ concern here is well-placed; although some European officials favor this collaborative approach, tech companies know that allowing an entire continent’s worth of regulatory authorities to constantly veto and change the rules governing corporations is a recipe for disaster:

The definition in the draft of who would be the “concerned” regulators that could oppose a lead authority’s decision “is very wide” and “it will only take the disagreement on the part of a single” authority to trigger the referral of a case to a board that will be charged with settling disputes, he said.

This in turn will cause delays that “are not conducive to business efficiency or legal certainty,” said Murphy.

U.K. Justice Minister Chris Grayling said the compromise solution would create “disagreements and legal challenges, protracted delay, huge expense and a large volume of cases building up” in the EU’s top court. Ministers have “a real desire to grasp a solution if they can find it,” he said.

Taxes and regulations aside, the battle to gain regulatory authority over foreign corporations has less to do with a legal question, and more to do with the creeping sense of anti-Americanism in European communities. Last week, European Parliament passed a non-binding resolution calling for the breakup of Google—and it wasn’t because they prefer Yahoo! search results.

European authorities have generally not discriminated against US firms because they’re American. But it’s starting to wear thin. During last week’s European Parliament debate about aspiring to break Google up, some MEPs started to sound defensive and nationalistic. The anti-Google resolution should “act as an electric shock” to see that Europe stops being “a colony of the new digital world”, said French European People’s Party MEP, Anne Sander. France’s deputy minister for digital affairs was more politic, but equally forthright in her country’s motivations. “It’s not just about being defensive,” she said at a joint press conference with Germany’s state secretary for the economy, Matthias Machnig. “We want European companies and industries to transform themselves and become more competitive.” Herr Machnig agreed. “We need powers of sanctions,” he said. “Our existing competition law is no longer fit for purpose.”

The French have an acronym for the focus of this new American threat: les Gafa. It stands for Google, Apple, Facebook, Amazon. France, which takes a harder line on fencing off cultural elements such as literature and art, rarely needs much nudging to have a pop at US companies or wider US culture. But it now has incorporated entities to spearhead those energies towards.

If it can’t be controlled, it must be regulated, right? God forbid we have a situation where firms have to actually compete for success without the help of government sanctions!

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