How Would Jeremy Corbyn's Plan To Tax Big Tech Actually Work?

By James O Malley on at

It turns out that when Jeremy Corbyn isn’t busy being present but not participating in wreath-layings with dodgy characters, he likes to spend time thinking not about wreaths, but Reithian values.

Yesterday, in a speech to the Edinburgh TV festival, he revealed his thinking on how to make journalism better in the digital world, pitching some ideas about what should be done to enable public service journalism to survive in a media landscape dominated by the likes of Facebook, Amazon and Netflix.

The speech is very light on detail — but it does offer a range of proposals of variable quality: one idea was to pay journalists more, and you’ll be unsurprised to learn I think this is a great idea. Another was to create a BBC-like “British Digital Corporation” which could create a British rival to Facebook which is… utterly insane. And let’s not get started about his idea to have License Fee payers elect the BBC board of governors.

Perhaps the most immediately eye-catching-but-not-completely-batshit proposal then was J-Corbz plan to boost journalism. In addition to enhancing the Freedom of Information Act, and granting local and investigative news organisations charitable status, he wants to subsidise news organisations that do public interest journalism.

Pointing to how publishers in France and Belgium have managed to persuade Google to pay them, the Corbster thinks we should do the same. And he even proposes turning the screws on big tech even tighter: “On a more ambitious scale, we’ll need to look at the option of a windfall tax on the digital monopolies to create a public interest media fund”, he said.

Sounds great to me — and what’s interesting is how he wants to fund these subsidies. He wants to do it by “tapping up” (yes, those were the words he really used) the “digital monopolies”.

It’s an appealing idea, and one that I’m inclined to be sympathetic too given how powerful these companies are. Given that Facebook is now a large chunk of the “public square” in and of itself, it is right that the company should be forced to be a good corporate citizen.

But though it is appealing emotionally and politically, what I can’t work out is how you would even begin to write a law to tax the big tech companies.

Taxing Thoughts

What Corbyn is pitching here is a “windfall tax” — a tax on companies that post excessive profits. This isn’t completely unheard of — such a tax was introduced on the companies running privatised utilities by the evil, neoliberal Tony Blair, in 1997. Since the 2008 financial crisis, it has been regularly proposed as a solution to what to do about the bankers’ bonuses.

But can this translate to Big Tech? The immediate problem as far as I can tell is... it isn’t actually very easy to define which companies count as a “digital monopoly”.

We might think of Apple, Google, Amazon and Facebook, but what about edge cases: would Twitter be big enough to tax? What about the remnants of Yahoo? What about something like Cloudflare or Microsoft Azure? These cloud services are hugely important parts of the scaffolding that holds up the internet, so receive millions — if not billions — of connections every day, but they don’t have a consumer-facing presence like Facebook does. What about Cisco, Dell or Samsung? These are enormous companies that make much of the hardware we need, but nobody seems to care much about what these companies do.

With the utilities or the banks, there is a binary test whether a company counts: does the company sell access to water pipes? Then it is a water company. Does it have a banking license and is thus authorised to behave as a legal entity distinct to other companies? Then it is a bank.

Similarly, if we want to charge corporation tax, all we have to do is see if it is a limited company or not.

But what sort of comparable definition is there for a digital monopoly? There is no legal definition of a tech company.

Amazon is a tech company… but it is also a retailer. Facebook is a tech company, but is also a communications company. Twitter is a tech company, but it is also a pit of despair.

To really illustrate the definitions problem, think of a traditional company like, say, Argos. Argos is a traditional retailer, but over the past decade has clearly digitised much of its business, from the ordering process (go into a store today and you’ll find iPads instead of tiny pens), to the supply chain (same day delivery). Because it bought some computers… does Argos count as a tech company now?

Is Thomas Cook different in any meaningful way from AirBNB other than that it has high street stores?

Obviously you could simply write the rule as “any company of a given size”, but then you’ve effectively re-invented corporation tax. I wouldn’t be opposed to hiking it on the largest companies in general — but this wouldn’t meet the stated goal of hitting the tech titans, as it would also require BP and Barclays Bank to subsidise journalism, not just Facebook (but hey, maybe this idea isn’t so bad?).

Cornering The Market

Okay, so defining companies is hard but what if there’s another way of drawing the lines for which companies get hit with the windfall tax and who doesn’t?

What about market share? If this is the method the obvious question is… what is the market?

What is Facebook’s market share relative to Google? In a sense, this is a nonsense question as Big Tech do not compete in one market or have business units that can be cleanly defined as being in one specific market.

Imagine a world where we wanted to tax online video producers — the idea being that we can scrape off some cash from Netflix and Amazon Video and use it to pay for local video journalists. Not a bad idea perhaps — but then why would we only hit Netflix and Amazon, and leave out Facebook? Sure, Facebook is a rather different proposition as a whole, but it is also a place you can watch videos. And what about Snapchat? You can watch videos on there too.

The problem is that if we use market share as our metric, there isn’t really a particularly fair way of defining the market that we’re measuring. Even if we knew we wanted to hit Facebook, Amazon, Apple and Google and are going to work backwards to arrive at our definition of a digital monopoly… then drawing up a list of their unique properties is harder than you think.

The only thing they really have in common is that they somehow involve microchips and are based on the West Coast of America. So are we going to tax companies that use microchips and happen to be headquartered in the GMT-8 timezone?

In other words, comparing the biggest tech companies is almost literally comparing Apple to… oranges. Yes, I made that joke.

Which Metric?

Let’s imagine that it is — somehow — possible to come up with a workable definition of which companies get taxed. Then it is simply a case of scraping off the profits, right?

Put aside the not-inconsiderable fact that these companies are enormous global corporations that have armies of tax experts who will help locate them around the world so they pay as little as possible. Let’s imagine that Prime Minister Corbyn could successfully negotiate a new global trading regime that prevented or limited massive corporations offshoring their profits.

There is still one enormous problem.

Think about Amazon. Famously, Jeff Bezos’ strategy is to not make a profit. Whereas Apple is happy sitting on a cash pile of around $285bn, Amazon makes a virtue of reinvesting every penny into growing its products and services even further. Okay, not quite every penny, but it would definitely mean that a tax on profits would disproportionately hit Apple more than it would Amazon.

So would there even be any profits to tax?

Perhaps then, there are other metrics that could be used to extract a tax? After all, we don’t just pay income tax: you can also be taxed on capital gains, and every time you buy something you pay a consumption tax, VAT.

Perhaps the most reliable metric could be turnover? Let’s take the cash from Amazon and Google before they can spend it, or squirrel it away to an island in the Caribbean. But even on this metric, because digital assets are intangible, income and impact-on-society are not necessarily directly correlated.

If you want to see this in action, consider how Twitter has been struggling along without making a profit for years, but (arguably) has a cultural impact at least as large as Facebook, given it is the place where celebrities, journalists and unhinged Presidents like to hang out. And this is despite Facebook having five times as many users, and much more “engagement” from each user on top of that. Today, an individual or a tiny company can have an enormous reach: when WhatsApp was bought by Facebook for $19bn, it only had 55 employees.

Are there any other metrics that could be used instead of profit and turnover? Perhaps a tax based on the number of British users in a given year? Or the number of views or the number of new posts?

Even if it were possible to conceive of why it might be desirable to… I don’t know… tax one pence for every like on a piece of content. All this would do — if it was impactful enough — is encourage the big tech companies to game the system and adjust their business to avoid paying. Given that there are multiple definitions in web analytics of what counts as a website “hit”, it strikes me that arriving at a universally acceptable definition of whatever engagement metric would be used would be… nearly impossible. And that this would, at best, be a game of cat and mouse with the tech companies over what counts as taxable.

So… how is this supposed to be workable?

Conclusions

Perhaps there is an obvious solution that I’m missing. Perhaps policy wonks, who are more versed in business than in tech can hit upon a neat solution. Or perhaps the challenge to journalism and the power of Big Tech requires a more fundamental restructure of the economy and our society, just as the rise of automation has led to Universal Basic Income being a topic of increasingly serious inquiry. Perhaps a small tweak like this can’t work at all?

“Digital monopoly”, as Corbyn calls them, is a useful shorthand to refer to Big Tech — but it is not a legal definition. It is a cultural one. We know the sort of companies he means, but this is a long way from having a workable legal definition. Like the US judge who had to figure out what counted as pornography, the problem with is that it is impossible to define, but you know it when you see it.

I would definitely like there to be an elegant way to tax the biggest tech corporations to subsidise journalism — that’s appealing to me both ideologically and emotionally. Obviously this speech was not designed to convey details on how it would work — but given the stated goals, while I think the why is a good one, I’m still unsure about how it could actually be done.

And until Jeremy Corbyn can answer that, it’s impossible to take the idea seriously.

James O'Malley is Interim Editor of Gizmodo UK and tweets as @Psythor.