Talking to… Patrícia Ferreira about taxation of big tech
Patrícia Ferreira joined LOQR in 2019 as a Customer Service Agent. In early March, she participated in the 11th edition of ESTG Masters, an event organized by the School of Management and Technology of the Polytechnic Institute of Porto (IPP), where she obtained her Degree in Solicitadoria. Combining her legal background with her interest in technology, Patrícia presented a paper regarding the taxation of big tech companies, emphasizing the non-conformity of the tax system, in collaboration with Professor and Researcher Patrícia Anjos Azevedo which won the award for Best Paper, in that same event.
Patrícia, what prompted you to approach this topic on ESTG Masters?
Faced with the digitalization of the economy, lawmakers have sought to find solutions to adapt the tax system force to this new reality. The current fiscal system is inadequate to tax the economic activities emerging from technological transformation as well as the new business models used. Such inadequacy is justified by the fact that the existing legal framework was designed to tax the so-called traditional economy, characterized by the proximity between companies and customers, where there is the need for a physical presence in a certain territory. The lack of a physical presence in a jurisdiction and the rise of new activities have represented the main challenges of the digital economy for the current tax system.
In particular, your article focuses on the taxation of big tech. Why did you decide to develop your article around this issue?
One of the new activities arising from digital transformation is data processing from users of digital platforms. Subscribing a digital platform or even using a search engine are actions seen by users as free acts, in which the company providing the digital service does not receive any compensation. However, the provider of the digital service obtains the user’s data, something of extreme value in the era of the digital economy.
According to a recent study, the processing of personal data is the fastest growing industry in the United States of America, which will be worth about $ 197.7 billion in 2022. Therefore, the personal data of its users are the real assets of Big Tech, namely Amazon, Apple, Facebook, and Google, which use them for their own benefit, through the creation of advertising directed to the profile of a given user, the sale of data provided by users of its platform, among other value-creating activities. These companies are considered to be the most valuable companies in the world. However, in 2018, the European Commission stated that, in the EU, digital companies are currently subject to an average effective tax rate that corresponds to half of the tax rate applicable to traditional companies.
Which measures have been implemented to address this problem?
In that same year, the European Commission presented two legislative proposals. One of them aims to change the taxation rules to subject the profits obtained by companies in places where they have a significant digital presence to tax. The other proposal strives to create a temporary tax on the revenues derived from the profits of digital services. Both proposals have not yet been implemented. However, some states are seeking to take unilateral measures to adapt their tax system to the digital economy.
France was one of the pioneer countries in this area, having publicly defended the need to tax the Big Tech companies. In 2019, the French Parliament approved a 3% tax on the turnover of technological multinationals. In the case of the United Kingdom, in 2015, it introduced the Diverted Profits Tax, which applies to both resident and non-resident companies. Until today, in Portugal, no measures have been approved yet in order to tax digital services.
Do you believe that taxation will be the solution?
Personally, I believe that taxation alone won’t be the solution to this problem. Besides the difference in treatment between digital and traditional companies, there’s the need to use technological innovation to help ensure that the collected data is effectively used for the purpose for which it was collected for. That way it will be possible to guarantee the three CIA principles, namely integrity, confidentiality, and availability of the information, which are the basis of information security.
Do you consider that LOQR may contribute to the solution of this issue?
LOQR has a preponderant role in ensuring compliance with CIA principles and guaranteeing data privacy and confidentiality, which are highly important nowadays, in the digital world.
Patrícia, if you had to define LOQR in one sentence, which would it be?
LOQR’s vision “Empowering Digital Lives” it’s the best way to describe it, since our passion is to help people to navigate through the digital world, providing the best tools to integrate people with the digital economy.