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OPINION AND ANALYSIS | 09-10-2021 11:55

How to evade taxes while being a major global corporation in a globalised and digital world

Facebook, Google, Amazon, and the largest technology companies out there, most of them headquartered in Silicon Valley but registered in tax havens like Ireland, have long bent the rules in order to innovate, but also to their own benefit.

As most pundits and analysts continue to obsess over the relationship between Alberto Fernández and Cristina Fernández de Kirchner, a series of global events are promising to have a much more meaningful impact both on Argentina and the world. These interrelated occurrences directly touch on this country, yet they were relegated in the weekly agenda to discussions as to whether former president Mauricio Macri would be a good university lecturer or if he should immediately return to the country to face a judicial citation. In the same week we witnessed the release of a new global data leak dubbed the ‘Pandora Papers’ which put Argentina on the podium of suspicious tax haven operations, as rich countries agreed on a self-serving global tax deal that will do little to improve the lot of developing nations, as Economy Minister Martín Guzmán noted. Finally, Mark Zuckerberg’s Facebook was front and centre as a global outage followed the scathing appearance of a company whistleblower, Frances Haugen, who corroborated that the major social media platforms are not only indomitable, but pushed from the top to optimise profits at the expense of anything else, causing very real harm to society.

The latest bombshell from the International Consortium of Investigative Journalists (ICIJ) once again pulled aside the curtain cloaking the world of international finance and tax optimisation. A massive trove of 11.9 million confidential files from 14 offshore service firms around the world shows that little has been done to curb the growth and continued use of tax havens to the benefit of the extremely rich. Interestingly, Argentina climbed to the third place in the ranking of total final beneficiaries exposed in the leak, with 2,521. We came in behind Russia (4,437) and the UK (3,506), and just above China (2,382). Our outsized presence in this leak is an indication of something Argentines have known for years: one of the only ways of preserving the value of assets in our country is to convert them to dollars. Argentines can’t be blamed for seeking refuge in greenbacks abroad given the country’s record on inflation, devaluation, and political and economic crises. Unfortunately, it generates a negative feedback loop, as every dollar that makes its way out of the Argentine financial system is subtracting possible productive investment, feeding a never-ending deficit that ultimately leads to money printing, higher inflation, indebtedness, defaults and the whole shebang.

Using offshore accounts to optimise taxes and preserve value isn’t illegal, and it is a necessary feature of the international financial system, but it can obviously be abused and also used for delinquent purposes. One of the latest reports put together by the Argentine team — journalists Emilia Delfino, Hugo Alconada Mon, Maia Jasterblansky, Ricardo Brom, Mariel Fitzpatrick, Sandra Crucianelli, Iván Ruiz — puts the lens on Humberto Grondona , son of the late global football kingpin signaled out in the so-called ‘FIFAgate’ investigation, Julio Grondona. ‘Don Julio,’ the global vice-president of FIFA from 1988 until his death in 2014 and arguably a man even more powerful than his supposed boss Joseph Blatter, is thought to have earned US$30 million in bribes for the TV rights of the World Cup, US$25 million of which were laundered by Julius Baer bank and appear in the Pandora Papers investigation. Papa Grondona died with a clean slate on the legal front and many still remember his glory days running Argentine football suggesting things worked better with him.

Thus, as the cult of Grondona continues to attract a faithful following, the world is debating the future of global taxation. Indeed, since the acceleration of globalisation and the financialisation of the global economy, the issue of how to tax that incredible generation of wealth has been on the table. The rise of multinational corporations made it harder, a circumstance exacerbated by digitalisation. For example, global tech giants like Google and Facebook pay no taxes in Argentina for digital advertising sold on Argentine news websites, served to readers in Argentine, and acquired by Argentine advertisers. Instead, they invoice from places like Ireland and Luxembourg, where they pay lower corporate tax rates.

A geopolitical battle between the European Union and the United States had been raging for years. With the OECD rich-country’s club as the forum, the EU — which had missed out on the incredible wave of innovation and growth fed by the Internet, at the expense of the United States, and now, China — had been duking it out with Washington, which seeks to preserve the competitive and strategic advantage of Silicon Valley. In a deal dubbed “a mockery of fairness” by Oxfam, a number of the largest multinationals will have to pay a percentage of their profits in the countries where they were earned, while the global minimum tax rate will be set at 15 percent. According to Oxfam’s research, only 69 multinationals will be reached by the mandate to pay taxes where the profits were created, resulting in developing countries receiving only 0.025 percent of their collective GDP in additional revenue. The G7 and the EU are expected to take in two-thirds of any new cash generated by the new rules. Guzmán, who noted Argentina will support the new rules, acknowledged the calculations weren’t transparent and the supposed benefit to developing nations could be inexistent.

Facebook, Google, Amazon, and the largest technology companies out there, most of them headquartered in Silicon Valley but registered in tax havens like Ireland, have long bent the rules in order to innovate, but also to their own benefit. Over the past several weeks, the Wall Street Journal released a series of stories it called ‘The Facebook Files’ revealing how the company founded and led by Zuckerberg has ignored warning signs to prioritise the growth of its business. This has global implications, as the Facebook suite of products has 2.9 billion users. The reports were compiled by information provided by Haugen, the aforementioned whistleblower, and their main finding is that engagement optimising algorithms are increasingly hard to control, which in turn leads to greater polarisation, serious mental health problems, and real-world violence. Facebook upper management knew about this, but when faced with solutions that impacted on engagement metrics, opted to prioritise the bottom line. Some of the safety mechanisms mentioned aren’t rolled out in languages other than English.

A global reconfiguration is currently taking place, where the pillars of the conversation gyrate around the relationship between the US and China (and Europe’s role in that), the globally financialised and concentrated (and increasingly digital) economy, and climate change, among other things. Argentina is still stuck talking about Alberto and Cristina.

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Agustino Fontevecchia

Agustino Fontevecchia

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