Too Big to Care?

The Big Five - How powerful are they? How are they coping during the Covid pandemic and what about taxation?

GAFAM, the Big Five - both acronyms for the five tech giants: Google, Amazon, Facebook, Apple and Microsoft. They are among the world's ten largest companies. How powerful are they? How are they coping during the Covid pandemic and what about taxation?

The economic power
Combined, Google, Amazon, Facebook, Apple and Microsoft (GAFAM) have a stock market value of beyond 7 trillion US dollars (at the time of writing). To put everything in perspective, the top 30 DAX corporations do not even reach the 2 trillion mark. Their market power is enormous and has already become a major political topic. The digital economy is clearly dominated by the GAFAM corporations. Due to their perceived individual monopolies, they can suspend the force of competition that once made them what they are now. High profits in a specific market normally result in new competitors but that is not the case in the GAFAM setting. The approach of the GAFAM players is always the same. Companies are snapped up to either seize new sectors or new geographical regions, to contain competition or to gain expertise for themselves. For example, in the past 10 years, Google alone has bought over 120 companies, Amazon about 90 and Facebook about 80. Especially during the Corona pandemic, the Big Five cranked up and bought more companies than ever before. In the long term, this could have a huge impact on the balance of power in the economy.

The Big Five in times of the pandemic
The most interesting sectors and markets for the GAFAM world are those that have high potential but lag considerably behind in terms of digitalization and are therefore particularly lucrative. One such example would be the healthcare industry. The power and social dependence on big tech became particularly visible when it came to the release and development of Corona apps. An agreement between Apple and Google was required to make the apps accessible to the respective iOS/ Android operating systems. For many years now, the tech giants have been working on a possible entry into the healthcare sector. Their first attempts with an electronic health record failed. However, it is certain that the pandemic will bring new opportunities and possibilities for them.

GAFAM and the tax puzzle
Tax authorities around the world are facing a huge challenge, matching in scale with the size of the Big Five. The business models of digital corporations are designed to leverage their power and minimize the overall tax burden through cross-border profit shifting, internal capital shifts and other loopholes. The reason why this is possible at all lies in the nature of the product as such. Intangible goods, like a search engine optimization, offer more opportunities for profit shifting than the sale of tangible goods, such as a car. Google advertising for Switzerland is sold directly from tax havens. Since November, France has been the first country in the world to tax tech giants, setting an example for many other countries. Digital companies with a turnover of 750 million or more will have to pay three per cent digital tax on their sales now. The OECD has developed a similar tax plan. The tech giants are to be taxed where their users are based and not where their billing company locations are, as it has been the case until now. However, the plan has not yet been finalized and is not expected before mid-2021 due to stalled negotiations.

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