Innovative technologies and services nearly always assume the availability of data, either personal information or behavioural indicators. Increasingly, they have a business model based on creating value from that data, either through becoming a platform that producers or consumers pay to use, or via the monetisation of data when aggregated and used in media sales.
Many of these emerging players also take steps to headquarter themselves in tax-friendly domains, thereby reducing the net tax revenues of most industrial countries, including the UK.
Hidden behind these assumptions are some other important points. Firstly, users of these technologies and services are in effect unpaid workers, generating value for the business via their usage in the form of the data generated which then gets exploited commercially, or by handing over personal information. Secondly, this value exchange is not always visible or equitable - the huge profits made by free services prove there is an imbalance.
Wherever businesses are extracting a resource, refining it and profiting from their efforts, it is inevitable that taxation gets applied to that profit, mitigated by factors such as R&D credits. On the reverse side, the move towards a model of “polluter pays” imposes a carbon tax on industries that generate significantly to climate change. One-off “windfall taxes”, such as those imposed on the UK energy industry, have also become popular with Exchequers. George Osborne extracted £130 million from Google as a part acceptance that it generates profits in the UK, rather than just adminstrating sales here.
So is it time to tax data? It has a number of dimensions which certainly make it a candidate. The core resource is often being created outside of the business (by individuals giving up their personal information or allowing themselves to be tracked, for example) and handed over for free. Value is created on the back of this data which is not simply reflected in declared profits - the high valuations placed on tech start-ups show just what investors really think has value. And many of these businesses extract that value within one territory, but declare their results elsewhere, thereby avoiding the scrutiny of tax authorities. Making data a specifically taxable item under local tax rules would potentially open up a new line of revenue for the UK.
When I raised the idea during questions to a panel at the Open Data Institute Summit this week, two objections were voiced - that companies would find a way round it and that it could add friction to the customer experience.
Yet taxing data is not really that different from applying VAT to sales. That system relies on self-declaration (and good enforcement) and it does not slow down transactions one little bit. If companies were required to declare the data assets they hold and how these have changed from quarter-to-quarter, for example, it would bring much-needed focus among boards to the value of data, increase the care taken over it and also expose those resources to potentially much greater development and innovation. No business likes to have an asset that just costs money, after all.
The idea has been floated before. In January 2013, the Colin-Collin proposal in France recognised that it was necessary to fix internet businesses to a local base, recognise the value they are gaining from the free work done by users and apply local taxation to that value. Although it was not adopted, the arguments made by its authors remain valid and are perhaps more practicable for the UK post-Brexit than they were for one of the founders of the European Union.
Across the data industry, there is common agreement that data is an asset and one which drives real value for business. As such, can it really be exempt from taxation?