Seanad debates
Wednesday, 22 February 2023
Nithe i dtosach suíonna - Commencement Matters
Tax Code
10:30 am
Lynn Boylan (Sinn Fein)
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Cuirim fáilte mhór roimh an Aire Stáit. Much attention has rightly been placed on the role of fossil fuel companies in the climate crisis, but we cannot afford to take our eye off the other big polluters, namely, the big tech companies. Big tech is exacerbating the climate crisis by driving demand for consumer goods through advertising and for electricity to run those advertisements. We often refer to Facebook and Google as tech companies but it is more accurate to describe them as the world’s two largest advertising companies. Alphabet generated almost 84% of its 2020 revenue from online advertisements, while Facebook generated more than 98.5% of its 2020 revenue in the same way. Their business models are entirely based on online surveillance advertising and targeting users, monitoring our online lives in order that they can persuade and manipulate us to buy more stuff. We will all have heard the phrase "data are the new gold".
Advertising aims to increase demand for goods and services. A 2022 report published by Purpose Disruptors found that the increase in sales driven by advertising had been responsible for 208 million tonnes of CO2equivalent in 2022. As the co-founder of that organisation, Jonathan Wise, has stated:
The uncomfortable truth is that if you work in advertising, the better you do your job, the more damage you cause [to the planet]. This is because advertising drives consumption and consumption drives carbon emissions.
As we all know, given it has been the subject of a great deal of debate, data centres have huge electricity demands and associated emissions. We need to ask where that insatiable demand is coming from and what is happening in these data centres. One of the answers involves processing the power for immense volumes of online advertising. An insidious practice these data centres use is what is called real-time bidding, RTB. When a person lands on a web page, a complex, quick and energy-consuming auction occurs to determine what advertisement he or she will see. Real-time bidding uses data gathered on individuals, their likes and dislikes, interests, vulnerabilities and even their moods to sell their attention to the highest bidder, and the Irish Council for Civil Liberties helped uncover the scale of this practice. The machinery behind this system has an enormous appetite for energy. Approximately 178 trillion real-time bidding transactions happen each year in the US and Europe alone and are processed through data centres, many of which are based in this country. It is estimated that amounts to 200 TW-hours each year, which equates to more than the entire national energy consumption of a medium-sized country happening through these real-time bidding auctions just to prey on our vulnerabilities and try to sell us products. According to a report by Global Action Plan, the technology behind this kind of online advertising, known as ad tech, is incredibly wasteful. In any one RTB auction, only one bid ultimately leads to an advertisement but trillions of unsuccessful bids surge around global data centres burning energy and heating the planet for no reason at all. In fact, 99.999% of the computer power used in these RTB auctions does not result in an advertisement and is completely wasted.
I acknowledge the Minister of State is at the Department of Agriculture, Food and the Marine, so he will just have to read out a prepared script, but it is time the tech companies were made accountable for the emissions they are producing. It is resulting in a very significant cost on our grid infrastructure, putting our energy security at risk and playing a significant role in climate change. Will the Government explore a tax on online advertising? Other countries have imposed taxes on advertising revenue, including Britain, Austria, France, Italy and Spain.
Martin Heydon (Kildare South, Fine Gael)
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I thank the Senator for raising this important matter relating to an online advertising tax, which I am taking on behalf of the Minister for Finance. I understand that the Senator is referring to a tax in the same vein as a digital tax, which has been the subject of discussions in the area of international taxation over recent years. It is the long-held view of the Government that to ensure there is a level playing field between the traditional bricks-and-mortar economy and the digital economy, it is important the tax system evolve to cater for the digitisation of the economy. As this is a global issue, it is important there be a global solution.
The European Commission proposed a digital services tax, and separately a digital advertising tax, some years ago, which sought to impose a 3% levy on the turnover of certain companies’ digital activities. At the time, Ireland's concerns regarding the proposals arose from the suggested fundamental shift to taxing revenues rather than profits. It was our view a digital advertising tax proposal would do nothing to mitigate this and would serve only to target specific companies, heighten international trade tensions and potentially harm economic growth.
For these and other reasons, member states ultimately could not agree to the measures and instead sought to focus on finding a global solution to taxation issues in this area at the OECD. The OECD-G20 Inclusive Framework on base erosion and profit shifting, BEPS, met in October 2021 to agree a two-pillar solution to address tax challenges arising from the digitisation of the economy. Pillar 1, which is most relevant to what we are discussing here, will see a reallocation of 25% of residual profits to the jurisdiction of the consumer. Its scope is confined to multinational groups, MNEs, with a turnover in excess of €20 billion annually.
Ireland recognises that taxation issues are created by digitisation where profits can be made by MNEs without a taxable presence in jurisdictions. Pillar 1 seeks to address this issue by reallocating a portion of taxing rights to those jurisdictions to account for this digitisation. Therefore, Ireland signed up to the agreement recognising that the current rules, first agreed a century ago, must evolve to reflect how modern business operates. Pillar 1 will be implemented via a multilateral convention, on which work is well advanced at the OECD. It is anticipated this will be finalised by mid-year, with a signing ceremony scheduled for July. Once signed, the multilateral convention will be brought before the Oireachtas and debated as part of the legislative process, including in this Chamber.Once signed, the multilateral convention will be brought before the Oireachtas and debated as part of the legislative process, including in this Chamber.
Pillar 1 is comprised of amount A, which seeks to allocate a taxing right to market jurisdictions, and amount B, which seeks to simplify certain aspects of transfer pricing rules. Implementation of amount A will require all parties to remove all digital services taxes and other similar measures with respect to all companies, and commit to not introduce such measures in the future. Pillar 1 should address the same concerns that digital services taxes and digital advertising taxes are trying to address. It is important this ongoing process is allowed to continue without the added complexity that would be triggered through introduction of unilateral measures by individual jurisdictions, such as a digital advertising tax. There are, therefore, no current plans for the Government to introduce a digital advertising tax at this time, which may risk undermining Ireland’s position at the OECD and may ultimately need to be amended or withdrawn once that process concludes. lreland continues to participate actively at the OECD to ensure it is at the forefront of discussions on these important matters and ensure its tax system can adapt and evolve to meet the needs of the economy into the future.
Lynn Boylan (Sinn Fein)
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I do not agree with the Minister of State's response that unilateral measures would risk Ireland's position at the OECD. We know that other countries have already introduced a tax on digital advertising, not the digital tax he is referring to. The Austrians charged a rate of 5% on gross receipts from advertising services rendered by providers in Austria if they are targeted at Austrian users on Austrian devices. The French scheme takes aim at targeted advertisements in particular. It is clearly workable and clearly not something that is tied up in the wider issues the Minister of State outlined.
According to the organisation Core, the advertising market is worth €1.23 billion in Ireland. Using back-of-the-envelope maths, if we were to introduce a 3% levy on that, it would bring in €60 million that could be used to help to tackle climate change in this country and go towards a just transition. I do not accept that we cannot move in a unilateral way. That is always the response whenever we raise issues in this House. We are looking around and we see that our European counterparts are showing the radical responses necessary to tackle climate change by moving without having to wait for an EU-wide proposal.
Martin Heydon (Kildare South, Fine Gael)
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I again thank the Senator for raising those points and note the frustration with which she articulated them. I will bring them back to the Minister for Finance. I did not necessarily expect the Senator to be happy with the response but, notwithstanding that, a global approach to address the challenges raised by digitalisation under Pillar 1 of the OECD agreement is preferable to unilateral measures such as a digital advertising tax. Unilateral digital taxes only serve to increase international trade tensions, which would not benefit Ireland. They would undermine the trust required to achieve a lasting global solution at the OECD inclusive forum on BEPS, which is the best forum in which to achieve this. As I mentioned, this is a global problem requiring a global solution. The Government remains fully supportive of the OECD agreement and looks forward to both agreeing and implementing the rules in the near future.