The increasing turn to social media platforms for news has not gone unnoticed by autocratic leaders around the world today, whose hold on power depends on the ability to  silence dissent, muzzle truth-telling, and censor independent news media. That is why content moderation policies must consider their real-life impacts on human rights and press freedom. Divorced from these principles, these policies can have devastating real-life consequences on burgeoning democratic movements and media systems under autocratic regimes.

Facebook’s Actions Help Authoritarian Leaders Stifle Critical Speech Online

Following Haugen’s document release in 2021, the Washington Post reported that Facebook CEO Zuckerberg gave in to censorship demands from Vietnam’s communist government, removing more than 2,200 posts between July and December 2020.

Commenting on the issue, the human rights organization Amnesty International warned that “Facebook’s compliance with these demands sets a dangerous precedent.”  The group further cautioned that, “governments around the world will see this as an open invitation to enlist Facebook in the service of state censorship.”

Facebook is estimated to take in around a billion dollars in annual revenue in Vietnam. The country is also the company’s largest source of revenue in Southeast Asia and a huge potential growth market. Many experts, including  Haugen, believe that Facebook’s rapacious focus on profit undermines its democratizing potential.

Ming Yu Hah, Amnesty International’s regional deputy director for campaigns, described social media platforms in Vietnam as becoming “hunting grounds for censors, military cyber-troops, and state-sponsored trolls.”

“The platforms themselves are not merely letting it happen—they’re increasingly complicit” she added.

In their transparency report, Facebook acknowledged that it had restricted access to more than 600 items between January and June 2021 in response to requests from the government of Vietnam. According to the report, Facebook removed the posts because they allegedly violated a law that criminalizes “content opposing the Communist Party and the Government of Vietnam.”

All of this has significant impact on democratic movements and independent media across the Global South, where the inconsistent decisions made by social media giants are exploited by autocrats to silence critical voices and media organizations.

For example, the Vietnamese Communist Party, emboldened by years of systematic online repression and acquiescence from companies like Facebook, jailed five journalists in October 2021 for what it described as “spreading anti-state content” on Facebook-based news outlet Bao Sach (Clean Newspaper). The news page is currently not available on Facebook.

Meanwhile, the situation is not any better in India, often called the world’s largest democracy but which is now seen as descending into the ranks of “flawed democracies” or “electoral autocracies.” Facebook’s failure to deal with incitement of violence and its  lack of a consistent content moderation policy  have bolstered the government of India’s effort to undermine critical voices and independent media.

According to its 2021 transparency report, Facebook removed 442 items between January and June 2021 “in response to directions from India’s Ministry of Electronics and Information Technology for violating Section 69A of the Information Technology Act.” The law Facebook cited to justify its compliance with government censorship requests “undermines the public’s right to receive information, which is a core component of the fundamental freedom [of] speech and expression,” as prominent Indian lawyer and Executive Director of the Internet Freedom Foundation Apar Gupta wrote in The Indian Express.

Further, he described the law’s emphasis on secrecy, which allows the government to block users’ accounts without disclosing a reason as “an anti-democratic practice that results in an unchecked growth of irrational censorship.”

In its effort to aggressively police content online, the Indian government recently reinforced the law. In February 2021, it unveiled new IT Rules which give it outsized control over the media. Several groups have criticized the rules, including the Editors Guild of India, which described them as “regressive” and “adverse to the freedom of the press,” and three UN Special Rapporteurs, who found that these new regulations fall short of international human rights standards.

Udbhav Tiwari, public policy advisor at Mozilla, warned that the new IT Rules would have “disastrous consequences for the open internet.” The new provisions, he explained, would threaten freedom of expression, privacy, and security, by forcing platforms to verify users’ identities, implement strict time limits for the removal of content or sharing of user information with law enforcement, and expand the government’s ability to remove news media content.

Facebook has already expressed willingness to comply with these rules, raising the question of whether social media companies are enabling undemocratic leaders to censor the internet and stifle critical commentary. By complying with directives that do not conform to international human rights standards for restrictions on freedom of expression, the company becomes complicit in stifling freedoms of speech and of the press around the world.

Race to the Bottom – Legal Exploitation

In its 2021 Freedom on the Net report, Freedom House noted that a “growing number of governments are asserting their authority over tech firms, often forcing the businesses to comply with online censorship and surveillance.” These developments, the report argued, have “contributed to an unprecedented assault on free expression online, causing global internet freedom to decline for an 11th consecutive year.”

Feeding into this trend, in at-risk countries such as Ethiopia, where Facebook has been accused of failing to curb the spread of content inciting violence, the government has introduced a new hate speech and disinformation law that could be used as a  pretext to force tech companies to silence critical voices, according to international rights organization Article 19.

This tactic is not unique to Ethiopia. More and more countries in Africa now are also passing laws against online hate speech. In practice, however, these laws are often an avenue for censorship.

In a recent article, Tomiwa Ilori, an internet researcher at the University of Pretoria, stated that in Africa “real online harms are not only not being adequately addressed by governments but the regulatory responses to these problems are harming freedom of expression.”

Tomiwa argued that, “Nigeria’s Cybercrimes (Prohibition, Prevention Etc) Act, Uganda’s Computer Misuse Act, the Kenyan Computer and Cybercrimes Act, and the Malawian Electronic Transactions and Cybersecurity Act are so vaguely worded that they can be weaponized to stifle dissent.”

This slew of new laws will allow these countries to expand their efforts to censor social media content. Social media companies argue that, in these cases, compliance is the lesser evil: if their services are cut off, people in authoritarian countries will be worse off, with fewer means to communicate.

Revenue Versus Responsibility

All of these attempts to regulate online speech point to how the digital ecosystem has now become a hotly contested battleground and why tech giants must, without compromise, place human rights and greater transparency—rather than profit—at the core of their decisions.

Mark Zuckerberg has rejected all claims that his company puts profit over safety. “At the heart of these accusations is this idea that we prioritize profit over safety and well-being. It’s just not true,” he responded to critics in a Facebook post last October.

In 2020 however, Facebook’s ad revenue from all the regions in the Global South amounted to $23 billion. This represented more than half of what it made in the United States and Canada combined. Despite its substantial gains from the region, the company dedicated significantly fewer resources to dealing with misinformation in the Global South.

A Facebook Papers report by The Atlantic showed that only 13 percent of Facebook’s misinformation moderation staff hours were devoted to regions outside the United States, whose populations comprise more than 90 percent of Facebook’s users.

The company’s underinvestment in context-sensitive content moderation in the Global South leaves the door open for authoritarians to cloak their attempts at censorship in a veneer of legitimate concern over unchecked misinformation and incitement of violence. Facebook has a responsibility to strengthen its efforts to combat hate speech and misinformation on its platform to protect its users and prevent autocrats from taking advantage of its negligence to justify ramped-up censorship.

A Way Forward

Access to information and freedom of expression, including public conversation on social media, are a vital part of strong democratic processes.

Regardless of where one stands on how tech giants should navigate challenges from autocratic leaders, the principles of free speech and press freedom should remain non-negotiable.

Social media companies’ failure to place human rights at the core of their operations can create a vacuum of responsibility, which will be exploited by autocratic leaders who have no interest in advancing free speech and defending an independent press.

To safeguard those pillars of democratic society, tech multinationals should significantly increase their investment in the Global South to address the challenge of misinformation and incitement of violence. To that end, these companies should invest in staffing field offices with experts who are familiar with the local context and can be contacted by civil society.

Social media companies should also consider a significant increase of investment in automated systems for detecting speech inciting violence and misinformation in languages other than English, particularly in high-risk regions.

These recommendations are only a starting point. Meta and other social media giants must commit to centering users’ safety and their right to free expression in their policies. For this process to be inclusive, effective, and transparent, these companies need to engage with human rights groups and take steps to prioritize their users in the Global South.

Originally published by the Center for International Media Assistance(CIMA).

Gideon Sarpong is a co-founder of iWatch Africa and a 2021 Policy Leader Fellow at the European University Institute, School of Trans-national Governance in Florence, Italy. Gideon is also currently a Reuters Fellow at the University of Oxford, United Kingdom.

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Despite being owned and operated by private companies based largely in the United States, these platforms play an important role in public life worldwide. The battles for influence between democratic and authoritarian actors on social media can make or break attempts at democratic transition. As such, the decisions made by these big tech companies can have significant consequences in countries around the world, especially in authoritarian countries with burgeoning democratic movements.

Defending Freedom of Expression: The Need for Transparency and Consistency

Global audiences are becoming increasingly aware of the threat of false information on social media. A 2020 survey by the Reuters Institute for the Study of Journalism showed that 40 percent of respondents are more concerned about encountering false information on social media than other online sources of information.  While this may justify efforts by social media companies to aggressively moderate online content, the reality of the issue is more complex.

These social media companies have proven inconsistent in how they apply content moderation systems, and their decisions about what content is displayed as well as their overall lack of transparency should be of grave concern to users everywhere. Erratic moderation policies have sometimes resulted in the censorship of legitimate investigative news content and important health information by social media algorithms.

Katherine Chen, a Facebook Oversight Board member, is critical of the content moderation policy that guides the company. In an interview with Reuters, she states that the Board “can see that there are some policy problems at Facebook.” She argues for the establishment of policies, particularly those involved in human rights and freedom of speech, that are “precise, accessible, clearly defined.”

Uganda: How Facebook “Caused” an Internet Blackout

Recent events in Uganda are an example of the dangers of these unilateral decision-making processes. Days ahead of the elections in Uganda in January, President Museveni announced a ban on Facebook and other social media platforms. Addressing the nation in Kampala, Museveni accused Facebook of political bias against the ruling party, the National Resistance Movement (NRM), and “arrogance.”

The move was prompted by Facebook’s decision to take down a network of pro-Museveni accounts in the run-up to the presidential election, claiming they were fake accounts linked to the ministry of information. “I told my people to warn [Facebook] . . . If it is to operate in Uganda, it should be used equitably,” Museveni said. “If you want to take sides against the NRM, then that group would not operate in Uganda. Uganda is ours.” Facebook defended its decision to ban the accounts, insisting that an investigation had revealed their involvement in a coordinated effort to undermine political debate in Uganda.

Regardless of the merits of the investigation, many open internet advocates argue private corporations do not have unilateral power over the ‘public realm’ and must consider local circumstances and political nuances in their moderation decisions.

As Odanga Madung, an internet policy researcher based in Kenya, told the BBC: “Any casual observer of Ugandan politics expected the government to impose internet restrictions ahead of the elections, so Facebook’s decision—especially the absence of tact when punishing infringements of its terms of service—offered Museveni a timely ruse to clothe the inevitable shutdown as a retaliation.”

While controversial content moderation decisions from Facebook and Twitter might garner criticism in thriving democracies, they can be met with much harsher consequences in more authoritarian countries where decision-making is concentrated in few hands. In these contexts, companies are often left with no choice but to do the government’s bidding, lest they end up restricted or outright blocked. In either case, users are left to deal with potentially significant repercussions, such as restricted access to the internet, which can impact their businesses and livelihoods.

In the Ugandan case, citizens bore the brunt of Facebook’s decision. Internet freedom monitor NetBlocks found that the five-day internet shutdown in Uganda cost the economy around $9 million (approximately 33 billion Ugandan Shillings), disproportionally affecting poor Ugandans who often rely on internet-based mobile applications to run their businesses.

The Global Implications of Content Moderation Decisions

Content moderation decisions by social media giants have also sparked an intense debate about free speech globally. The seemingly inconsistent decisions made by social media platforms have been used by authoritarian leaders to cloak their attempts to silence opponents—whether by blocking social media access or shutting down the internet altogether—in a thin veneer of legitimacy.

In response to Twitter’s ban of then-President Trump, jailed Russian opposition leader Alexey Navalny criticized the platform’s seemingly arbitrary decision and warned that it could potentially help authoritarians stifle dissent.

And it is clear that silencing online dissent is a priority for authoritarian leaders around the world. In the past, radio and television stations were often among the first sources of public information to be targeted during coups and revolutions. Today, it is the internet. Citing misinformation and fake news to claim an outsized gatekeeper role over the internet provides dictators a powerful political weapon. And there is certainly no shortage of dictatorial leaders willing to use internet shutdowns as a political cudgel. For instance, a 2019 report, by the Collaboration on International ICT Policy in East and Southern Africa (CIPESA) showed that since 2015 up to 22 African governments had ordered network disruptions.

The more recent actions of military leaders in Burma in the immediate aftermath of their coup are cases in point that demonstrate how important control over online spaces is to broader authoritarianism. The morning after the military takeover, citizens reported decreased internet connectivity and days later  access to Facebook (the primary means of internet access for many Burmese citizens), as well as other Facebook-owned services like WhatsApp and Instagram, was blocked. In justifying the ban, officials from the new regime claim Facebook is used to spread “fake news and misinformation . . . [that is] causing misunderstanding among people,” which could lead to further unrest.

The risk of giving authoritarian leaders an excuse to shut down the internet is not the only potential threat posed by the lack of transparency in content moderation decision-making processes. Over the last decade, social media companies have emerged at the center of a political firestorm in many countries. The danger that these private corporate firms could come under undue influence from authoritarian regimes to stifle dissenting voices and opposition groups demonstrates an urgent need for an independent, fair, and transparent content moderation system.

Some of these platforms have already demonstrated their willingness to comply with authoritarian governments’ efforts to censor critics. Instagram recently caved to the Russian telecom regulator’s demands that it remove content related to opposition activist Alexei Navalny’s anti-corruption investigation. Facebook has also previously complied with arcane censorship laws and blocked anti-government content in several countries, including Vietnam, Morocco, and India.

The Path Forward—a Rights-respecting Content Moderation Regime

Currently, Twitter is piloting its “BirdWatch,” a community-driven approach to addressing misleading information on its platform. Facebook has introduced an independent Oversight Board, which will review Facebook’s content moderation decisions and offer binding recommendations on whether or not to uphold them.

Yet, social media companies will need to take more decisive action to improve public confidence in the wake of their sluggish attempts to halt the spread of misinformation and their acquiescence to censorship demands from authoritarian governments. To that end, they must set up regional rapid response units with a commitment to understanding the local political and social context to avoid decisions that play into the hands of authoritarian regimes.

These independent, localized units will also be important in addressing the overwhelming and varied forms of complaints received by big tech companies, ranging from appeals decisions to take-down requests from governments and users.

As big social media companies have taken on an increasingly central role in the public sphere, the intertwinement between private companies and international politics has become increasingly complicated. Laws enacted in the United States and Europe to regulate social media platforms may not apply elsewhere, particularly the Global South. A content moderation regime that is not inclusive, has a slow response rate, and fails to factor in local, regional, and political contexts is ultimately failing to overcome the challenges it aims to address.

Access to information and freedom of expression, including the public conversation on social media, are a vital part of strong democratic processes. Social media companies have an enormous responsibility to respond to demands for greater accountability.

Gideon Sarpong is a 2020/21 Open Internet for Democracy Leader. He is a co-founder of iWatch Africa and a Policy Leader Fellow at the European University Institute, School of Trans-national Governance in Florence, Italy.

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Gideon Sarpong, speaking at the just ended Forum on Internet Freedom in Africa 2020 (#FIFAfrica20) described the current structures put in place by big tech companies as “unsustainable” in dealing with the evolving threat against journalists and rights activists in Africa.

“Tech multinationals must set up regional offices to deal with its increasing users and abusive content on their platforms. The current strategy of using algorithms to detect and take down abusive content as well as lack of physical presence in almost all African countries is unsustainable. The likes of Facebook and Twitter must go beyond using AI systems to deal with vitriol on their platforms to engaging journalists and rights activists around the continent to provide sustainable solutions,” he stated.

iWatch Africa between January to August 2020 has recorded over 4000 instances of online abuse directed at journalists and rights activists in Ghana. Among these abuses include threats of violence and harm which have been duly reported to the law enforcement bodies in Ghana.

A recent study by the Reuters Institute in Oxford also found that seven in ten journalists (71%) in the Global South have experienced online harassment, with more than half saying it has increased in the past year.

Digital rights issues such as data governance, safety and security are increasingly becoming of major concern to users around the continent as some governments, nefarious groups and individuals exploit these platforms to stifle, abuse and threaten the freedom of expression.

“People all around the continent are reliant on platforms like Google, Twitter, Facebook etc. to express themselves freely. Just like the European Union, the African Union (AU) in coordination with member states must play a prominent role championing issues about privacy, safety and security by engaging tech multinationals,” Sarpong stated.

“Many today consider social media platforms as public utilities and argue for some form of regulation. Self-regulation has so far failed to protect users. We need to a new approach,” he added.

Credit: iWatch Africa

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In April 2019, Shell released four reports that showed the company paid over $6 billion to the Nigerian government in 2018 in taxes and royalties. Oil and gas accounts for65 percent of total revenue to the Nigerian government.

Yet, other multinational tech companies, such as Google and Facebook, operating legally across Africa, pay substantially lower taxes as a result of obsolete tax rules. A three month investigation by Ghana’s Gideon Sarpong and Nigeria’s Olivia Ndubuisi based on interviews with dozens of experts, tax officials, court records and company documents also established that Facebook had not paid any direct taxes in Ghana and Nigeria since it began operations over a decade ago despite having over 22 million active users in both countries.

Charles Edosomwan, chief Strategist at Teksightedge Ltd, a digital communications agency based in Lagos, said that Google, Facebook and other tech giants operating in Nigeria are not far behind Shell as case studies in how multinationals reap significant financial rewards from the country without appropriate taxation.

“If the country isn’t gaining much from multinational tech companies in terms of taxation, then what’s the difference between Shell and what they did in Ogoniland and Google?” Edosomwan asked himself in a recent interview.

Edosomwan explained that every single Nigerian on the Google platform is money that the company is making everywhere because it can raise over $100m from advertisers based on its users around the world. If there are 30 million Nigerians on Facebook, Instagram and WhatsApp, he said, Facebook should pay the country a 100 dollars a year per individual. That’s the tax they should pay.

What is that figure of the tax they should pay based on? I asked.

“They make that much from impressions. Why will they not give 10% of money they make from every Nigerian eyeball by way of impressions. For example, assuming that Google makes $100 billion off impressions on their platforms in Nigeria every year and pays 10% to the government as tax, that is $10 billion.” Edosomwan said that under his proposal, Google would pay enough taxes in Nigeria to solve the problem of dwindling revenue and borrowing to fund the budget.

Digital Economic Boom & Tax Challenges

In 2018, Alphabet (Google’s parent company) made over $40bn total revenue in the Africa, Europe and Middle East region (EMEA). Alphabet does not provide a country by country breakdown of revenue in these regions making full analysis difficult. In Ghana, digital advertising is “becoming very popular with a lot of internet users and businesses,” said Mr. William Ansah, CEO of Origin 8 a leading advertising company in West Africa.

Ansah currently spends close to 30 percent of his annual budget on digital advertisement, according to the figures he provided. Although Mr. Ansah spends a significant portion of his budget on Google and Facebook ads, he has never been to the Google office in Ghana. Mr. Ansah is insistent “Google should also pay their share of taxes on profits made in the region.”

Google, is one of the world’s 10 most profitable companies, as well as the  highest ranked platform in Ghana according to popular ranking website Alexa, yet Google goes to extraordinary lengths to minimize its physical presence in the country.

The company’s office at the airport residential area neighborhood of Accra, sits inside a plain, white and blue two-storey building. The paintwork is peeling on the building’s street address. Google, whose parent company made more than $160 billion in global revenue in 2019, doesn’t even own the building – it is shared with other businesses with much lower public profile.

On a recent day in February, a front desk employee defended Google’s decision not to advertise its physical presence, saying the company had the right to choose what logos — or not — it displayed outside its office.

One woman who reporters saw leaving the building said she had no idea Google was based inside and was there to visit an entirely different company.

In an ongoing court case in Ghana involving lawyer George Agyemang Sarpong, Google Ghana and Google INC, the Ghana subsidiary goes to great lengths to contend that it is not the “owner of the search engine www.google.com.gh, does not operate or control the search engine and that its business is different from Google INC,” according to court filings obtained as part of this investigation. This is significant because monies spent by the likes of Origin 8 on the Google platform are currently “served by Google Ireland Ltd” according to billing information about ads on the Google platform in Ghana.

Rowland Kissi, law lecturer at the University of Professional Studies, Accra has described Google Ghana’s defense as, “clever attempt” by the business to shirk all “future liability of the platform” should the court rule in their favor. He agreed with the court’s initial reasoning that “the distinction regarding who is responsible for material appearing on www.google.com.gh, Google’s search engine operating in Ghana, is not so clear as to absolve the first defendant (Google Ghana) from blame before trial.”

Google Ghana describes itself publicly as simply an “AI research facility.” In court documents, however, the company admitted that its business is to “provide sales and operational support for services provided by other legal entities…”

Mr. Abdallah Ali-Nakyea, a leading tax lawyer, said that the case should interest Ghana’s revenue authority. As long as the “government can establish that Google Ghana is an agent of Google INC, the state could compel it to pay all relevant taxes including income taxes and withholding taxes,” he added.

Google Ghana did not respond to a request for comment on this investigation. Sarpong declined to comment for this story citing the ongoing litigation.  

Digitization and technology are increasingly playing bigger roles in the economies of Nigeria, Ghana and other African nations. According to a 2018 PricewaterhouseCoopers (PwC) report, Nigeria witnessed an average of 30% year-on-year growth in internet advertisement in the last five years, with a projected internet advertising spending of $125m in the entertainment and media industry in 2020.

The challenge has been taxing the so-called “digital economy” and ensuring that the disruption is contributing to revenue mobilization for African countries. 

“Existing tax systems tend to determine tax consequences on the basis of where the taxpayer is physically located,” said Ghana’s Deputy Commissioner of Large Taxpayer Office, Edward A. Gyamerah.

“The advent of modern telecommunication and the spread of digitization, the ability to effectively engage in substantial business activities in a country without a fixed place of business there, or to conclude contracts remotely through technological means with no involvement of individual employees or dependent agents, raises questions about the continuing suitability of existing Permanent Establishment or nexus rules,” he added.

The current rules argue that a company is taxable on its business profits only if it has a physical footprint in a resident jurisdiction.

Facebook and Google

In 2019, Facebook made over $6 billion in revenue from what it labels “rest of the world,” which includes Africa, Latin America and the Middle East. Apart from South Africa where Facebook is expected to pay direct taxes because of its physical presence and a change of tax laws by the South African government, the remaining 53 countries on the continent will unlikely receive any direct tax payments.

The 2018 PwC report estimated that the South Africa’s 2019 change in tax laws “could raise up to R4.4 billion ($290m) a year” from companies like Google and Facebook. This figure is close to Ghana’s average yearly spending on its flagship free senior high school education. What South Africa will likely earn from new taxes on tech giants would also match the 2016/2017 financial year Internally Generated Revenue of Oyo, a state in south west Nigeria.

A Facebook company spokesperson, Kezia Anim-Addo, said in an email: “Facebook pays all taxes required by law in the countries in which we operate (where we have offices), and we will continue to comply with our obligations.” 

Facebook has no physical presence in Ghana and Nigeria and does not provide country by country report of its revenue from Africa. For residents of Ghana and Nigeria who purchase Facebook advertisements online, the revenue is also billed in Ireland, which has been described by the EU parliament as a tax haven. 

Investigations into the tax affairs of popular multinationals such as Facebook and Google are important to understand the cost to the public, says Alex Ezenagu, Professor of Taxation and commercial Law at Hamad Bin Khalifa University Qatar.

‘‘There is the issue of Inter taxpayer equity,” Ezenagu said. “If the businesses don’t pay tax, the burden is shifted to either small businesses or low income earners because the revenue deficit would have to be met one way or another.”

Ezenagu said that the gap in revenue in Nigeria, for example, may cause the government to increase other taxes, such as value added tax, which increased from 5 to 7.5% in January. “When multinationals don’t pay tax, you are taxed more as a person.”

This erosion of potential taxes means that developing countries are unable to receive the revenue they require to fund their development, said Suleiman Yahaya, senior tax expert at Andersen Tax.

“If you deny any country their tax revenue,” Yahaya said, “it reduces what is available to be spent on Government projects which could be on education; capital projects etc. so the impact is on critical investments.

“There is a ripple effect where revenues are low and cannot meet the government’s plans and they go into borrowing with attendant consequences” Yahaya concluded.

Slipping the tax net

Facebook’s practice of routing overseas profits to low-tax countries is common among major tech companies, which have faced criticisms around the world for not paying enough in taxes.

Several tech giants make use of the ‘Double Irish with a Dutch Sandwich’ tax avoidance scheme to route profits to low or no tax jurisdiction. The technique involves sending profits to one Irish company, then to a Dutch company and finally to a second Irish firm established in a tax haven such as Bermuda.

Google, has over the years been accused of developing a similar sophisticated approach in the use of tax havens to avoid payments of taxes and profit shifting. This is how Google has managed to slip the tax net over the years.

According to documents filed at the Dutch Chamber of Commerce in December 2018, Google moved $22.7bn through a Dutch shell company to Bermuda in 2017. The amount channeled through Google Netherlands Holdings BV was about $4bn more than in 2016, the documents showed.

The subsidiary in the Netherlands is used to shift revenue from royalties earned outside the US to Google Ireland Holdings, an affiliate based in Bermuda, where companies pay no income tax.

Executive Secretary of the African Tax Administration Forum, Logan Wort, who was interviewed at the sidelines of the Pan-African Conference on IFFs and Taxation in Nairobi, explained that the practice where digital companies “strip out their profit before they then declare their profit and then pay a vastly reduced tax” is a “huge disadvantage” to brick and mortar companies who must comply with local tax laws.

Actions by the Nigerian and Ghanaian governments:

A source at Nigeria’s Tax Authority, FIRS, who did not wish to be named, said that Nigeria’s government is “tightening” tax laws to take further action.

“Many countries did not foresee the digital economy and its ability to generate income without a physical presence which was why tax laws didn’t cover them,” the source said.

The FIRS source said that Nigeria’s Finance Act, signed into law January 2020 has expanded provisions to shift the country’s focus from physical presence to ‘significant economic presence’.

Yahaya Suleiman at Andersen Tax says this move is in alignment with global best practices.

“The Finance minister has said Nigeria has a revenue challenge,” Suleiman said. “The government sought to look at provisions that tighten the noose a bit to see where and how to increase our tax receipts.” 

In Ghana, digital taxation discussions are slowly gaining momentum among policy makers. Deputy Commissioner of Large Taxpayer Office, Edward A. Gyamerah in a June 2019 presentation insisted that current rules must be revised to cover the digital economy and deal with companies that don’t have traditional brick-and-mortar office presences in the country.

A top government official at the Ministry of Finance who was not authorized to speak publicly also stated that, “from the taxation policy point of view, the government has not paid a lot attention to digital taxation.” He blamed the “complexity of developing robust infrastructure to assess e-commerce activity in the country” as a major reason for the government inaction. He however insisted that, “digital taxation is key focus in the medium to long term tax strategy” with a broad digital tax policy expected to be announced in 2020. Until these are done, he believes that, “Google and Facebook will pay close to nothing in Ghana.”

International Effort to deal with digital tax and profit shifting

In parallel with the unilateral effort by various governments to address the tax challenges as the global economy becomes highly digitalized, the OECD is seeking to develop an international consensus on digital taxation.

In October 2019, the OECD in their 18-page framework plan titled ‘Unified Approach’ admitted that, “in a digital age, the allocation of taxing rights can no longer be exclusively circumscribed by reference to physical presence.” 

“The current rules dating back to the 1920s are no longer sufficient to ensure a fair allocation of taxing rights in an increasingly globalised world,” the statement read. 

“We can’t be an island,” the FIRS source said. “The tech giants have their countries represented there in the OECD, so Nigeria needs to be at the table too leveraging the OECD. If you aren’t on the table, then you’re on the menu.”

Tax expert and Executive Director of nonprofit advocacy group, the Global Alliance for Tax Justice Dereje Alemayehu, described the OECD as a “partisan organization” that lacks the “mandate to determine routes for international taxation.”  

“This is a process in which there is no accountability and transparency. Developing countries have no possibility of challenging positions of governments or negotiators participating in the process. It is led by a very powerful OECD secretariat which is not fulfilling the criteria of being neutral among the negotiating positions to facilitate inter-governmental negotiations,” Dr. Dereje explained.

A paper published by five leading tax experts representing various interest groups around the world in February, 2020 re-emphasized Dereje’s argument. The experts argued that ”the opaque OECD negotiations behind closed doors, served by a Secretariat accountable to only OECD members, is simply not the way forward on finding global consensus on such an important issue.” Pascal Saint-Amans, OECD’s director of the centre for tax policy and administration disagrees and says, “reaching a multilateral solution at the OECD is the best way to address the current tax challenges.”

The experts have called for the creation of an international tax commission at the United Nations to bring developing countries into the fold.

Experts said: “Losing hundreds of billions in revenue while staring at the climate emergency and implementation of SDGs is unacceptable, it is time for developing countries to prioritise the issue.

Reporting and writing by Gideon Sarpong (Ghana) and Olivia Ndubuisi (Nigeria).

This article was developed with the support of the Money Trail Project (www.money-trail.org).”

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