On February 8th, 1996 John Perry Barlow, a Grateful Dead lyricist and political activist, penned his Declaration of the Independence of Cyberspace, an anarchistic piece contending that the Internet should be free from government regulation. Borderless and without sovereignty, “our world is different,” Barlow argues, and should be treated as such because a government has no “moral right” - not to mention jurisdiction - to govern cyberspace:
You have not engaged in our great and gathering conversation, nor did you create the wealth of our marketplaces. … You claim there are problems among us that you need to solve. You use this claim as an excuse to invade our precincts.
If you read the piece in its entirety, you may not agree with everything Barlow says, but his work does highlight an important issue that continues to have bearing today: cyber jurisdiction.
Earlier this week, a panel of MPs on the Public Accounts Committee struggled with how to apply that concept during a hearing in which Amazon, Starbucks, and Google appeared to explain why each company had been paying a relatively minimal amount of corporate tax compared to the large amount of revenue each one generates in the UK. If you’re holding your breath for an explanation of off-shore tax structure, you’re gonna have a bad time (for a good explanation, check out this article on Ars Technica).
Aside from it being clear that the committee planned on taking the three companies behind the political woodshed, an effort specially led by Chairwoman Margaret Hodge, who ripped into Amazon’s Director of Public Policy (why Amazon sent a public policy director to a tax inquiry I’ll never understand), it was also clear that the committee was trying to force the square peg of e-commerce into the round hole of clearly attributable taxable revenue.
When Google’s turn came, the company’s representative, Matt Brittin, first pointed out that Google has always complied with its obligations under the UK tax code. But he also took a great deal of care to emphasize that the inherent value of the company resides with its 17,000 engineers in Mountain View, California, not in the UK. The employees in the UK, he pointed out, “are not doing the innovation, they are not doing the computer science.”
The committee was not impressed. "We’re not accusing you of being illegal, we are accusing you of being immoral,“ responded Hodge, who along with other committee members, continued to press Brittin about UK-specific sales:
What we’re interested in is the revenues you earn in the UK… we don’t think you pay a tax that is just.
But the emphasis on UK sales misses the larger point, which I will address in a moment. Tax concerns aside, the committee’s postion that Google should pay more tax is, in part, premised on the belief that cyberspace can be regulated, a position that Lawrence Lessig articulated to an extent in Code and other laws of cyberspace. Lessig describes two types of code: 1) East Coast Code, or laws coming from Washington, D.C.; and 2) West Coast Code, referring to code written by software developers. In part, he argues that as e-commerce increases in prominence, so will governments be more inclined and better able to regulate the net:
When commerce writes code, then code can be controlled, because commercial entities can be controlled. Thus the power of the East over West increases as West Coast code becomes increasingly commercial.
As Lessig indirectly predicted, when a company like Google has sales of £2.5 billion in the UK and pays only £3.4 million in tax, people are going ask questions - in this case, tax questions. But the regulation of e-commerce is not directly analogous to the regulation of traditional brick and mortar businesses.
By continuing to hammer away at Google’s UK revenues, comparing the company to ITV (a network in the UK), and making duplicative accusations of Google’s immorality, the committee missed the larger point, which is this:
To what extent can sovereign nations regulate non-tangible services like ad sales? Is regulation premised on where the company is physically located, where it stores its servers, where it generates revenue, or some combination of the above? While I certainly don’t have the answer to these questions, that committee moved no closer to a solution than I did by framing a digital debate in purely physical terms.
Rowan Reynolds