A long way behind the public debate in Israel and globally on the impact of Internet giants Google, Facebook and others on the economy and society, the Knesset Economic Affairs Committee got around to holding a session on the matter today. Committee chair Eitan Cabel, who initiated the session, chose not to hold separate sessions on the economic and the social issues, and the result was much hot air and very little new information.
The first questions discussed were mainly the challenges that the Internet giants present to regulators. Antitrust Commissioner Michal Halperin surveyed the work currently underway in the Antitrust Authority concerning these companies. She said the Internet giants had brought a great deal of benefit and good to the world and had changed the way we behave, but alongside this they had also accumulated a great deal of economic and political power, and represented a significant challenge globally and to Israeli society. She said the Antitrust Authority was examining the influence of the Internet companies in depth, and would devote the year 2018 to assessing whether they were abusing their power.
Halperin's stance is that Israel need not be "a light unto the nations" when it comes to legislation and regulations to curb the Internet companies, and that there should be intervention only where the local market is harmed. "What pertains to us is the natural tendency of these entities to be monopolies," she said. "Many of them provide their services to the surfer for free, and that obliges us to analyze their activity differently from the traditional way. In general, price is the criterion used to understand a product. That doesn't exist in an economic analysis of the Internet."
"There is no need to amend the Restrictive Trade practices Law to provide a remedy and to deal with the digital world," Halperin added. "There is no need to create new definitions. As we see it, as far as the questions that have been raised are concerned, the major Internet companies have a presence in Israel through the doctrine of effects, and the Restrictive Trade Practices Law therefore applies to them even if they are not incorporated in Israel. We are examining them not because they are large and strong, but to understand whether they are abusing their strength. If it turns out that they are doing things in order to undermine competition or using their strength in one market in order to take over another market, that will be of interest to us. If there's a specifically Israeli problem, we will want to deal with it. But I don't think that we need to be leading the struggle."
One issue for which the media giants have attracted criticism is the fact that they don't pay taxes in Israel. That means a loss of revenue, and also enables these companies to offer attractive advertising tariffs. The Israel Tax Authority has stated in the past that it will take steps to tax international corporations. Tax Authority director Moshe Asher said today that the process had begun. "The circular that the Tax Authority published on taxation of international companies interprets existing law broadly in such a way as to determine that multi-national companies operating in Israel have a 'permanent establishment' here. After the in-principle determination that a permanent establishment exists in Israel, we have to look at the next question, which is how much profit should be attributed to Israel out of the company's total profit? The Tax Authority is currently addressing both these questions with the companies that operate in Israel. We are in the process of drawing up assessments, and ultimately we will collect taxes from the major Internet companies. We have already issued assessments to some of the companies (Google and Facebook). We are still working on the great mass of companies."
Talking to "Globes" after the committee session, Asher said, "The Authority is currently working on assessments and audits, both for VAT and for income tax, and new assessments will be issued to these companies within the next few months."
Yulia Shmuelov-Berkovitch, spokesperson for The Second Authority for Television and Radio, painted a dark picture of the future facing Israeli content producers unless the power of Google and Facebook was curbed. "We're talking about a collapse of the media market. The damage won’t end at television, it will reach radio and the press, and it will be a blow to Israeli democracy and Israeli creativity. Nevertheless, we shouldn't throw out the bay with the bathwater, because Google and Facebook greatly help small and medium size businesses." Shmuelov-Berkovitch even made an operative proposal, namely not to recognize the cost of advertising by companies on Google and Facebook for tax purposes.
Oren Roseman, VP strategy for television broadcaster Reshet, translated the frustration into numbers. "We deal in Israeli content, and our investment percolates through to the entire industry. Every shekel we invest helps to support dozens of people and finds its way back to the state. A large part of the public consumes much of the content via Facebook and Google. In 2017, there were 44 million views of our content on YouTube. In terms of advertising revenue, that's worth millions of shekels. We made just NIS 413,000 on it. 1.05 million hits were recorded on our Facebook pages, that generated zero revenue for us. It's important to create a level playing field, whether through concessions or in some other way."
Google public policy manager Noa Elefant-Loffler, rejected the accusations hurled at Google. "We are a law abiding company," she said, "Google pays 20% tax, mostly in the US. If there's a change, the division of taxation will also change. The pint of advertising is to give value both the advertiser and the consumer. Google's main activity is with advertisers addressing international audiences. There's a great deal of activity of small Israeli advertisers who had no platform before."
Jordana Kotler, for Facebook Israel, said, "We have unilaterally changed the way we pay taxes both here and in other countries. We won't record the advertising revenue in Ireland. We'll pay tax on all our revenue in Israel. It's important for us to invest here, and it's also important for Israel that international companies should invest here."
The participants let off steam, but the entire discussion seemed passé. Or as one of these present summed it up; "We're trying to lock the stable door a long time after the horses have bolted."
Published by Globes [online], Israel business news - www.globes-online.com - on January 8, 2018
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