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Taxation of robots

(Image credit: Image Credit: Tatiana Shepeleva / Shutterstock)

On February 17, Bill Gates set the news agenda around the world by declaring that a so-called "robot tax" should be introduced in order to counteract job losses caused by automation. "Right now," he told online publication Quartz, "the human worker who does, say, $50,000 worth of work in a factory has that income taxed. If a robot comes in to do the same thing, you’d think that we’d tax the robot at a similar level." 

There is no doubting that Gates' vision of job displacement is not of a distant dystopian future, but today's reality: in 2015 expenditure on robotics climbed to $46 billion, globally. A hotel in Japan, Nagasaki, is staffed entirely by robots. Even heritage British cake brand Mr Kipling has enlisted the help of 46 robots to pack its cakes. As Stephen Hawking recently outlined, “the automation of factories has already decimated jobs in traditional manufacturing, and the rise of artificial intelligence is likely to extend this job destruction deep into the middle classes, with only the most caring, creative or supervisory roles remaining.” In support of this claim, a recent study by McKinsey found that 45 per cent of US employees work activities could be replaced by existing technology.  

Unemployment caused by increased automation is therefore an issue which political and business leaders are going to have to grapple with over the coming years. In fact, it is an issue that politicians are already considering; on 16 February 2017 the European Commission voted on wide ranging proposals regarding robotics, including a "robot tax", which was rejected by MEPs. In anticipation of the vote, the MEP tabling the proposals suggested a broad definition of "robots" as "physical machines, equipped with sensors and interconnected so they can gather data. The next generation of robots will be more and more capable of learning by themselves. The most high-profile ones are self-driving cards, but they also include drones, industrial robots, care robots, entertainment robots, toys, robots in farming…" But from a legal viewpoint, how would a robot tax function? It is certainly legally possible to implement industry-specific levys. A recent example is the "bank levy", which was introduced in 2010 following the financial crisis in order to raise more tax revenue from the banking industry. This was accomplished by taxing the value of large banks' balance sheets at 0.21 per cent. 

Banks and legislation

However, it is difficult to understand how a "robot tax" would operate. In the case of the bank levy, it is easy to define by way of legislation what constitutes a "bank" and what constitutes the "debt" that is going to be taxed. In contrast, lawmakers would no doubt find it more challenging to define and agree precisely what a "robot" is. Furthermore, discerning the amount of taxable income that a robot has replaced could also pose problems. To this end, the European Commission's proposals suggested requiring companies to disclose the number of robots that they use, the savings in social security contributions made through the use of robots, and an approximation of the amount of revenue that results from the use of robots. The voluntary nature of such information poses its own problem, whilst calculating social security savings and deducing revenue increases could prove incredibly difficult where there is not a direct link between a robot being used and a worker losing his or her job. 

Despite these issues, Mr Gates is not alone in his suggestion. Benoit Hamon, the current Socialist presidential candidate in France, has suggested a plan to tax machines in addition to his pledge to introduce a basic income. Furthermore, as mentioned above, on 16 February 2017 the European Commission considered proposals to introduce a robot tax. The proposer of the measure, Luxembourgian MEP Mady Delvaux, argued that such a tax was necessary in order to "replenish lost jobs" and ensure "the viability of social welfare and security systems" in order to prevent the growth of inequality. Ultimately, the commitment to introduce a "robot tax" was voted down and an amended proposal instead included a non-committal general principle that "an inclusive debate should be started on new employment models and on the sustainability of our tax and social systems." A debate, it might be noted, that Mr Gates has effectively placed firmly in the mainstream. The amended proposal was passed by 396 votes to 123.

Opponents to the "robot tax" have pointed to the stifling effect that it could have on innovation. Responding to Mr Gates, the Frankfurt-based International Federation of Robotics said that "the IFR believes that the idea to introduce a robot tax would have had a very negative impact on competitiveness and employment." Similarly, in the European Commission's plenary vote on the proposed "robot tax", Estonian MEP Kaja Kallas argued against the idea, stating that "introducing tax on robots for instance will simply kill innovation and drive the engineers developing robots elsewhere." Jurisdictional issues would clearly arise as globally mobile technology businesses could be persuaded to move operations to other jurisdictions. Indeed, in the case of the "bank levy", the government announced in the 2015 Budget that the tax would be gradually reduced, with the FT reporting that this was an attempt to placate HSBC and Standard Chartered who had raised the possibility of moving abroad.

Anticipating these arguments, Gates went as far as to suggest that slowing the pace of innovation might be necessary, saying that "[we] ought to be willing to raise the tax level and even slow down the speed of that [technological] adoption to figure out… where this has a particularly big impact." In contrast, Microsoft's current chief executive Satya Nadella has a different view of the necessity of a "robot tax". When interviewed on the subject in the FT in February of this year, he said: "Whenever somebody cuts costs, that means, hopefully, a surplus is getting created. You can always tax surplus - you can always make sure that surplus gets distributed differently.” Nevertheless, if legislators decide that corporation tax revenues are inadequate to deal with the prospect of mass unemployment, it is clear that devising a so-called "robot tax" would prove highly problematic from a legal perspective.

Colin Kendon, Partner at Bird & Bird
Image Credit: Tatiana Shepeleva / Shutterstock

Colin Kendon
Colin Kendon is a Partner at Bird & Bird.