While U.S. tech giants are effective monopolies, they are so in an unconventional way, making taxing them easier than breaking them up.

Regulatory pressure is mounting on U.S. internet-search and social-media giants, as mainly European policy makers seek ways to curb their market dominance and tax-reduction strategies. While effective tax rates on the likes of Alphabet’s Google, Amazon, and Facebook may rise in one form or another, undercutting their dominant market positions will likely prove far more challenging.

The European Commission is trying to hammer out new regulation that would force online commerce, search and app stores to explain the rankings in their search results, including why some services are delisted, according to a March 14 Reuters’ article.¹ The idea is to give smaller businesses a better chance at developing an online presence to promote their products or services. “Online intermediation services can hold superior bargaining power over their business users, enabling them to behave unilaterally in a way that is capable of harming the businesses using them,” Reuters reports.

Last June, the European Union’s antitrust body fined Google a record $2.99 billion for prioritizing its services over those of its competitors.

Meanwhile, members of the Organization for Economic Cooperation and Development (OECD) are at odds over efforts to raise effective tax rates on digital giants such as Facebook and Google. In an interim report entitled Tax Challenges Arising from Digitalisation: More than 110 countries agree to work towards a consensus-based solution,² the OECD, a forum for mostly developed countries to coordinate cross-border economic and social policies, says proposals “range from those countries that consider no action is needed, to those that consider there is a need for action that would take into account user contributions, through to others who consider that any changes should apply to the economy more broadly.”

The U.S. is among those countries against hiking taxes. “The U.S. firmly opposes proposals by any country to single out digital companies,” Treasury Secretary Steven Mnuchin declared in a statement. “Some of these companies are among the greatest contributors to U.S. job creation and economic growth. Imposing new and redundant tax burdens would inhibit growth and ultimately harm workers and consumers.”

The last point on consumers is key, as mainly European regulators explore ways to either more heavily tax or even try to break up the U.S. internet giants. But breaking them up is highly unlikely, as they’re far different from the industrial monopolies of earlier times. As Thornburg Portfolio Manager Connor Browne noted at Thornburg’s Global Research Summit earlier this month, “Google and Facebook are free, widely used by people all over the world, and users opt in by signing off in the agreement boxes when they establish their accounts.”

Nonetheless, Greg Dunn, another portfolio manager at Thornburg, warned in a summit panel on disruptive technologies that the “political risk is real, and will likely play out first in Europe.” But, “the nature of these monopolies is different. You can’t just go in, break them up, and divvy up market shares.”

That said, “they’ll probably find ways to tax them more heavily.”

But as Mnuchin’s comments make clear. The U.S. won’t go along anytime soon. And the final OECD report isn’t scheduled to come out until 2020.

1. Google, Apple Face EU Law on Business Practices – Reuters, March 14, 2018

2. Tax Challenges Arising from Digitalisation: More than 110 Countries Agree to Work towards a Consensus-based Solution – OECD, March 16, 2018