In a slight twist to my planned Friday evening the BBC called me a little before eight tonight to ask if I minded being on Newsnight, in London at 10.30. That's cutting it a bit fine from the more northern parts of East Anglia, but I got there.
What was the story? Google's tax. Reports had circulated during the day that Google was at Davos and was holding talks about 'normalising' its tax affairs with France, the UK and others. By the time I got to the studio the story was confirmed, but the details are decidely worrying.
First though, some background. I was asked because way back in 2009 I was the first person to ever write about Google's tax affairs in the UK. http://www.taxresearch.org.uk/Blog/2009/04/19/googles-tax/ The story then was for the Sunday Times, as it was when I repeated the exercise a year later, although it was only when I cooperated with Jesse Drucker of Bloomberg on it in 2011 that it really took off.
The essence of the story has always been the same. Using current data Google turns over about $70 billion a year worldwide, or a bit over £40 billion a year. We know around 10% of this turnover is usually in the UK. And we know Google worldwide makes a profit margin of around 25 per cent most of the time (sometimes a bit more) meaning that if profit was allocated evenly across all states in which it operateson the basis that it is local advertisers and local clicks that drive the revenue stream then the UK turnover might be over £4 billion, real profits on an evenly apportioned basis might be about £1 billion and tax due might be £200 million, or more.
Except it isn't. Google might have made sales of maybe 10 per cent of its turnover (or thereabouts) 'into' the UK but that is not the same as 'in' the UK, because those sales were (and look as though they still will be) recorded as coming from Ireland. The Google UK operating company does not bill UK companies, but has and looks like it will charge a sales commission to the Irish operation.
In the past this gave rise to almost no UK tax paid. That has not been true in recent years when tax of more than £20 million a year has been declared in the UK, but that is still vastly less than the apparent pro rata sum due noted above and that has been the point of contention.
Now it is said that Google is going to pay more tax. The settlement for the past decade is £130 million, which however I look at it is a very small part indeed of what I thought should be owing. That is annoying, but much more worrying is the implication that this deal may be the basis for Google's future UK tax bills.
Let me run through the concerns. First, it looks like the Irish sales operation is going to survive intact. If true this is a disaster: the focus of the OECD BEPS process was to force companies like Google to recognise their sales in countries like the UK by requiring that they be recognised as having what are called permanent establishments in this country. If that is not going to happen then HMRC and the Treasury have given back dated approval to Google's avoidance and have accepted it for the future, which virtually kicks the legs from under BEPS process before it has had a chance to get going. The Diverted Profits Tax was a deliberate BEPS spoiler by George Osborne and now he is doing it again. If true that is utterly irresponsible to the world community.
This gives rise to the second concern. The UK is clearly endorsing tax competition with this deal. In the process it endorses the shift of tax from multinational companies to individuals and harms the cause of equality and fair commercial competition in the process.
The third concern is that the basis of this deal is bizarre: it is apparently technically cost plus pricing plus a little proportion of turnover. When the OECD has begun to move towards endorsing profit split arrangements the logic of this bizarre transfer pricing arrangement is hard to fathom.
Fourth, this suggests the culture of cutting dodgy deals with large companies is still very much alive and kicking at HMRC. The sheer incompetence of doing that is hard to fathom. The politics are even harder to grasp unless they are of contempt for the ordinary people and the small business community of the UK. Crickhowell, eat your heart out.
Fifth, other countries will rightly hate us for this. The EU will, I imagine, be livid. Washington will not be. Nor will a host of US multinationals.
And last? This deal is a great one for the tax abuse industry. That is the last thing we wanted.
As you might gather then, I am not celebrating on the train home late at night. I would love to say this is a minor win but I am not now sure I can even say that when the truth is that this is another day when HMRC rolled over and had its tummy tickled by a major corporation in exchange for a tax payment way below anything we should have expected and in contravention of almost every international tax obligation we should hope the UK woukd now be endorsing.
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Well done on Newsnight – hopefully the appearance will even set the agenda towards a sceptical response to the deal for all the reasons you mention in the blog.
My only query would be: how much is the deal brokered so to speak by Osborne? If it is, surely he will have to answer to parliament about the circumstances and the details in a way that HMRC wouldn’t have to/hasn’t done previously.
Also, how much is it Osbourne deliberately undermining Beps/the diverted profit tax and how much is it just incompetence coupled with the chance of some headlines/positive spin to put into the next budget.
Hard to know how much is by Osborne – but I cannot imagine the structure of the deal could have been agreed without political endorsement
I think it very likely it is deliberate undermining of BEPS
You’re absolutely right, Richard. In theory, HMRC do not have the legal authority to agree forward tax (Al Fayed case) as this a prerogative of Parliament. In practice, the deal, like the Vodafone deal, will affect how much tax Google pays in the future so the Treasury will necessarily approve it.
HMRC are readily embracing and promoting google for employees at HMRC so we as tax payers are giving them money
I am disgusted that we(the UK’s small, and sometimes struggling, businesses) have to suffer the hard hand of HMRC, without may I say it any direct contact apart from fatuous written demands for our prompt payment of CURRENT tax liabilities, when they court the multinationals with CLEARLY unfair reductions in year to year contributions. Congratulations on this first recovery of monies from Google – however it is not enough – not by a long stretch – and if they cannot get proper contribution then take a leaf out of China – restrict their visibility to the consumer and hit them hardest where it hurts – commerce in the UK, which is quite substantial to Googlke at present.
Richard, any idea why BBC’s Kamal Ahmed is acting as a PR man for Google? He parroted the company’s spin throughout yesterday and again this morning on Today. Even when Stephen Nolan (last night) and Stella Montague (this morning) tried to get him to do his job as a journalistic by asking him questions about the deal he reverted to Google’s statement without providing any other point of view. Shameless! Won’t be surprised if he does a Stephanie Flanders in the next few years ïŠ
Google said that global tax rules are changing and that ‘the UK government was taking the lead in implementing those changes”. I’m guessing those comments were approved somewhere within the Treasury. There’s nothing politicians like to show more than them taking the lead in changing something. Shame the truth is that Osborne is doing all he can to undermine the change needed.
Customers should vote with their feet and avoid all Google services. Their monopoly position should have been challenged years ago, their tax avoidance is clearly now an embarrassment, their invasion of privacy and questionable relationship with us and UK security are a potential threat to every one of us. Time to turn them off in every device you have!
Agree wholehertedly – a boycott is the only way. For the last year DuckDuckGo has been my default search engine, and they don’t track your searches either. Can honestly say I’ve noticed very, very little difference.
I use https://www.ecosia.org/, a more ethical search engine. But Google is not alone, with Facebook, Apple, Amazon amongst others. Global Justice Now is campaigning on the issue, as well as other injustices: http://www.globaljustice.org.uk/infographics/saveusbillgates/
I am just gratefu that there are stalwarts like you on I tiring these giant snakes in the grass. I wonder if we should do a 38% campaign to reach over a 100.ooo signatures so Jeremy Corbyn and John Mc Donnell can raise more awareness beyond BBC nd ur posts. Also maybe a mass boycott of Google products to counter Osborne’s Slimy deal.
I suspect 38 Degrees will be on the case
Change.org is-see:https://www.change.org/suggested?alert_id=zNfwxcsNoo_T%2F3flwoNQEzr5YWeaovBbxwbmMjHhT5ZNA2HxdEXO2YD2K%2B0%2B2ZJMOcO2zIr%2F1ob&petition_id=5587522&use_rendr=true
And here is yet another American multinational ripping off the UK and US populations with their tax avoidance activities. It is about time the US government took action and set the precedent for the rest of the world to follow.
The US people should be highly embarrassed by their politicians and businessmen who are bringing their country into disrepute around the world. It is not surprising that so many are now thinking that the US is the worlds leading “rogue state” when it fails to act on the morally corrupt actions of its largest corporations.
There is a need to deal with this once and for all. The UK govt is tinkering at the margins for fear of standing out of line with the big boys in Washington and New York. Change has to start at the top, which means the US government and the international institutions which we all know can only do what the US allows them to.
http://www.independent.co.uk/life-style/health-and-families/health-news/ge-healthcare-us-healthcare-giant-makes-fortune-from-nhs-but-pays-hardly-a-penny-in-tax-a6828446.html
No doubt in the near future there will be a string of convenient headlines and stories, emanating from the fifth column that passes for the media these days, about “benefit scroungers” living the life of Riley at taxpayers expense etc etc to divert the attention of the populace from this “legalised” scam and theft of resources and money.
Expect another period of vitriolic attacks on the “undeserving” poor (which is in reality anyone not part of the 1%) to generate hatred, suspicion and anger towards any tiny motes in the eyes of neighbours in order to avoid scrutiny of the beam in the eyes of the mafia Dons partaking of the real fleecing of the taxpayers, whose actions in this regard are that of lethal parasites on society.
I wonder how many people will continue to fall for this?
“I wonder how many people will continue to fall for this?”
Doesn’t seem to be tipping point but I suppose it’s the nature of tipping points that we can’t see them. I suspect, after nearly 40 years of scam/rip-off/blatant piss-take/Clarkson and assorted loud mouths the public seem to view it as entertaining, like watching how ‘the other half live’ (not noticing its a lot less than half). Shoulder shrugging seems the order of the day.
I am not quite sure what you are saying Mr Murphy.
Are you saying that the rules ought to be changed so that Google pay more or that Google are not paying what they ought to pay under the current rules?
The latter claim would be extraordinary and require proof from you. How much of the actual precise detail of the agreement do you know?
Regards
Pardeep
I am saying Google is avoiding
I am saying if it did not it would pay a lot more
I am saying measures are now being made available to tackle that avoidance and it looks as if HMRC might decline to use them
I am saying that is wrong
I have estimated (no more) a maximum loss to suggestion the parameters for debate
And it has promoted that debate
Now, tell me what is wrong with that?
Has any one considered that this may be a “payment” or “favour” to google by Cameron for “services rendered” The amount of data collected stored and shared with the government and their agencies to exert control over the population, all in the name of anti terror of course, is obvious especially since Edward Snowdon lifted the lid. The picture is far bigger than just the amount of tax Google haven’t paid. Of course the government will change the law, fiddle the books and scratch the backs of people like google if the can get what they want out of a situation. That’s what Davis is all about isn’t it ? .
I am not suggesting corruption in any way
It is worth observing that corruption is not just about envelopes stuffed with money or payments for services rendered. It also encompasses corruption of purpose which may or may not involve various types of reciprocal behaviours.
In that regard individuals will make their own minds up in respect of the role and actions of organisations such as Govenment, government agencies (for instance, HMRC), private companies like Google along with the lobbyists they employ and individuals within those respective organisations.
Happy New Year first.
1. How much. Over the decade this is just under £10M p.a., assuming a compound interest on the debt of 3%. Is this a settlement?
2. Other countries. France has demanded they pay 1billion euro, in a smaller market than the UK.
3. Does Google really pay? Is it true Richard that “As a U.S. company, the U.S. Treasury reimburses the foreign taxes paid to the U.K. and any other country. George Osborne is correct he did a great job taking money from the United States.” Comment from the FT.COM site on 23 Jan 2016.
4. Opposition voices, where! Ok, John McDonnell the [demonized] Shadow Chancellor is trying. Chuka Umunna, Labour’s former Shadow Business Secretary is mute, but is happy to use the media to undermine Mr Corbyn and remarks this week there is “no glory in opposition”. Why bother Mr Umunna, are you preparing your role in an upcoming repeat of the Owen, Williams, Rodgers and Jenkins split of Labour? Mr Umunna wants to play a big part in a future NeoLiberal-lite Labour party.
5. Osborne’s remarks are like a pupil who has marked his own homework. He must be strutting at Davos — “We’ve got Google to pay taxes.” Stand up comedy for the powerful.
6. Osborne has handed a big message to finance, I’m torpedoing Base Erosion Profit Sharing (BEPS) and all that tax justice stuff. So important for the developing world to have a decent fair share of wealth. Last night’s BBC2 programme on the Cayman Island’s should dispel any myth’s, yes brilliant work Jacques Peretti “Britain’s Trillion Pound Island – Inside Cayman”. For once great TV journalism, lets see how his career goes, a line under his name or through it? http://www.bbc.co.uk/iplayer/episode/b06wrt2d/britains-trillion-pound-island-inside-cayman
7. David versus Goliath. Is the counter argument heard above the captured and neutered media? My own experience campaigning on the streets for tax fairness is people don’t understand this stuff they ingest the warm words and sound bites [fed to Mr Cameron & Co] by hordes of advisors and think tanks. Then come the few voices of opposition ☺ that are heard above the noise of social media.
Tony
Greetings in return
As to the points: 1, 2, 4, 5, 6 and 7: hard to disagree
Re 3 – ultimately tax paid here is a credit against US tax when remitted there, but that’s fair: it stops double taxation
Richard
“The third concern is that the basis of this deal is bizarre: it is apparently technically cost plus pricing plus a little proportion of turnover. When the OECD has begun to move towards endorsing profit split arrangements the logic of this bizarre transfer pricing arrangement is hard to fathom. ”
Surely, if the OECD is just *beginning* to move to profit-split, then you concede that cost-plus was the norm back in the years being looked at.
The argument that the profit-split methods which may be common in the *future* should be applied *now* to profits made in the *past* is rather a bizarre one.
Should I get points on my licence because I used to drive at 60 on a road which is now a 40-limit – or should I be banned altogether because it may become a 30-limit one day?
I have made clear in interviews that what troubles me most is not the past – although I think the settlement is absurdly low – but the implication that this deal will be accepted in the future
Please keep up Andrew
You are troubled by the implication that the future position will be the same as the past position, even though both the facts and the applicable law will be different?
How do you know there isn’t an APA?
An APA affects the transactions it applies to. If you change the commercial position you have different transactions, which would render the APA meaningless and require a new one.
I would also expect HMRC to revoke an APA if there were a material change in the applicable law. The whole point of a CRM is to be able to monitor this sort of thing, and in my experience of CRMs they are not afraid to push back when they feel agreements are outdated.
If only we believed you Andrew
But I don’t
Not when the message is from the top
And Osborne’s intervention shows that this one is