The row over Google's tax settlement of just £130 million to cover the last ten years has become political.
John McDonnell raised an urgent question on the issue yesterday, making the point that tax experts (including Prof Prem Sikka, Labour tax barrister Jolyn Maugham and me) all think that the likely tax rate paid by Google on its likely UK profits may, even after this settlement, not exceed 5%. Jolyon comes up with data identical to mine and he assures me wrote before reading what I had suggested.
The logic is simple. Google made sales of about £4.5bn into the UK in 2014 according to its global accounts. Those same accounts show an average profit rate worldwide of a little over 25%. There is no reason to think the UK is an abnormal Google market so profits in the UK would, on this basis, be at least £1 billion. It would be entirely reasonable to expect a corporate tax rate of 20% in that year so I have said at least £200 million should have been due in that year. We think that at most less than £50 million will be paid after the latest tax settlement.
John McDonnell has accepted these estimates.
David Gauke, uncomfortably understudying for George Osborne at the Dispatch Box, decided to deny there was any credibility to such estimates, claiming that tax is paid in the UK on economic activity. The line was repeated by him so often during his nervous appearance that it must have been what he was briefed to say, by HMRC, I presume. But what does it mean?
Gauke used an example of cars made in the UK and sold abroad. Where, he asked, should the total profit on sale be taxed? Where the car is sold, or where it was made? The answer, of course, is neither. The whole point of the international tax system that has been in place since the 1930s has been to try to find a fair way to split the profits between the two places since it is obvious that economic activity takes place in both countries.
The trouble for Davod Gauke is that this was a very poor argument to use in the case of Google. In their case a technology, undoubtedly developed in the USA in the first instance, that is beyond doubt used by UK customers is not recorded as being sold in this country but is instead recorded for that purpose in Ireland with the benefit of the sales transaction not going back to the USA, to where under Gauke's logic it should flow, but does instead arrive (untaxed) in Bermuda, where, all parties agree, no economic activity giving rise to it took place.
To put it another way, when it is very obvious that the eocnomic activity that Google creates in the UK is advertising for UK businesses on a website that is explicitly UK focussed (as it is) then to pretend that the only actual economic activity that Google undertakes here is the sale of those adverts, but not their actual display or use, is absurd.
This is exacerbated by a particular factor in Google's cause, which is that in practice most of the revenue they earn here is entirely dependent upon people living in the UK clicking on those ads: that is how the revenue structure works for most of the Google ads sold. So, in fact, the revenue is wholy dependent upon UK activity and without it Google would have no income in this country. It could put those ads up on the web if it wished but unless it quite specifically made sure they were available in the UK for the use of UK based web readers wishing to buy from UK based companies then their presence would be near enough worthless to Google. The economic substance is, then, that it is only the presence of those adverts for UK based businesses on the web browsers of UK based people that creates value for Google. The economic substance of Google's UK sales does in that, therefore, arise wholly in the UK because it is almost worthless anywhere else. That is why when you ask about a local restaurant if you live in Boston, UK you are not offered one in Boston, Massachusetts. That US one if worthless to you and Google know it.
In that case for Google, David Gauke and HMRC to agree that Google need only be taxed on a bit of profit relating to the cost of selling those adverts in the UK is wrong: that is very obviously not subjecting the economic activity that Google undertakes in the UK to the right amount of tax.
The OECD BEPS process has recognised this and is designed to permit countries to force companies like Google to take up tax residence in the countries in which they make their sales, like the UK, and pay tax on the revenues earned in those countries as a result. John McDonnell referred to that yesterday. He was right to do so. David Gauke ducked the issue.
But there is a technical argument to be had in that case about what costs should be offset against the UK sales revenue that, for reasons already noted, is obviously taxable here. It can be quite logically economically argued that the only costs to be offset are the direct selling costs, which we know happen in this country, and any additional marginal costs that Google incurs for servicing the UK market. I suspect this is little more than the additional server cost, which may well arise outside the UK, and some regulatory fees. After all, all the algorithms and technical development costs of Google are incurred solely to ensure it can operate in its prime market - which is the USA. They would, it can quite reasonably be argued, incur all those costs wholly to service that market so there is almost literally no additional cost incurred to use that technology in this country. Using the quite appropriate, in this case, economic logic of profit being determined by local marginal revenue (which is everything earned in the UK) less local marginal costs (selling costs plus the costs of the servers and and admin costs relating to them to meet UK legal requirements) it could, I think, be wholly appropriately argued that Google's UK profit margins have to be a lot higher than its US margins, where the costs of establishing its technology has to be incurred to ensure it can make any sale at all in its home market. On this logic using economic substance Google should have a much higher tax rate in the UK than the US.
Now I have to say that does not instinctively feel fair from a tax point of view. For the UK to argue that because Google has relatively few direct costs of sale in the UK it should pay tax on a very high profit margin here, even though David Gauke's logic would suggest that would be the right technical outcome, would instinctively be wrong, and be penal on the USA and its tax base. So a compromise has to be sought. Clearly it is fair that in the case of a integrated global company selling an almost identical product into many markets the costs of product creation should be shared, even if they are not incurred in the location where the economic substance of the sale takes place. That reflects the economic reality of the business, which is that it is really one global entity which happens to adapt, slightly, and with ease in the case of Google, to local situations.
So what would be the fair charge that the UK should suffer for the global costs Google incurs for product development in all its forms, including designing the sales processes used in the UK? Should it be, and this is the appropriate question I suggest, a proportion less than, equal to, or greater than the equivalent costs that will end up being offset against the equivalent economic activity (advertising sales) in the USA, which is Google's home market?
I can see the argument that it should not be less than: that seems fair.
But the argument some are making (including commentators on Jolyon's blog) is that it should be more. But why does that make sense? Remember that economically speaking Google is in reality making much more profit in the UK than it is in the US for all the reasons I have already given. Why then should it be taxed on a figure that is less than the equivalent US rate? I have to say that no economic logic I can find can come close to suggesting a reaosn for that.
Legally, of course, I can make them up. And I can argue prejudicially that because the US staff were so much more clever than the UK people for thinking this idea up in the first place the reward should go there, but that's not an argument about economic substance. That is just an argument for profit reallocation without foundation in economic logic when the economic logic of the UK operation is that it creates a massive pile of cash for Google at relatively little real cost. That, I suggest, should be reward enough for the US team.
So the only obvious conclusion in a company like Google (and I am not suggesting that this applies in the same way in all companies) is that costs should be shared out equally across the worldwide operations. And then you come back to the logic Prem Sikka, Jolyon Maugham and I have all used, which has to be right in that case.
And which means David Gauke and HMRC are both wrong.
So what does this mean politically?
First, because this conclusion can be reached instinctively without having to torture yourself as I have just done, it means that HMRC, and in turn the government, now have a credibility problem on this issue. Their logic is very obviously wrong, and David Gauke just made it a lot worse yesterday.
Second, if it is really true that they have accepted the new Google settlement as a mechanism that both avoids a Diverted Profits Tax charge and is BEPS compliant then UK tax strategy on these issues has made not an iota of progress over the last few years, despite what David Gauke claimed. For all the huff and puff, time expended at international summits and supposed commitment to the OECD process of renegotiating international tax literally nothing of substance will have changed. Google was paying very little tax before this deal on the economic substance of what it earned in the UK and is still paying very little afterwards. That is a disastrous precedent for UK taxation, and it has happened on David Gauke's and George Osborne's watch.
Third, John McDonnell was right in that case to raise the questions he did yesterday. And was right to say that this set a dangerous precedent, was right argue that the deal should be on the record, was right to say HMRC should explain how it reached this conclusion, was right to argue that country-by-country reporting is required on public record so we can see where such abuses are happening and was right to argue that HMRC need more resources to tackle such issues.
And David Gauke was wrong to ignore all those demands.
In which case, and quite extraordinarily, Google has once again created the necessary conditions for tax reform. But this time that reform has to happen and what is, beyond doubt, clear is that so far that reform has neither happened and is without support in HMRC, which is why John McDonnell was also right to demand its reform.
Tax is back centre stage in UK politics. I can't see it going away again for a while yet.
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No wonder Lin Homer left HMRC before all this blew up. Hopefully going forward, country-by-country reporting will publicise what the largest companies are getting up to We need more aggressive and savvy negotiators at HMRC and a much better governance process for signing-off these huge deals. It would be interesting to know who exactly thought this was a reasonable deal for the taxpayer and signed it off.
I have to say it gave me a very satisfying feeling to see Gauke make such and arse of himself yesterday, Richard. The man has been so full of himself for so long (ditto almost every Tory minister) that he was overdue a fall – and boy, what a fall.
I also find it rather satisfying that in bending over backwards to help a multinational entity like Google avoid paying as much tax as they should the government and HMRC end up both compromised and looking stupid. And thus, as you rightly point out, highlight yet again why tax reform is essential, and, perhaps even more importantly, why HMRC needs a root and branch review. A tax authority that’s management and culture has been warped to the extent that it appears that a primary goal when dealing with big business is assisting in tax avoidance is clearly no longer fit for purpose (even in a Tory view of the dysfunctional state).
You might say that
I could not possibly comment 🙂
But David must be a great man with a full understanding of all the issues. After all he was awarded Tax Personality of the Year!
http://www.davidgauke.com/content/david-awarded-tax-personality-year
…and Obama won the Nobel Peace Prize!
“Their logic is very obviously wrong, and David Gauke just made it a lot worse yesterday.”
This point raises a wider issue. “Their” (ie The Government) logic on a whole range of matters is wrong; from equating an economy at the level of a country to that of a household through to the delusional belief that it is feasible and sensible to depend on cold war systems in today’s totally different context in which non state actors play a larger more volatile and less controllable role. Other totally illogical positions can be added to the list, from bombing States out of existence and denying any blowback link whilst at the same time not anticipating a refugee crisis to the swivel eyed notion that it’s possible to run a country without a State.
The problem here is that all this and more is not confined to Government circles. Despite the number of attitude surveys which indicate most of the populace are to the “left” of the Government on a whole raft of issues (not to mention a sizable chunk of HM Loyal opposition) there are a great many registered voters who seem more than willing to agree with such twisted logic to the extent they appear happy to die in a ditch defending it.
And here lies the problem. Because according to the same faulty logic of a large chunk of people in positions of influence within our body politic, telling any voters they are wrong on any matter and explaining why they are wrong using evidence based argument is electoral suicide and therefore by definition, forbidden. Leadership means telling people uncomfortable truths, which is why Canute went and sat on the beach to demonstrate to his court the truth about limits to power. But to these people leadership is alien territory, a failed relic of the 1960’s and the post war settlement. All they are capable of is coping, managing to an algorithmic crib sheet based on a narrow process driven logic that enables them to operate within their personal comfort zone.
According to this logic voting is nothing more than another consumer choice. If the consumer/customer is King than by definition you have to acceed to their wishes even when it involves voting in an election, no matter how crazy and logically wrong those wishes and the views on which they are based may happen to be. The fact that such logically incoherent views are congruent with the views and beliefs of many of those residing in influential positions within opposition parties who make this argument only adds to the malice in blunderland atmosphere that pervades political discourse as currently practiced.
It is therefore not just the Government who need to be advised their logic is wrong but also a sizable section of the Labour and (Yellow Book) Lib-Dem parties.
But Dave, their logic is perfectly “right” when looked at through the perspective of power and control.
So many political decisions are not logical to your or me and I would imagine most people if they really had the time to think them through. But in the world of getting into (and then holding onto) power on behalf of whatever backers are supporting the various parties (of which only 2 are ever significant in the overall power game under FPTP), the big political decisions are all about increasing CONTROL over ordinary people.
The real power players from all the 3 main UK parties when faced with the slight democratic inconvenience (i.e. elections) will ultimately say whatever they think enough people want to hear to get them into power. (Blair and Cameron know that only too well)
The “truth” is another awkward inconvenience to be batted away with the party propaganda machines that churn out so much nonsense to make sure most people remain switched off and just do and believe what they’re told.
That is Corbyn’s challenge, and the left as a whole, because the truth is just not very appealing to a voting public who for most of their lives have been fed a diet of “aspirational dreams” which for some strange reason have never come true!
The implication of your suggested way of approaching this is that Google US would be gifting the use of its core technology to its UK subsidiary, which is absurd.
Not at all
I am suggesting Google is one company, which it glaringly obviously is
And I am saying the UK should share costs
Quite fairly
The fact that Google is one company is irrelevant. We don’t tax subsidiaries of overseas companies differently just because they are subsidiaries.
It is not irrelevant. It is fact. And that is why we have rules to deal with related companies. And that is why w do tax overseas subsidiaries differently.
Just to get the facts straight
I didn’t say that we don’t tax subsidiaries of overseas companies differently. I said that we don’t tax subsidiaries of overseas companies differently just because they are subsidiaries.
Walmart’s global profit is not a factor in determining how much tax Asda pays.
Yes it can be
We are moving towards profit split
And the OECD is seemingly happy with it
This was completely obvious from the article. I can only assume James either didn’t read the whole text or is deliberately misinterpreting you.
If you say so. I won’t hold my breath.
Meanwhile, in the world as it actually exists, we don’t do this. So the fact that all of Google UK’s activity relies on technology developed and owned in the US is relevant in considering where profits arise.
As it has been, yes
As it should be, no
And watch this space
Well I don’t agree, but that’s beside the point really. You haven’t addressed my original argument, which is that in a system based on economic substance, the reliance by Google UK on IP owned by Google US is a relevant factor in deciding where profits arise. Your contention that ‘economically speaking Google is in reality making much more profit in the UK than it is in the US’ ignores this factor, and, as I said, implies Google US gifting its core technology to its UK subsidiary.
If you read what I had written you would realise equalising profit implies a massive payment for IP
Why won’t you read what I said?
“In the world as it actually exists” in this context appears to be being used as an argument to defend and maintain a specific way of doing things and a particular set of relationships.
This being the case the bottom line of the argument being made is to set the world ad it currently exists in aspic; meaning in effect no change, no progress, no surrender. The status quo as it exists, period.
Once upon a time “the world as it exists” included the legal right to own slaves; the disenfranchisement of not just women but large parts of the population; starving paupers hanged for stealing bread; a convenient belief in witchcraft; and a widespread acceptance by the plebian masses that the earth was flat alongside the notion that th earthen around the sun.
Fortunately, for the James’s of this world the views, opinions and arguments of the James’s of that time were unsuccessful and progress was made. The world as it existed changed not through some mysterious magic akin to spontaneous combustion but through people getting off their backsides and actively seeking to change those ways of doing things and the relationships between groups and interests. The Jeremiahs of the time were rightly ignored and promptly perished in the irrelevant ditch they, in their forelock tugging delusions towards those they considered their betters, sought to defend.
An apt and useful lesson for the world as it exists today.
Equalising profit still completely ignores the fact that the technology is developed and owned in the US. If Google UK were not a subsidiary of Google US, there is no way on earth that Google would license its technology on terms that would allow its UK sales and marketing services provider to make the same margins as its US business.
I have no interest in defending Google. I agree with you that the profits we are talking about should be taxed in either the US or the UK (rather than, say, Ireland or the Bahamas). But Google is profitable because its technology is unique, and the bulk of the economic value in the chain is generated in the US. Looked at it from an economic point of view, the idea that Google’s US business (which develops and owns the technology) is less profitable than its UK business (which markets and sells that technology) is absurd.
Google would never licence its software to anyone else
Let’s not pretend that an option that does not exist is the benchmark for comparison
I want to tax the reality of Google and not a fairytale
And it is only in fairytales that IP makes money: millions of patents the world over make no money. It is customers who provide a company with money. That’s economic substance. You are arguing legal fiction
IP makes no money? That is an interesting insight. I will be sure to tell James Dyson next time I see him on his yacht.
The idea that Google UK could make any money at all from customers in the UK without the use of technology developed and owned in the US is a fairy tale.
Good ideas make money
IP grants monopoly rights over good ideas
When used I yernslly by most groups IP is just a way of profit shifting
Both are very clearly market imperfections
I don’t deny that IP creates profit-shifting opportunities that are frequently abused, or that this is a problem. But Google is basically $500bn’s-worth of IP. You can have a tax system that ignores this, or a tax system that reflects economic substance, but not both.
That is a capital gains issue
Not a corporation tax one
As an aside, monopoly rights over ideas are a market imperfection of course, but surely you recognise that without the rights you won’t get the ideas? (Many of them at least – I am not a denier of the role of the state).
I am not sure that is true – in history many of the best ideas were unpatented
Second, make patent life shorter
It’s both: the IP is the source of the company’s profits so its location affects where those profits arise (from an economic substance point of view).
Location is arbitrary
And tax haven driven
You are living in a past era of legal fiction
Technology (IP is a bit of a reductive term for a business like Google) that is developed, owned and maintained in the US is an American asset, and that is where the business’s value creation happens. Just because location is ambiguous and susceptible to abuse does not mean that it doesn’t exist, from an economic substance point of view.
I’m not even sure this discussion is relevant. I think we’d agree that Google shouldn’t be invoicing UK sales from Ireland, so if we could get them to stop doing that profit equalisation (which disregards economic substance and would cause a lot of very disruptive distortions) wouldn’t be necessary.
The technology is developed all over the world now, including the UK
Try again
So you accept that the location of development is relevant? That’s something I suppose.
Ford makes cars all over the world. That doesn’t render the location of manufacture irrelevant in assessing economic substance.
I have noted it
I did in the blog
And note it increases profit elsewhere
Which I accept requires adjustment
But not to reduce profit elsewhere in my opinion
Which is where I disagree with you, since this technology is what drives Google’s high margins and the value of the business. The activities carried out by the UK business add much less value. In this way the relationship between Google US and Google UK is akin to that between a software developer and a reseller. In that relationship the reseller brings in the customers but the developer (owner of the technology) normally takes the lion’s share of the margins.
But we’ve come full circle now and I don’t think we’re going to agree on this.
We are not going to agree
I continue to think you are just wrong
Likewise.
From Google’s letter to the FT:
“Corporation tax is paid on profits, not revenue, and is collected where the economic activity that generates those profits takes place. So, if a British pharmaceuticals company sells medicine to Latin America, it is mostly taxed where those products are created, in the UK, rather than where they are consumed. The same applies to Google. As a US company, we pay the bulk of our corporate tax in the US: $3.3bn in the last reported year. What should Google pay in the UK? We pay tax based on the value added by the economic activity of our staff here, at the current standard rate: 20 per cent”
On the assumption that this is consistent with the general approach taken by HMRC (and it would be surprising if it were not) it would appear that they are ‘just wrong’ too.
I have commented today on why HMRC are wrong, albeit under political direction to be so
I know that you think HMRC are wrong: they appear to agree with me, and you have made it abundantly clear that you think I’m wrong.
Of course we all agree that the profits shouldn’t end up in Bermuda. This is a much stronger argument than your odd* ideas about economic substance.
*in my opinion, of course: I know, you think I’m wrong.
Is it possible to find out how much corporation tax Google paid worldwide each year on their total global profits, and therefore the effective global rate of tax they paid to all jurisdictions combined? And then the breakdown of the corporation tax they paid to each individual tax jurisdiction.
Countries would have a better chance of deciding whether they have received an “appropriate” amount of tax from multinationals, if they knew the big picture and not just their own situation.
The underlying issue must be financial fairness to all the states they operate in and the citizens of those countries. The tax laws it seems are being used to obfuscate that primary principle – on behalf of the multinationals and their financiers.
We know global
We do not know local
Tgat is why we must have country-by-country reporting
Of course Google is now owned by Alphabet, no doubt creating yet more tax dodging capability through IPR ownership, diverted profits, intercompany loans, transfer pricing and whatever new ideas the lawyers and accountants come up with to keep ahead of the game.
Chop one head off a hydra and it will keep growing another one – until you kill the beast that feeds it altogether!
There’s a small company in the South-East which makes personalised toilet seats ( very relaxing to have an e-cig on when you’re having some personal time I can tell you ). They sell several hundred a year to customers in the Low Countries. You want them to declare profits in all countries they get a sale from and pay Corporation Tax locally to where the customer is?
Don’t prove yourself wholly unable to think
If those are exports of course that is not the case
Google do not export adverts to the UK
Given that they are a small company and therefore do not have the financial clout to pay for lobbyists to Government; secondments to Government to write tax and trade laws with loopholes they can exploit; this small company in the South East who make toilet seats are more than likely to be paying their required amount of tax.
Which means they, like millions of individual PAYE taxpayers, are effectively subsidising the multinationals like Google et al who also have the wherewithal to strike sweetheart deals with the revenue, unlike the toilet seat small company in the south east and rest of us.
Comments like Baxter’s here remind me of those who used to stand behind the big lads in the school playground egging the on and singing their praises as they beat seven bells out of some small kid. The twisted logic and argument is no different.
Tell us Baxter, why are people like you willing to misuse small companies in this way, who are disadvantaged by the tax avoiding antics of the big boy multinationals, as a means to defend those multinationals? They cannot be paying you and like as not you are an ordinary PAYE taxpayer like most of us – who have no problem with anyone perversely arguing in favour of something which disadvantages themselves personally but do draw the line when it affects us as well.
If you want to die in a ditch defending the powerful to your own detriment that’s up to you but you should realise that by doing so you are dragging the rest of us, including your small company in the south east which makes toilet seats, down with you.
They are paying the legally compliant amount of tax in the UK, of course Dave. What I’m trying to establish on this thread is whether they are paying it in the right place in your view, which is what country-by-country reporting is supposedly about. Richard and yourself have rather dodged the question by talking about google who sell advertising from the Republic of Ireland.
we have dodged nothing
You asked the wrong question and do not understand the answer or, it seems, the goal of country-by-country reporting
If it is the “legally complient” amount of tax this begs the question as to why they, along with a number of equally large multinationals, need to do sweetheart deals with the revenue? I don’t see any argument coming from your direction to level the playing field for SME’s producing your lounge furniture or ordinary PAYE taxpayers by affording them the same rights and considerations.
Why the hell should we and the toilet seat companies of this island pay our share towards the upkeep of the country’s infrastructure etc and allow such freeloading? If this was someone on benefits taking the piss we would be hearing a totally different tune with more Chickin’ Licken’s than you could shake a stick at running around tut tut tutting like a low grade fart machine running on dodgy methane. But because it’s a multinational they get a free pass and let’s sweep the SME’s and PAYE taxpayers under the carpet as we are not the important people who can never ever do anything wrong and therefor should never ever be criticised.
I don’t think so.
Moreover, it is worth noting that, as is par for the course, the contextual elephant in the room has been totally ignored which is that much of that legal framework on tax (much like trade deals such as TTIP etc) has been written by people seconded from these companies and their paid lobbyists who then go back to plot the loopholes put in place for that very purpose.
Which leads to the conclusion, on the basis of the written evidence, that you really need to look closer to home to accurately identify who it is who is actually dodging the question
So this company wants to increase sales, some monogrammed toilet handles to the Netherlands perhaps, and want to advertise. Word of mouth for the UK market is fine, but to promote foreign sales, they contact Google in Ireland who for 1k will bump up a sponsored ad on search results on google.nl.
In this case should the Corp Tax on the profits on the advertising sold be due in Ireland, the UK or the Netherlands?
If the ad was sold by Google for the Netherlands in the Netherlands
Just as if it was put in a local paper in the Netherlands the tax would be paid there
Rocket science is not required to answer your questions
Does anyone know if Tim Berners-Lee has an opinion on the actions being taken by HMG and HMRC with regard to the internet?
I would imagine he is horrified at the fact so many tech companies like Google et al. who have benefited immensely from the technological innovation of so many scientists and publicly funded educational and research organisations around the world, are not re-paying their dues to public society in full to help fund the next generation of innovation.
Google, Apple, Amazon etc are not the heroes of new technology, they just ride on the back of previous public spending and capture the ideas created by monopolising them with patents and other anti-competitive activities. If they do not repay society in full through fair taxation, then they should be seen and treated as the pariahs that their financial exploiters have turned them into.
Be good to see Sir Tim and other scientists say a few words on this issue though!
Agreed
Dave Hansell says
According to this logic voting is nothing more than another consumer choice. If the consumer/customer is King than by definition you have to acceed to their wishes even when it involves voting in an election.
Whilst I agree that treating the voter as a consumer is uncomplimentary it does still work because you have “new product development” – most of which the consumer didn’t know they wanted but some of which can be transformational. In either case they still need a degree of selling. I know this translates as leadership is just marketing (it’s noticeable that Cameron is an ex PR man) but the leader as marketing manager has to impart the right information to sell the new product that some didn’t know they wanted (but a minority were crying out for?). And then everyone will be clamouring for Corbynomics…
Sticking with that theme for a moment, the key point being made in the post from which the quote was lifted is that many of those in a position to offer a new product are vehemently committed against new product development, believing zealously that because they don’t want a new product and there is no current market amongst certain segments of the market that all that is required is a different brand packaging of the same product.
However, the problem with thinking in these narrow terms can be seen all over what used to be the public sector. Democracy is and never can be reduced down to the level of a consumer choice as though one were picking which brand of cornflakes to eat.
Right now, as a result of treating the demos and civil society in this way we have a fiction of choice. You can have Blue (Coca) Cola; Red (Pepsi) Cola; Yellow (Virgin) Cola; or Purple (Generic supermarket) Cola, but not water because it’s not and never will be on offer whilever this is the framework in which the demos is practised. You can read Nuts, Zoo, and OK but if you want New Scientist or similar then it’s concretius excretious because whats being sold are dreams and fantasies not reality based rationality and evidence.
In this framework the demos is reinterpreted and packaged as a limited choice of brands of the same product to be marketed and pushed down the throat of sentient adults as though we were children in a sweet shop. Which is why elections in recent decades are hemorrhaging participation because there is a sizeable section of the population who would rather starve than eat and drink this snake oil marketing shit. They have sussed out that whilst the brand packaging is different the product is the same and whilever this is the framework they are not going to budge. No amount of Berney style marketing is going to work or have any effect on this realty.
To put it another way, when it is very obvious that the economic activity that Google creates in the UK is advertising for UK businesses on a website that is explicitly UK focussed (as it is)
It isn’t. That’s not the half of it.
What Google is amassing is data – masses of it, tied to every individual who uses it. It’s reckoned that more data is generated in one day about the average person in 2016 than was generated in a lifetime four centuries ago.
That data of itself has massive value, because it’s honest. You can tell people who survey you that (for a crude example) you have no interest in adult content: your browsing history tells Google what you actually do. Data Protection law notwithstanding that data is a resource that any number of businesses will pay to get their hands on – not just for advertising, but for strategy planning.
It’s also harder to be certain exactly where (or even when) the economic substance is coming from.
And that data is located where the consumer is
The economic substance is that it is here in the UK
And we’ll have to create a ‘click tax’ if there is no other way of capturing it
I don’t think thisis correct – the data will be located where the server is and this will almost certainly not be in the uk. In economic substance this data will be used worldwide to a lot of different firms etc that may wish to make sales in the uk but will deal with Google outside of the UK.
Tax cannot be on as arbitrary a basis as where the server is
Inanimate drives are not the basis for determining the location of economic activity
Let’s get real
And if it was we’d all locate our email servers out of the UK and say our work writing those mails should not be taxed here to show how daft that idea is
I think you are missingt thepoint – the data is caught from the UK but is worked on and dealt with in the USA not the UK. If the position was reversed you would be arguing exactly the opposite of what you are saying and trying to say that as most if the work is done in the UK the UK should take a larger slice of the tax pie. Most of the data Google collects is actually given free by people using their search engine or by their own bots trawling and indexing the net. The actual work that leads to a lots of sales probably does not take place in the Uk. Advertising revenue is a more complex issue but getting people to place adverts in the first place again will involve work that does not take place in the UK.
Get real: the data is not worked in anywhere near the U.S. I am not saying no benefit should go to the U.S. – I argue a good share should. So please do not misrepresent what I am saying. Or reality
Even the Tory toilet paper is not happy!
Tyrie will try to steal some brownie points and make sure any eventual tax reform still looks after all his old friends in the City.
http://www.telegraph.co.uk/finance/personalfinance/tax/12120795/Google-tax-deal-faces-scrutiny-from-MPs-over-fears-elastic-system-isnt-working.html
The deal France is reportedly negotiating with google places HMRC and George in the mire they deserve to be in.
Tax multinational companies on turnover, it appears they will always be able to hide profits somewhere. 5% flat rate
http://www.theregister.co.uk/2016/01/26/five_reasons_the_google_tax_deal/
is another view, from the techies; more ammunition to keep the fire raging.
I notice I was amongst the innumerati
Odd given I was the first person to ever notice it
“Dave Hansell says:
January 26 2016 at 1:20 pm
Which means they, like millions of individual PAYE taxpayers, are effectively subsidising the multinationals like Google et al who also have the wherewithal to strike sweetheart deals with the revenue, unlike the toilet seat small company in the south east and rest of us”
As a retired chartered accountant who was in practice for 30 years dealing with small business, this is the point that makes my blood boil and effectively undermines and devalues any feeling of pride I once may have had in my professional career
I have belatedly come to the conclusion that we live in a country that over polices the average guy but under polices the big guy. Let me explain by giving some examples:-
1. In practice HMRC would come down heavy in tax investigations of my clients, wanting full interest and penalties on any underpaid tax. Contrast this to Google or Vodafone, where HMRC failed to levy interest. It always seemed to me HMRC came down heavily on taxpayers doing things 90% right yet completely missed people that never declared income at all. I know this to be true, as I reported twice someone I knew that was not declaring any income yet had secured mortgages, HMRC did not act and as far as I know this person who is now approaching his 60’s has never paid a penny tax in his life. So in effect we are paying his tax.
2. In practice, my institute (ICAEW) were on a mission to avoid being policed by some government agency, they wished to remain self policing. They did this by introducing a scheme of inspection visits whereby they would visit various accountancy practices in a year, discipline those where they found they were below standard, all so that at the end of each year they could go cap in hand to the government and say they had disciplined their own members and so hope to remain a self policing profession. As a small practice I was visited many times, each time they would find certain small things wrong and I would undertake to put these things right. I would then be one of the members who they could tell the government they had disciplined. The problem with these reviews they carried out, they favoured the large firms, with big systems and would rarely be caught out or disciplined. So again you hit the little guy (me) hard. The problem with this approach is that it has historically been the big firms that get it wrong, but the ICAEW policing system does not pick them up – think polly peck, equitable life and probably RBS, etc.
3. And so the same with tax, whilst in practice dealing with the tax affairs of small business, I always assumed that the larger accountancy firms were doing the same for big business, that ensuring they paid there fair amount of tax, that is UK corporation tax at the prevailing rate. I did not imagine that they would be using underhand schemes to transfer profits to other countries. Tax really does seem to be for little people. It is of course the politicians fault for allowing a tax law that does not deal with this. But then I have come to realise that big business owns the political class.
I have to agree with Dave that PAYE employees and businesses that do not offshore their profits are paying the tax of the large multi-national corporations
I must apologise on behalf of my own institute ICAEW who must have been aware of the above and as far as I have seen have done nothing to condemn this behaviour. But then I suppose just as the politicians are in the hands of the big corporations so too is ICAEW?
Many ICAEW members, me included, would prefer not to be self regulated
I wrote an article to that effect for Accountancy Age at least tewenty years ago
And the feeling that all are not equal in the ICAEW remains strong – from pesonal experience
Thanks for the comment
Today’s guardian
The corporate tax system should be radically overhauled in the wake of the row over how much Google should pay in the UK, the former Conservative chancellor Nigel Lawson has said
The peer said corporation tax had “had its day” and should largely be replaced with a tax on sales to prevent large-scale avoidance by multinationals.
I agree. I see a scheme a bit like the vat scale system, where the sales tax would be graduated and depend on the type of business, there being several business types to cater for the differing profits of each business type.
I will write about this
“I have to say that no economic logic I can find can come close to suggesting a reaosn for that.”
I enjoyed this piece, but you’re being completely disingenuous here. It is clear that there exist genuine reasonable economic reasons why one can suggest more profits should be paid in the US than the UK. You might not agree with them or think they are wholly fair (in the same manner you suggest discounting only marginal UK costs is a reasonable argument, but not a wholly fair proposal) but you cannot deny there to be any economic logic behind them.
One argument (pointed out above) is obvious: essentially we make no distinction between subsidiaries and separate companies. Clearly, a separate company would have to pay google for the use of their intellectual property, which is the main driver of this business. (And they’d have to pay to use google branding etc.) This would clearly have a huge effect on UK profits. Regardless of your opinion on country-by-country reporting, over-restrictiveness of patents, tax on revenues etc, this is not an outrageous proposal. It is an argument you can argue against, but not one you can simply say has “no economic logic” and that you “can’t come close to thinking of a reason” behind it. ARM holdings works in precisely this way of leasing out their IP.
Say that such a view ends up doing more harm than good (allowing large companies to obfuscate profits), argue for a lessening of patent power, say that in either case this has nothing to do with Ireland/Bermuda/…, but if you don’t address a counterargument or dismiss it as a purely non-economic argument, then you’re just living in your own echo chamber.
But there is no separate independent company
So you are making up something that does not will not happen to create an argument that as such does not exist
In other words, as I said, you have no argument: just a fiction