We now know that the Google tax decision will be precedent making: the FT has reported that Facebook is also under HMRC investigation. If HMRC are as successful with them in proportionate terms as they were with Google that should raise about £25,000 in tax. Which is precisely why the outrage on the Google tax decision is so appropriate: it is very obviously wrong for HMRC, wrong for the country, and maybe wrong for big business too at a time when it, like most elites in our society, is deeply alienating those whose support it needs.
There are, of course, things that can be done. Most I have said before, so let m,e make them brief.
First, if evidence was needed that HMRC needs top down reform then this is it. I have written in depth about this here.
Second, the OECD Base Erosion and Profit Shifting proposals can be implemented and acted upon in full, including the power to deem companies like Google UK tax resident.
Third, the UK's policy of being a tax haven can be changed.
Fourth we could have, as the public demand, full country-by-country reporting.
Fifth, more fundamental reform could be started: the time for unitary taxation, that apportions profits of a multinational company to the places where it trades on a just and equitable basis, has come.
Change is possible.
Why is the political will not present?
That is the question.
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But we all know why the political will is not present! We have a government of the rich and by the rich whose members believe in a smaller state. No wonder they do crap deals with Google et al.
The real question – as always – is what is to be done? And the answer is campaigns in the short-term and a better goverment from 2020.
Trying ones best to be fair here there is another factor at work in this Government by the rich for the rich scenario.
This can seen whenever a suggestion is put forward from any source that the results and outcomes of this status quo should be challenged or changed in any way whatsoever. Even criticism of the behaviour, stance and attitude of such entities is, on the basis of the written evidence provided, off limits and verboten.
In such cases you get the equivalent of teams of Uriah Heep suicide bombers, complete with caps doffing 1A and obligatory forelock, tugging for the use of, manning the barricades and posting trenchant defences of such activities and those carrying them out. Trying to use evidence and reason is futile as any evidence presented which does not fit the limited model in their heads is conveniently ignored.
Like all religions, greed has its followers and zealots at the bottom of the hierarchical pyramid as well as at the top.
Would the OECD BEPS recommendations (assuming fully implemented) definitely allow Google to be defined as tax resident? This wasn’t clear to me. Of course, even with more tools available, political will always remain a key part of the equation…
BEPS makes it easier to deem a company to have a permanent establishment
So, yes it would be easier to capture the UK sales revenue as taxable in the UK
Not certain, but easier
I’m not sure what you mean “deem a company to have a permanent establishment”.
This is a treaty measure and if accepted by the UK will have to be introduced into its bilateral treaties with approval of treaty partners or through the proposed multilateral agreement. Either way they adopt it is going to take some considerable time and will not be retrospective.
The treaty is being signed as I write
Next?
What treaty is this then?
CBCR MCAA
The MCAA deals with Action 13 of BEPS Action Plan. This is going to change nothing with regard to a new standard for Permanent Establishments. As I said, this will take time so bringing such operations within UK taxation will not be an overnight sensation.
As noted in another answer, it helps provide the answers that suggest PE is appropriate
Having a permanent establishment in a country is not the same thing as being tax resident in a country. BEPS is not focussed on changing the definition of tax residence.
Also, the CBCR MCAA does not enact the new PE definition, so that really will have no impact on the proportion of sales that will be taxable in the UK. It’s merely a mechanism to enable exchange of CBC reports. We need to wait to see the success or otherwise of the multilateral instrument (as well as domestic law PE charging provisions) before we know if this will have any change in practice. And that will take some time.
I think PE would achieve the desired result on Google. I accept it is not the same as residence: that does not matter here
The MCAA accelerates the process of proving what is happening
BEPS is being implemented (see the draft Finance Bill clauses) but under which BEPS proposal would Google be deemed UK tax resident?
What is sorely lacking is an explanation of the basis for the recent tax settlement. I suspect a transfer pricing adjustment, which implies HMRC has accepted that Google’s sales to the UK were not attributable to a PE here. HMRC might be right to conclude that they would not win a case on the facts, but it would be interesting to see the position tested in the tax tribunal.
Excellent point, Andrew. This is a comment I made on a guest post on Jolyon Maugham’s website:
This is why the FT and Jolyon are right to blame the government for HMRC’s shocking failure to ask the court to determine whether these companies have a PE in the UK. There is clearly a huge difference of opinion between HMRC and the companies. So, by any standard, this issue has long been ripe for a judicial determination in the interests of the rule of law, sound tax administration and public confidence in the tax system.
As Walton J said in Vestey v IRC [1977] STC 414, 439.
“I conceive it to be in the national interest, in the interest not only of all individual taxpayers, which includes most of the nation, but also in the interests of the Revenue authorities themselves, that the tax system should be fair. … One should be taxed by law, and not be untaxed by concession. … A tax system which enshrines obvious injustices is brought into disrepute with all taxpayers accordingly, whereas one in which injustices, when discovered, are put right (and with retrospective effect when necessary) will command respect and support.”
HMRC’s determination to settle these disputes in secret and their studious exclusion of the court from the process is bound to be seen as part of the government’s Large Corporates strategy.
I read someone on Twitter arguing that we can’t litigate ‘every’ case but we’ve never litigated ANY case on this matter!
Oh, I was writing that before your reply above appeared. I agree, the BEPS proposals will mean that a function in the UK that negotiates the terms of contracts with customers here, which are then concluded overseas, consitutes a PE here (which is not the case under the historic OECD or domestic definition of a PE). PE is not the same as tax residence.
With £30 billion of ill-gotten cash stashed in Bermuda, I am personally planning a raiding party with Jack Sparrow to go and recover all of it for the British public (none will be given to the British state which has allowed this rape and pillage to occur for centuries).
After visiting Google’s HQ and any other multinationals we find hiding out in the Caribbean, we will use our remaining frequent flyer miles to drop in on all the other tax havens on the way back to top up the looty from some well known accountants and bankers.
All proceeds (less expenses of the MP variety) will be distributed evenly across the UK by helicopter (to demonstrate the effectiveness of this particular form of Peoples QE).
If any other country would like to participate, the offer of a few nuclear submarines and attack helicopters will be sufficient to share in the loot.
Bring back pirating – that’s what I say (aye aye captain!). Now where’s that bottle of Rum I had a few years back? And no I don’t have a parrot any more because we ate that for Xmas lunch because the £10 benefits bonus from the Government wouldn’t stretch to a turkey!
http://www.theguardian.com/technology/2016/jan/26/google-expected-to-reveal-growth-of-offshore-cash-funds-to-43bn
Like the Crimson Permanent Assurance Keith? 🙂
https://vimeo.com/111458975
British comedy at its best Alberto! They really were comic geniuses.
Another classic is The Banker sketch (apologies this is on a Google service – please don’t click on any ads!)
https://www.youtube.com/watch?v=UVRQK58jrbw
And What about a Tax on Thingy?
https://www.youtube.com/watch?v=eDdnI87xLVY
Not to mention The Audit (how relevant!)
https://www.youtube.com/watch?v=mkAfl2RmAZc
If there is a vacancy for a quartermaster with some military experience as long as I don’t have to chop me leg off I’m in. I also believe I might know where to find a parrot. Although for some reason the only words it knows are “twelve and half percent.”
All fellow shipmates will be most welcome Dave, especially those with a resistance to sea sickness and scurvy! Also an ability to read charts and use a compass as we haven’t got a clue how to get to the Caribbean (or one of those TomTom’s with international sea maps?)
Captain Jack has got some financial aid from his old mates in the film and music industry (coz his own money is tied up with keeping his wife and Yorkies out of an Australian prison at the moment).
Only problem was he said we would have to bung them back a few million quid for them to stash on his island, so me thinks there are a few side deals going on with the new shareholders in this venture that the crew won’t be too pleased with. But hey ho, we’ll have to lie about that! Such is a pirate’s lot, it’s a dirty business just like running a multinational corporation.
More on the venture later when we’ve appropriated a suitable vessel (Captain Sparrow says the rubber dinghies I bought from Amazon just won’t do coz they haven’t paid VAT on them!)
Ahoy all you old salty seadog shipmates! I’m afraid things are going a bit topsy-turvy with my plan to return all that stashed offshore cash to the downtrodden people of the world.
Sparrow’s investors have brought in JP Golden Pants to advise on the future strategy of the venture and they’ve convinced him we need to take a less radical direction. It seems doing good things for the masses is not going to allow them to float the venture on the stock market and cash in, so if we want their laundered money we need to do things their way.
The good news is they’ve identified a Chinese squillionaire with a few spare super tankers and cargo ships going cheap, the Russians are going to provide some subs to ensure us safe passage to all the tax havens we want to visit, the Saudi’s will keep the boats full of fuel and the CIA and MI6 are going to keep it all hush hush.
Once we’ve got all the dirty offshore cash, the plan is to take it all to Sparrow’s island (location is of course a secret at this stage), where Amazonia Inc has donated some self-landing rockets to take it all to the moon. Seems that Alphabetti Spaghetti Inc has been populating the moon for years with robots and AI computers which have now built a tropical paradise for the lucky few to escape earth when the glacial meltwaters rise.
The whole thing has been sanctioned by the IMF, World Bank and a group of big global accountants called XYJelly Llp who have helped lubricate the changes to all the tax laws to make sure it’s all above board. They’ve spent millions on lobbying and brown envelopes and given all the global leaders free tickets to the moon.
Some guy called Cameron-Blair said if we didn’t get with the capitalist programme we would have to be given a double lobotomy and heart transplant. Not sure I fancy that myself! Sparrow has offered us both a couple of worthless share options and an important sounding non-job title if we go along with them.
Sorry we’ve got to ditch the plan to transform the world and do no evil, but I’ve got a family to feed and bedroom tax to pay so frankly I need the dosh!
I must stop communicating on this subject now as I fear I’m being tracked by the secret services for being a whistle blowing conspiracy theorist.
Or we could replace Corporation Tax with a low rate transaction/sales tax which in a competitive market is a tax on the seller not the purchaser. It would also allow tax relief on interest payments to be scrapped.
Peter
We have been here before and I am not explaining why this is such a bad idea again
Richard
I know we have Richard and I have since researched it further. I cannot find/see how your claim that it is “unjust” stacks up given that I built in that there would be a tax-free basic income and also concede to you that there would need to be differential rates for “spending” and “saving”. Please elaborate as I do seriously think there is mileage in this along with “Murphynomics”!
Sales taxes are regressive so why create another unreasonable tax that can only impact ordinary people and let capital off?
Sorry: there is no debate on something so glaringly obvious
It was good to see Cameron getting rattled by JC’s questions today at PMQ’s about Google, bedroom tax and UK weapons potentially involved in Saudi’s attack on civilians in Yemen.
Nothing but abuse came back in reply, no answers to valid questions, which is a good sign the Tories are starting to run on the last vapours of credibility.
I think the public are getting sick and tired of the Tories constant evasion regarding the serious issues, especially Cameron at PMQ’s. If he had the courage of his convictions why does he not answer the questions that are put to him?
The Tories strategy of abuse and ridicule of Labour worked a treat in the last election but it will not work again. They will have to generate economic gains that are genuine for the majority of working people/the middle-classes.
What was noticeable about Cameron’s responses today was the nature and direction of attack.
In response to Corbyn’s question from Geoff, rather than concentrate on attacking the Corbyn wing of the Labour Party he had a real pop at the Blairite’s, advising Corbyn to talk to people like Blair, Brown and Darling, quoting the finance and Bond companies they are working for/advising.
Similarly, he made great play on the approach of the Blair and Brown Governments to big business by having a go at them over not collecting any tax from companies like Google.
What was clear here is that any embarrassment for Corbyn and the wider Labour Party, any opening of attack on them, is being caused not by the Party being what is traditionally referred to as “left wing” but instead by the comfortable with wealth and sucking up to big business approach which is the position of the anti Corbyn Progress cult seeking to set the Blair/Thatcher legacy in aspic.
Which should make that particular internal party battle more interesting.
Have no doubt this was a deliberate ploy
I like the idea of a tax linked to sales but not passed on to the customer through the selling price.
By adding a non deductible percentage box linked to VAT turnover declarations the VAT tax collection mechanism would offer an appropriate low cost collection facility.
It is amazing how low the corporate tax take is as a percentage of total government income (something like 6%)and a 5% sales tax replacing corporation tax would see a significant increase over the current take.
Of course there would have to be some rebate mechanism for loss making entities but this could be linked to specified cost categories and could exclude those notional costs that currently create artificial tax losses.
Again the “tax point” would be key and this needs look at, a purchase made, delivered and paid for in the UK would fall to be taxed.
I realise that many will argue that such a tax would be passed on to the consumer but that argument would apply to any tax.
The opacity and complexity of the current system aids and abets avoiders and evaders.
The reality is it will be passed on
But every ‘company’ tax is passed on. It is a cost of doing business.
Using the VAT return to provide information to charge another tax certainly sounds like a cheap method of collection. The challenge is to find an equitable tax.
The only problem is that last time I advertised on Google, a while ago admittedly, they do not charge VAT! VAT is still chargeable on their adverts but according to the VAT and EU regulations the customer is supposed to both add the VAT to Google’s charges and then claim them back on the VAT return! Something to do with Google being registered in Ireland I think. So Google both avoid VAT and manage to get the customer to do their administration for them! If this is an EU rule it needs changing…
The Vat environment you describe only applies to registered traders
Not all tax is passed on either: it depends on the competitive state of the market
Interesting news that the EU Tax Commissioner (job title correct?) will investigate Google’s UK deal, if a complaint is received.
Here’s hoping that Richard will be the one to complain, since he is clearly best positioned to do so with the skills.
It has now happened
And nit from me