Google has written a letter on its tax affairs to the FT. Unsurprisingly, they published it. But what is interesting about it is what it does not say, and what it reveals about the thinking of the company.
It starts well enough:
Sir,
A little respect always helps. It goes downhill from there.
In all the coverage of Google's tax settlement, little has been said about the international tax rules and how they work.
It's an interesting claim. But I think the acres of ink and bytes of online data dedicated to BEPS, transfer pricing and OECD reforms might suggest otherwise.
It continues:
Corporation tax is paid on profits, not revenue
We know that: no one has argued otherwise.
Of which it is then said:
and is collected where the economic activity that generates those profits takes place.
Talk about digging a big hole and then jumping into it. What quite emphatically annoys everyone about Google's tax is that there is not a person on earth who could, when having been informed of the facts, conclude that its tax is due in Bermuda, which is where its UK profits end up. The last place on earth where Google has economic activity giving rise to profit may be Bermuda. This argument does not run.
Nor does this one:
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.
Hand on, 'created', or 'made'? Note this is 'sells .... to' which means 'exports from'. But, as I have explained, the economic substance in the case of Google is that the value that I think should be taxed in the UK is made in the UK. That means that this pharmaceutical argument falls flat on its face. British ads sold by British sales people aimed at British customers on a UK website that get value by clicks on British computers are not exported to the UK: they are made here. In which case this is not true:
The same applies to Google.
Come to that, this is pushing boundaries of credibility
As a US company, we pay the bulk of our corporate tax in the US: $3.3bn in the last reported year.
In itself that is factual, but that's on only half the profit. Which, if Google has not noticed is why the rest of us are irate. The fact that the rate seems high is because that is the way the US tax system is. And if you can pay at home Google on the domestic profits you make at home we think you can do the same here. Which is why this gets up our nose:
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.
Except, as I have noted, that is way, way short of the total economic activity undertaken here, which is why we all think this claim is just wrong:
After a six-year audit we are paying the full amount of tax that HM Revenue & Customs agrees we should pay, including £130m in additional back tax. Governments make tax law, the tax authorities independently enforce the law, and Google complies with the law.
So thanks to
Peter Barron
VP Communications and Public Affairs,
but respectfully, we beg to differ and you'll have to do a lot better than this to change our minds.
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I hadn’t heard of fisking before, it sounded a bit rude, but now I know what it is I like it very much indeed!
Good to see the pressure is still being kept on this one, may it keep running for a very long time and drag lots more multinationals into the mire.
But it’s about time the institutional shareholders who are really behind these schemes are brought out of the shadows and into the daylight. Let’s not forget that the multinationals board are not operating in a vacuum here.
And how about removing the Remembrancer from the Houses of Parliament as a symbolic gesture that the UK is not the plaything of the City of London!
http://www.theguardian.com/politics/blog/live/2016/jan/28/labour-and-snp-call-for-european-commission-investigation-into-googles-uk-tax-deal-politics-live
Sharehoilders are noticing
From Wikipedia:
Fisking is a blogosphere slang describing a point-by-point criticism that highlights perceived errors, or disputes the analysis in a statement, article, or essay The term originated from various blogs which have taken particular issue with (Robert, the veteran English journalist) Fisk’s views. Many of these bloggers have responded by reprinting his dispatches on their blogs, adding their own paragraph-by-paragraph commentary, dissecting and debunking Fisk’s assertions and opinions. According to The Guardian, “fisking” has come to denote the practice of “savaging an argument and scattering the tattered remnants to the four corners of the internet”
Clear and astute rebuttal of Google’s sophistry. One wonders how clever they really are, or is it simply the mates club that ensures they pay little or no tax?
I suspect the second, in large part, and it also tells them they are clever, which is what they want to hear
He is quite within his rights to point out tax is on profit not revenue. Barely a day goes by without a paper publishing a poorly written article with the same format:
“Company XYZ paid no corporation tax this year despite having revenue of x million”
This never happens on this blog to be clear but I share his frustration at the ignorance of journalists.
I share tgat frustration
But equally I am deeply annoyed by Google suggesting it is not relevant when they so blatantly abuse it
Richard
One point not covered in the discussion of Google’s business model is the importance of the actual data that Google collects and uses to refine the outputs of its algorithms. This operates at both a UK level and at a global level. Data provided by UK Google users ensures that Google algorithms deliver improved Google search results on UK topics, but also are used as part of global trends. Given the UK’s disproportionate cultural importance in a number of fields (English language, popular music, TV etc), it is likely that data provided by UK-base Google users is of some importance.
So the Google algorithms may have originally been written in the use, but their continuing maintenance and utility must be heavily influenced by UK input. So UK activity by Google represents a significant part of Google’s value generation, thus making it even harder to see how the company can claim, and HMRC believe, that the value generation is in Ireland
Agreed
Sorry – previous comment should say “So the Google algorithms may have originally been written in the USA”
I love your sentence “British ads sold by British sales people aimed at British customers on a UK website that get value by clicks on British computers are not exported to the UK: they are made here.” That hits the nail well and truly on its head.
Oddly, I thought so too