The Independent has reported this morning that:
Google chiefs face the prospect of being hauled before MPs to explain themselves over their tax avoidance schemes, the Independent has learned.
A member of the Treasury Select Committee called the company's practices, which saw it pay £6m in tax on a turnover of £395m last year, “entirely improper and immoral” and said he expects a Google exec to be called before MPs by next Easter.
At the same time I noted the following tweet this morning, from a chartered tax adviser:
Ben Saunders is technically right. He also spectacularly misses the point. Google is tax avoiding: by definition that means what they are doing is legal, of course. And it may even be that what Google is doing is within the spirit of EU law, although that is to simply miss the fact that EU tax laws have now been spectacularly rigged to advantage companies over people so that the spirit of the law has itself been corrupted.
But even that is not the real point of why Google needs to be in the dock over its tax. The real reasons is that Google has set itself the motto "don't be evil". That means that Google explicitly recognises it has choices about the way it does business. And by choosing to do business as Google does, in a way that ensures it pays little or no corporate tax on its vast profits earned outside the USA in almost any of the countries where they actually arise Google is saying it is willing to free-ride our economies.
What that means is that in my opinion Google is saying it has no interest in giving a return back to the societies that are letting it prosper.
That's doing evil in my book.
The law may have been corrupted to allow this evil: that I acknowledge and it is an issue I can and will argue about endlessly. But if a corporation claims to be moral, as Google does, and then acts to deny those in need the resources required to ensure that their needs can be met - and that's what's now happening in a world where without exception cuts are impacting on the poor, the young, on education, on healthcare and life prospects, then the choice Google has made is, I think, an evil one.
That's why Google's tax matters.
The campaign on tax and the Olympics was phenomenally successful because it showed that companies had a choice on tax - and could exercise that choice in ways that mattered to people. Google also have that choice and are getting their tax spectacularly wrong - at cost to us all.
That's what the Google tax campaign is about. Google may be sticking to the letter of the law. That law may over time - through corporate lobbying - have been rigged to make sure what they do looks fine. But it's still utterly unethical and we need change if we are to have the better world we all deserve.
Google can help make that better wold. Or not. It's their choice. But we are sure as heck going to remind them that it's a choice - and they're accountable for what they decide.
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I would like to mail you about this on my g mail address, but if I do all I will get is a load of adverts and spam from tax advisers and other money men anxious for my custom. Should I be so foolish as to make some adverse comment goodness knows what could happen. Of course they will fiddle their tax, they fiddle everything else.
I have no insight whatsoever as to whether or not Google’s UK tax is right; legally, ethically or morally. However, based on the facts as presented, it is certainly within the remit of the Commons Treasury Select Committee to ask questions and, as you’ve said, indicates a certain level of hypocrisy in conjunction with their informal corporate motto “don’t be evil”. If Google has been avoiding tax (a practice that is “morally repugnant” even when it’s legal, according to none other than George Osborne), then of course they should be called to account.
Short of using clever schemes to transfer income from the UK to Ireland, there are two basic ways that would account for Google’s low effective tax rate: a). they are engaging in incorrect transfer pricing (ie, using non-arm’s length pricing on their intragroup transactions: charging their UK operations more than an independent third party would pay for the same goods or services); or b). they have large brought forward tax losses which are (rightly and correctly under UK law) being offset against UK taxable profits.
The transfer pricing issue (if it is an issue) should be tackled aggressively by HMRC — this is not so much legal tax avoidance as illegal tax evasion. This may of course be the same issue facing Amazon.
The utilisation of UK losses possibility could be changed if the UK were to change its tax laws re the use of companies’ tax losses to something akin to the approach in Germany, an approach I wholeheartedly endorse.
Apologies; what follows is a tad technical.
In Germany, if a company has large brought forward tax losses, it can only offset in full the first €1m. Thereafter, only 60% of the remaining tax losses can be offset. So a small company with say €10m brought forward losses and with annual taxable profits going forward of say €950k would get full relief for its brought forward losses and pay no tax for over 10 years (as in the UK). Conversely, a large company with say €100m of brought forward losses and annual profits of say €10m would only receive tax relief each year of €6.4m (ie, the first €1m, plus only 60% of the remaining €9m), leaving taxable profits each year of €3.6m on which it pays tax. What this means in practice is that the German exchequer receives taxes when companies make profits in excess of €1m each year, irrespective of the quantum of losses they’ve incurred in previous years, and yet the companies themselves ultimately receive full relief for their (properly calculated) tax losses. Under the UK tax regime, the company would pay no tax for 10 years, despite making significant profits each year.
HM Treasury would be in an infinitely better position had the UK had similar loss set-off rules following the horrendous loss-making years 2008 and 2009 for UK banks — the main reason banks have paid little or no corporate income tax since then (despite their huge profits).
There are no losses involved
And in the UK this is not a transfer pricing issue
The argument is that they are merely sales agents for Ireland here
Sorry, but why is Google Ireland selling to UK customers different from when Rolls-Royce sells aero-engines to Singapore Airlines or Pilkington sells windscreens to Fiat? In every case the income falls to be taxed where the seller carries on its business not where the buyer happens to be located.
I see no moral argument to change the status quo. If we want to tax Google here in the UK, then other countries could just as easily decide to rip up our double taxation treaties and tax UK companies on the income they earn from exports.
Google carries on all the business relating to these sales here in the UK
It just bills them from elsewhere
Very different indeed
But is this not an issue that could cost us more than we gain?
After all HSBC carries on a large amount of its work in the Far East but registers its profits here in the UK. The same as the oil companies such as BP which now has interests all around the World.
Sometimes the UK gains from taxing the headquarters even when the economic substance is in another Country, sometimes as in Google we lose. Changing the setup could cost us more than we gain….
I have no desire to tax profits that are not ours
I especially want taxes paid in developing countries
Shall we try being ethical?
Do you know that for sure? Google, their advisers and, it would appear, HMRC, take a different view. I could well see your point if the people working in the UK were all working on advertising or even search engines, but they don’t.
Google has other businesses such as cloud computing services, development and sales of Android and Chromium products and much more which are probably either all long term investments or loss making activities that promote the internet but which aren’t actually part of the advertising business.
I am very wary of these attacks by 38 Degrees and others, which don’t seem to bear scrutiny when the facts are revealed.
I accept Google has other employees in the UK
More reason indeed why more of its income should be taxed here
If you can explain why £2.6 billion is not taxed here and only £395 million is, please do so…..but using logic not ‘that the law allows it’
“If you can explain why £2.6 billion is not taxed here and only £395 million is, please do so…..but using logic not ‘that the law allows it’”
I think the £3 billion or so figure quoted in the initial report was a miscalculation, whereas the £395 million is the amount of income billed to the UK from Ireland. £3 billion ($5 billion or so) would be about one seventh of Google’s worldwide revenues, which considering the US economy is more than 6 times the size of the UK economy would make the UK share disproportionately large. I do not believe that Google’s UK revenues would be anywhere near ITV’s advertising revenue (£1.8 billion) let alone £3 billion which is close to the turnover of the BBC.
You clearly haven’t read my original piece on this
£2.6 billion is Google’s UK revenue – they say so in their global report
Only £395 million is declared here
Now explain that