I was on ITN's main news last night discussing Google's tax - which still appears to be way below any reasonable expectation.
The story was covered on their web site here.
The real question is a simple one: why is HMRC apparently happy with collecting maybe £100 million less than might reasonably be due? I'm not blaming Google. I am blaming HMRC and its political bosses for what still looks to be an unlevel playing field in UK business taxation.
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Exactly case in point. No substantive solution in place whilst we continue year on year loose massive amounts from these corporations. Google is just one example of a vast number of multinationals. Add them all up and it reaches the billions.
You believe you have the answer in your new book, dirty secrets. Well to be fair, I suggest we read it, and start debating the solution(s) much more prominently in the media.
NHS funding a public crisis, austerity elsewhere, well the loss of all this corporate revenue is what needs to be address. Too long politicians and the media have let is slide by, while the country as a whole continues to suffer as a result.
Perhaps those involved expect to get fabulous paying jobs from Google after – or even during, given Osborne’s example – their time in politics. There’s a lot more money for politicians by helping corporations avoid tax and then splitting the proceeds than there would be in simply doing the job they’re comparatively badly paid for. What else should we expect?
Hmm well they earn a professional salary like other professionals do (journalists, lawyers, accountants) – high paid second jobs whilst also engendering a conflict of interest maybe attracting the wrong sort of politician (opportunists) rather than people in it for the purpose of being a politician in the first place – whilst their politics may differ I do believe Theresa May and Jeremy Corbyn are of the latter ilk.
Look at this Uber fiasco!!! Uber another tax dodger!
http://www.dailymail.co.uk/news/article-4351418/Cameron-aide-s-uber-cover-up.html
http://www.dailymail.co.uk/debate/article-4351616/Was-Mr-Cameron-close-Uber-chums.html
http://www.dailymail.co.uk/debate/article-4358824/PETER-OBOURNE-growing-smell-Uber.html
And more recent info on Corporate tax dodgers:
http://www.dailymail.co.uk/news/article-4303030/The-major-firms-avoiding-corporation-tax.html
Derek
I think we know that here
Richard
I agree with everything you say but I don’t get this.
Google UK has UK revenues of say £1bn – that’s the revenues attributed to the work done by their engineers and marketers and researchers living and working here for the part of the company that is based here.
Google as a whole, has revenues from the UK of say £5bn – that’s the revenues mainly from the adwords software which was designed in the USA and is sold to UK buyers by intermediaries in Ireland.
What are HMRC supposed to be doing wrong? Are they supposed to go to Ireland and the USA, whip out some weapons and say they are here to collect a percentage of the value created by people who work in the USA and Ireland?
How many times do I have to explain this?
No one is saying Google cannot be paid a fair fee for the software
I have allowed for that
BUT the sale is here by Google staff to UK customers and Google claim that it is in Ireland – and I ma far from alone in saying that is a terribly convenient ruse but I do not think that the real substance of the transaction
The question is then simply whether the margin is on £5bn or £1bn
But for tax games to avoid a permanent establishment here in the UK it would be £5 billion
And whilst those games clearly convince HMRC I think a) the rules need changing b) HMRC needs to become substantially more aggressive and right now it is not – which is a political choice at cost to us all
I think that Bon may have got this now. His ability to write and sing lyrics to world class heavy rock records is certainly better than his ability to understand underhand tax practice! Mind you – he is deceased and his band (AC/DC) did get a new singer (although I always regarded him as the best).
It sounds incredible – almost a confidence trick – but that is my understanding of what is going on too (thanks to Richard discussing it here).
Google’s argument is untenable. And this just makes HMRC’s ineffectiveness more self evident.
Dear Richard Murphy,
Or simply changing how we tax them (I.e. On sales) which you are not willing to explore up until now. We can do this in a progressive way as long as we avoid outmoded ways of thinking I.e. Use a paradigm shift. I get the impression you believe that some form of sales tax would only be passed on to the consumer, but I think we need to view this systemically and (from an accounting perspective). Sales tax only becomes an additional cost if the company is already paying corporation tax – from a price / profit ratio understanding. Similarly if a company virtually pays no tax then an addition of corporation tax or sales tax could be seen as something that could get passed onto the consumer. So what are we to do? Accept there must be a tax paid for the benefit of the country as a whole, whilst encouraging competition to bring down prices. At least if there is a level playing field at the large end of the market regarding tax (perhaps with progressive tax for smaller companies) we will see greater competitive forces (internal to the market) on prices.
Anyhow I do suggest more analysis surrounding alternative tax structures needs to be fully explored before casting judgment (or thinking immediately it’s somehow party politics aligned).
Go and reat the Joy of Tax
It’s pretty boring to be told I haven’t thought about issues when I gave written books on the subject
Warning: my patience with trolling wears thin
So Google claim that the sale of the advertising that makes most of Google’s revenue from UK customers is being done by a team of staff in Ireland.
Are you claiming that that is false?
I would refer you to the evidence heard at the PAC
“It is quite likely that it is paying 1/5th of the tax that it should in the UK” – those are your exact words on the ITV clip.
No allowance for IP, no allowance for single market rules that say that the place where the customer buying something is not the economic activity subject to corporate tax.
And I’m aware of the PAC – the claim here is that the tax that should be paid is 5 times what it is because it should be due where the customer lives.
I have made that allowance: the profit margin I assumed was way lower than the US to allow for all those things
And across the EU the idea that the tax should be paid where the customer is because that ius where a PE might be is being explored
I can assure you I have some knowledge on these issues
I was also the first person to ever work on the Google story
The problem comes from the way in which Google, and others like it, take advantage of the “independent entity” principle in international tax, by splitting up their activities into different functions. Google has 3000 people involved with sales in the UK, but their function is described as “marketing”. They have 1000 engineers, with apparently more on the way, but they are treated as doing R&D under contract to and under the control of the US company. Although HMRC has not explained how the UK affiliates are taxed, and the PAC hearings did not make it clear, it seems that it is done on a cost-plus basis. I.e. a profit margin is allowed, on some appropriate cost base, which is supposed to be “comparable” to what would be paid if Google used an independent company to carry out the same activities. The flaws are obvious — no company brings an activity in-house unless it creates significant synergy with its overall operations. That is why the only sensible approach is to tax TNCs as unitary firms, preferably under a system of formulary apportionment. See http://www.ictd.ac/publication/2-working-papers/126-taxing-multinational-enterprises-as-unitary-firms
Even under current rules, Google seems to have cut a sweetheart deal. HMRC could argue that the UK affiliates contribute significant intangibles, e.g. customer information, and the contribution to Google’s software made by the UK engineers, who I doubt are under the “control” of the US. (Not least DeepMind, acquired a couple of years ago.) In such cases, the OECD Transfer Pricing Guidelines allow the use of the profit split method, instead of cost plus. It seems to me that they cut a deal on low tax v. extra jobs. How many businesses are in a position to do this?
Thanks Sol
Have you seen The Mail item about Karen Millen now bankrupt thanks to her financial advisers, tax havens etc? You are quoted in the article. Very sad business.
I spoke to then.yesterday
The quotes are indeed from me
Have you seen The Mail item about Karen Millen now bankrupt thanks to her financial advisers, tax havens etc? You are quoted in the article. Very sad business.
Well I was hoping for you would openly share some of your thoughts then on the matter as part of the discussion or debate. Seeking to open up a discussion isn’t trolling is it? Its your forum however. So I guess we would have to read your books as you say.
The trouble is you’re trying to open a debate I’ve dedicated 15 years to without acknowledging that there might be some prior material
And that does feel like rather odd baiting to me
If your goal is honourable I apologise
Equally I can’t reopen debates for every person every time they arrive
This is done in my spare time and there is a day job, a family and a life as well
I can’t see Govt policy changing anytime soon and therefore HMRC. Indeed all parties (with the exception of Green) rely on (big) business to bankroll them, so perhaps all you can do for the time being is to continue making people aware and publicise a running total of what’s owed to this country.
I suggest an annual total going back as far as your records allow. Would make an interesting graph (suspect you have already done this & I haven’t found it yet).
No, not done….and the data is not really there
No one really look at this before 2006
That’s the year I began and HMRC started about then too
OK great 🙂 but why do we seemingly hear so little about it in depth on the radio or TV? There’s so much talk about everything else such as public services and austerity, but very little about what would in a REAL sense would address the issue .. it’s the massive elephant in the room… and that which has been the ultimate ongoing drain on the country’s resources.
I agree
Please go and ask them
Not the person trying to get it there
Joe V,
The communities who protested via brexit will support this, along with a majority of the remainers – that’s an overwhelming majority. The voter knows they can make changes. Richard regarging discussion and debates, we need this to be much more public than with your students in academia. This is too important a discussion. It needs to become mainstream. I just had a barbecue and they were discussing austerity and things like the NHS but it didn’t dawn on anyone that it’s the supply side of funding that could address these issues.
Derek
Have you noticed what I’ve been doing?
I suggest you do some research
Richard
I found this article to be quite good.
‘Corporate Deadbeats: How companies get rich off taxes’
http://www.newsweek.com/2014/09/12/corporate-deadbeats-how-companies-get-rich-taxes-268303.html
“Kleinbard says the ultimate goal of such international tax games is “stateless income,” a fancy way of saying “earn profits without paying taxes.” Because taxes are imposed by states–by governments–anyone who can earn profits in a high-tax country and then move them to a haven where no tax is owed should ravage the competition.”
Some of them are moving here….. poses other questions doesn’t it.
http://www.telegraph.co.uk/business/2016/12/08/mcdonalds-bring-international-tax-base-britain/
“McDonald’s new UK domicile will collect the majority of the royalties from licensing the company’s global intellectual property rights outside the US and will be supported by the “significant number of staff” the company already employs in the capital.
“This change has a clear business rationale in matching our corporate structure to our new functional structure,” the company spokesman added.
The UK already has one of the lowest corporate tax rates among major economies at 20pc, compared with 35pc in the US, 33pc in France and a combined burden on profits in German of between 30pc and 33pc.
McDonald’s move to Britain, its biggest European market, comes as complex international tax structures come under pressure from coordinated moves to ensure profits are taxed where they are made.
In recent years Britain has thrown its weight behind moves by the Organisation for Economic Co-operation and Development to stamp out complicated tax avoidance schemes.”
Starbucks moved eight people to the UK with their head office
The dpt was a disaster. Every thought about a foi request to see how much it actually raised? I haven’t had a single client fall into the regime
Submitted
The point Richard is not whether there is a a PE but how much profit is attributable to it. If you see the way the work on Action 7 of the
BEPS project is going highly unlikely much profit will be attributed to market location where internet businesses do most of their advertising selling through online algorithms. So not to say the position is acceptable but not sure you can blame HMRC.
And across the EU Google tax settle ta seem much higher than the UK
I simply do not agree
Hi Richard,
This isn’t a comment on the article so not worth making public, but it was the only way I could think of to message you that I no longer appear to be receiving your blog to my email and wondered if there was a reason for this? To be fair I’m not a hugely active commenter, but I do enjoy reading your blog and everyone else’s comments.
Regards
Let me check it out
You are the second person to say this, although I am still getting it
I will ask my tech person!
Has anyone noticed that whenever the topic of multinationals avoiding tax gets mentioned by someone on radio or TV, the subject gets changed quickly. It’s like the journalists arbitrating the discussion feel uncomfortable with the subject – do they just feel out of their depth? Do they feel like they can’t form an opinion or view or the matter? What do you think?
I have to say thus is nit always true
I was on ITN on Friday night on google in a report lasting long enough to explore some detail
If google was a building site, HMRC would be crawling all over it.
I think a trick has been missed here. Google UK has revenues of £1.03bn but around 1/3rd of that seems to come from outside the UK – e.g. docs, maps, cloud services, android to EU customers of these things.
Google’s world wide revenue from the UK seems to be around £5.5bn. So google should be paying around 8 times the current corporation tax number to HMRC, not 5 times as stated in that ITV interview.
One has to keep things simple for television