Google agrees token tax deal

Submitted by Matthew on 4 February, 2016 - 9:14

Chancellor George Osborne claims the UK’s £130 million tax deal with Google “is a major success [for UK] tax policy.”

Google agreed to pay £117 million for ten years’ worth of non-payment of taxes, plus £13 million in interest. But Google’s sales figures for 2015 alone were an £4.6 billion! Google's effective tax rate is just 3%! UK corporation tax is currently 20% (already reduced from 28% by the Tories in 2010), the lowest in the group of G8 countries. That Italy is pursuing Google for €227 million in back taxes from Google makes the UK deal even more risible.

In case you were thinking the deal was the responsibility of the HM Revenue and Customs alone, it's not. UK government ministers are directly implicated in the deal, having held at least 25 official meetings with Google on this issue between January 2014 and September 2015. We know that when the rich avoid or break the law they face very different penalities to than the rest of us. "Loot" a bottle of water from a shop during a riot and you'll get six months in jail. Smash up a restaurant with a your chums from your University of Oxford drinking club, and one day you might make Mayor of London or even Prime Minister. Coventry pensioner Henry Edwards was jailed for six weeks over an outstanding £1,800 council tax bill. Google, on the other hand gets to pay a fraction of what it owes, ten years late, and nobody goes to jail.

No suprise too that Osborne is a tax avoider. In 2005 his family's business, Osborne & Little, made £6 million in a property deal with a developer headquartered in the tax haven Virgin Islands, some £2 million of which would have been eligible for taxation in the UK. The Chancellor owns 15% of the firm in a trust given to him by his father, Sir Peter George Osborne, the 17th Baronet of Ballentaylor (a place in Ireland which yields zero taxable income to its heir, George Osborne).

Labour shadow chancellor John McDonnell rightly condemned the Google deal, pointing to the Tory MEPs who were instructed to vote against proposals to clamp down on tax avoidance on six different occasions, notably in relation to tax haven Bermuda. MPs have launched an enquiry into Google’s tax deal, but McDonnell calling for more. In a Daily Politics interview, he said all FTSE100 companies should publish their tax returns along with their annual accounts. Bosses should have their records scrutinised by a fully-staffed HMRC to make sure they are not hiding their money in tax havens or exploiting legal loopholes, and have their accounts available to the workforce, particularly when wage cuts or redundancies are on the cards. Nor should we forget the civil servants in HMRC, now facing huge job losses. More than 100 HMRC offices are due to be replaced with 13 regional bases.

Tax Google's billions and those of other multinational companies. Use the money to rebuild our public services!

How states compete to offer low taxes

Law professor Sol Picciotto has proposed a new approach to stop tax avoidance by transnational corporations. He spoke to Ed Maltby from Solidarity.

Taxing transnational corporations already involves international agreement, based on tax treaties. The issue is, what kind of agreement? Until now, there has only been loose coordination. That's because governments like to hang onto what they call "sovereignty".

This means that TNCs can play off one government against another. Current agreements mean governments compete to offer tax breaks to MNCs. Governments need stronger co-operation, but so far they have been unable to reach an agreement on what that would be. What's needed is an agreement to treat TNCs in line with the business reality, that they are single companies.

We think of Google as one company. But governments try to tax the particular subsidiary in each country. So HMRC has been trying to tax Google in the UK. TNCS split up the function that they attribute to different subsidiaries in different countries. They can put some functions in either outright tax havens like the Cayman Islands or Bermuda, or in countries that offer them very low rates like Ireland or Luxembourg. They attribute more profit to the subsidiaries that they put into lower-tax countries. The profit that they channel through Ireland to Luxembourg is supposed to be royalties received for use of the Google software. This software was developed in California, but it was sold to this Irish subsidiary a long time ago.

The various Google operating companies pay a royalty. These royalties are usually deductible from the gross profits that they make in different countries. So that reduces the taxable profits. This allows Google to have a worldwide tax break. The best solution would be to treat Google as a single worldwide tax entity, in order to tax it on its real activities in each country. That's what they have in federal countries like the US, where they charge state corporate taxes on a given country's total US profits, divided up according to a formula and apportioned to each state. There is a proposal now to apply this in the EU, but governments are blocking that. The reason they give is that it is difficult to agree how to apportion the profit. But the real reason is that it would take away their ability to attract investment by offering tax breaks.

Tax breaks attract little real investment, so, it is to the detriment of other, more productive kinds of investment, but they still get some money out of it. It's really a beggar-thy-neighbour approach, but the Irish for example do quite well out of it. Countries like the UK could move towards a better approach even without an international agreement, by dropping the fiction that they are only taxing Google UK. The fact that Google is paying its UK employees £150,000 on average shows that they are making a lot of money here.

The whole Google operation depends on close interaction with users and advertisers to do targeted advertising. The idea that all that takes place somewhere else doesn't really wash. I don't know why Google thought they could get away with the tax deal. Maybe they thought that no-one would realise! There is enough information available for most people to realise that it's a very bad deal. In fact HMRC is more aggressive towards other companies. But Google is a powerful company and it's an American company. The US Treasury has been making a fuss about Europeans attacking American companies, but in this case it is the other way around, they are going easy on Google because it is an American company.

The European Commission has taken decisions against Apple. But a lot of American companies have been getting these sweetheart deals. I would say that the real level of Google tax ought to be two or three times what they are paying. It's not as astronomical as some people are suggesting, but the amount they are paying is very low.

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