Google's Tax Bill

First things first, I am in favour of Google, Starbucks, Amazon etc paying more tax in this country.

But.

Why do people frame the issue about corporation tax so wrongly?

The issue is not whether Google or Starbucks paid tax or not (because they did), the issue is where they paid it (in Google’s case it was Ireland where the corporation tax rate is 12.5% compared to the UK’s 20%)

And it’s not how much profit they made, it’s where that profit is recognised.

Now I know that not everyone has a business degree, but why can’t people accept this important difference when someone who knows the facts tells them? And, perhaps more importantly, why aren’t they then lobbying for international tax reform, which is what we really need if we are to solve the problem being discussed.

Its just to get MAWCB’s moaning.

Saves them drinking themselves to death.

Point is, they ‘Choose’ to recognise it there, despite large percentages of the earnings being made here.

But you’re right on the last point: our legislation is woefully inadequate and our tax authority is criminally underfunded.

Our politicians have chosen not to have the will to sort this out.

perhaps more importantly, why aren’t they then lobbying for international tax reform

Because people don’t have the lobbying power that big business does. The tobacco industry is a perfect example of how reality was (and still is) corrupted by the big spenders.

http://www.bath.ac.uk/research/news/2015/02/24/tobacco-lobbying-eu-directive/

Companies should pay tax at the rate demanded by the territory where the transaction took place.

So if I buy a coffee on my local high street then that transaction didn’t take place in ****ing Luxemburg or the Caymen Islands. So don’t declare that for the purposes of taxation, that it did. Its just fraud really.

I wonder how many of the outraged still use Google as their default search engine.

I wonder how many of the outraged still use Google as their default search engine.

Straight over the ball with studs into the shins.

Point is, they ‘Choose’ to recognise it there, despite large percentages of the earnings being made here.

It’s not that simple. By law, companies have a fiduciary requirement to maximise shareholder value, so they are by law required to minimise their tax burden where they are able to do so. Of course, if doing this then has a negative impact on their brand value, which then impacts on shareholder value then that’s where you might get a voluntary change to pay more tax in return for the goodwill it generates.

For the record, those shareholders are typically Asset Management companies holding investments on behalf of pension funds, so it’s you and me that are really the ultimate shareholders and it’s out pensions that benefit.

Because people don’t have the lobbying power that big business does. [\quote]

I meant the politicians and the pressure groups, but the point still stands. If an individual complains about it, they don’t complain about international tax rules, they complain about the company.

Corporate tax law is written by corporates, the Treasury has a revolving door policy with industry (as determined by the Government). So it shouldn’t be too surprising that our tax laws are so trivially easy to circumvent as they’ve been explicitly designed to be so.

The only spanner in the works is when the peasants realise this and start complaining….

By law, companies have a fiduciary requirement to maximise shareholder value, so they are by law required to minimise their tax burden where they are able to do so.

Find me the statute stating this…

It’s certainly not in UK company law.

Companies should pay tax at the rate demanded by the territory where the transaction took place.

In google’s case its blurred by the fact that many of google’s services are free (or seemingly free) at the point of use. So lots of people in the UK use google’s services but most don’t pay anything for them – so the query would hang over where the paid transactions are taking place, not where the free receivers of this transactions are.

By law, companies have a fiduciary requirement to maximise shareholder value, so they are by law required to minimise their tax burden where they are able to do so.

That doesn’t work though does it?. Shareholders are only paid dividends from taxable profit, so the money left after expenses and after tax has been deducted. If companies are finding ways to apparently make no (or little) taxable profit then in that same way they’re finding ways not to pay out to their shareholders.

So if I buy a coffee on my local high street then that transaction didn’t take place in ****ing Luxemburg or the Caymen Islands.

You don’t pay corporation tax on the transaction (that’s called VAT). You pay it on profit. You’ll have to read around how profit is calculated but the pertinent issue here is that you can charge large amounts of overhead to other jurisdictions in respect of operating costs, marketing spend, goodwill etc. Again, you have to simply change the international tax laws to stop that from happening.

I personally think a revenue tax is the only way to really deal with social media companies. Amazon is a bit different because they are really an infrastructure company with nearly all returns ploughed back into CapEx that can legitimately be offset against corporation tax.

As consumers though we do have choices. I personally decided to forego the services of a number of companies who appear to be playing fast and loose with their tax arrangements in the EU and UK. To that end I don’t spend any money in:

Starbucks
Caffe Nero
Ikea (which is still run as a charity based on its governance structure)
McDonalds

As an aside, there’s a pretty strong correlation between aggressive corporate tax structuring tax dodging and poor quality / unhealthy food.

Companies should pay tax at the rate demanded by the territory where the transaction took place.

So if I buy a coffee on my local high street then that transaction didn’t take place in ****ing Luxemburg or the Caymen Islands. So don’t declare that for the purposes of taxation, that it did. Its just fraud really.

This +1

Although the issue isn’t where the transaction is declared, Starbucks etc are 100% honest about that. They just then pay ‘royalties’ equal tot heir profit to the parent company elsewhere (in Holland where there’s a zero rate on IP related financial transactions), who then pass on the profit from that to another company in a tax haven (Isle of Man, Cayman, Luxembourg), who can then give you a 0% 999year loan.

It’s called the dutch sandwich.

I thought it was a case of…

Tax man: you owe us £xxxmillion
Corporate: ah. I only want to pay you £xmillion. Either you let me pay £xmillion, or we will pull our business out of your country completely. Do you want that? 10% of something is better than 100% of nothing….
Tax man: oh, ok then, sorry to have bothered you.

You don’t pay corporation tax on the transaction (that’s called VAT). You pay it on profit.

Which they artificially reduce by using legal scams such as selling their brand name to a Bemuda company and then leasing it back to the UK at a rate designed to wipe out any EBITDA so they can appear to have zero taxable profit.

(Barely) Legal tax fraud.

Also completely immoral and indefensible.

Find me the statute stating this…

It’s certainly not in UK company law.

You’re partly right. Directors are required to promote the company but the difference is subtle and is designed to balance between promoting money in the short term at all costs and long term sustainability, which was what I was originally pointing out.

FT Article on fiduciary responsibilities of UK companies

Which they artificially reduce by using legal scams such as selling their brand name to a Bemuda company and then leasing it back to the UK at a rate designed to wipe out any EBITDA so they can appear to have zero taxable profit.[\quote]

It’s artificial simply because it’s an intangible asset and it’s not a scam it’s the law. That’s the point. If we don’t like it we need to change the law and be upset with the law, not with the company.

A lot of western Governments have also used “austerity” as an excuse to cut and cripple tax authorities. So even when the rules exist, Peter taxman sitting in a lonely office buried under a pile of paper has no **** chance to enforce them.

More like “we could pay nothing, but here’s something, take it or leave it”, they wouldn’t pull out of the economy all together as they make money from it.

Which they artificially reduce by using legal scams such as selling their brand name to a Bemuda company and then leasing it back to the UK at a rate designed to wipe out any EBITDA so they can appear to have zero taxable profit.

you still need the european intermediary (Holland, Luxembourg) because tax would be payable on the repatriation of the money to Bermuda, but not within in the EU. Same way as we happily buy bike parts for EU shops like CRC, but can’t buy from the USA or China without (potentially, legally) paying tax.

All it needs is for countries like Holland to change their rate on IP related transactions, or the EU to step in and do something.

You’re partly right. Directors are required to promote the company

IIRC the Statute explicitly mentions employees, share owners and society, so the whole ‘have to maximise share holder value as the law says so is total Bullshit).

Ah yeah, that was my other angle 🙂

Well to take the Starbucks example it’s because people consider them buying over priced rights to their company name in from a sister company in a low tax country so that the UK arm makes no/low profit to enable it to avoid paying UK corporation tax is immoral. It’s not illegal but it’s very clear what is happening and why.

Web based services like Googles are even less clear cut as the service is being provided within the UK on a UK domain name and registrations of convenience in low tax countries seems to the lay person to be cheating.

When people say these companies should pay more tax, no-one is really suggesting that they are evading tax, they’re suggesting that they should be paying a fairer representation of the money they earn in the UK. But given that HMRC don’t appear to be able to fully get their heads round the tax framework suggesting that the average lay person should be able accurately frame their complaint seems unduly harsh.

The underlying issue is the globalisation of trade and financial movements as you say but the problem is that UK plc can’t enforce don’t be a dick rules. So we can’t say to these companies **** off you’re being ****, record this properly based on real life, stop creatively pricing/pretending where you’re based/etc. we have to work off the absolute of their accounts even though they don’t reflect what is really happening in how they deliver their services.

This is worth a viewing if you missed it last week

The Town That Took on the Taxman

Heydon Prowse visits the small Welsh town that is starting a national tax revolt by copying the accounting techniques some big companies use to avoid paying corporation tax.

One of the things that came across loud and clear is that the relationship between big corporates and HMRc is all far, far too cosy. Seems like as Google have demonstrated this week, they get to pay as little tax as they like really, on an effectively voluntary basis

More like “we could pay nothing, but here’s something, take it or leave it”, they wouldn’t pull out of the economy all together as they make money from it.

Exactly, we have all the power yet chose to completely acquiesce and let them pay no tax.

As far as I can see it’s mainly because of high level corruption, the large corporates make off the record promises of nice Non Exec positions to ministers when they retire as long as they make sure the Treasury goes easy on them wrt Tax. The minute ministers resign they get very cushy jobs in all the companies they were supposed to be policing – it’s no different to Nigeria, just a bit more subtle and without cash up front.

One of the things that came across loud and clear is that the relationship between big corporates and HMRc is all far, far too cosy.

The Establishment, which you recommended, covers this brilliantly – although very depressing, could easily be any tin pot dictatorship in Africa…

Can’t HMRC / the treasury enforce a windfall tax? They regularly did on the oil industry when oil was <$150. Then Nero/Google/Starbucks etc can either sort out their internal financing and pay it, or declare themselves bankrupt and bugger off.

I think the appropriate phrase is “don’t blame the player, blame the game”. They’re doing nothing illegal so right now, under current international laws, there’s very little that can be done.

Can’t HMRC / the treasury enforce a windfall tax?

Yes, easily, but there is no Political Will.

The current government are very happy for large corporates to not pay tax. These companies and their owners own the Conservative Party, funding it to the tune of 10s of £m. They don’t want to bite the hand that feeds them. As long as they can convince the middle classes that it’s all the fault of the feckless poor, the whole system ticks along quite nicely with public services getting worse each year and no one blaming the Government.

IIRC the Statute explicitly mentions employees, share owners and society, so the whole ‘have to maximise share holder value as the law says so is total Bullshit).

Yes, you’re right.

I think the appropriate phrase is “don’t blame the player, blame the game”. They’re doing nothing illegal so right now, under current international laws, there’s very little that can be done.

+1

I disagree with it, but I don’t think the companies are to blame. These people are running a business, and if there’s a way to legitimately maximise profit then they will take it. In this instance I think the blame lies with our system of taxation.

BTW, I believe the correct term is ‘don’t blame the playa, blame the game‘. 😉

From the Statute, Companies Act 2006, Section 172, Duty of Directors

172 Duty to promote the success of the company
(1) A director of a company must act in the way he considers, in good faith, would
be most likely to promote the success of the company for the benefit of its
members as a whole, and in doing so have regard (amongst other matters) to—
(a) the likely consequences of any decision in the long term,
(b) the interests of the company’s employees,
(c) the need to foster the company’s business relationships with suppliers,
customers and others,
(d) the impact of the company’s operations on the community and the
environment,
(e) the desirability of the company maintaining a reputation for high
standards of business conduct, and
(f) the need to act fairly as between members of the company.
(2) Where or to the extent that the purposes of the company consist of or include
purposes other than the benefit of its members, subsection (1) has effect as if
the reference to promoting the success of the company for the benefit of its
members were to achieving those purposes.
(3) The duty imposed by this section has effect subject to any enactment or rule of
law requiring directors, in certain circumstances, to consider or act in the
interests of creditors of the company.

A very sensible holistic approach considering the wider implications of any decision. Nothing whatsoever about **** everyone over to make a killing.

It could argued that those who do **** everyone over, such as Mike Ashley, are in breach of their duties as a Company Director.

I think the appropriate phrase is “don’t blame the player, blame the game”. They’re doing nothing illegal so right now, under current international laws, there’s very little that can be done.

Indeed. All the more reason why the relationship between HMRC and corporates needs to change completely from the cozy ineffectual set up they presently have, where they effectively write their own terms, to something far more adversarial.

Chances of that happening in our present political climate? Absolutely zero!

If you want to know just how hand in glove that relationship is, read The Establishment by Owen Jones that footflaps mentioned. They really are writing their own rules.

I wonder how many of the outraged still use Google as their default search engine.

I would quite like the government to put google on the ISPs restricted list along with the piratebay etal until they start coughing up the cash.

Peter taxman sitting in a lonely office buried under a pile of paper

Hector. His name is Hector.

I would quite like the government to put google on the ISPs restricted list along with the piratebay etal until they start coughing up the cash.

Yep, but it will never happen.

Instead they’ll be invited to Champagne receptions with the Cabinet at which Gideon will ask them how else he can make the UK more friendly to business e.g. would they like him to re-introduce Slavery…

I think the appropriate phrase is “don’t blame the player, blame the game”.

I have no problem laying the blame on the game and the player. Just because rules don’t expressly forbid an action or the rules draw a line that mustn’t be crossed, doesn’t mean those things should be done.

I would quite like the government to put google on the ISPs restricted list along with the piratebay etal until they start coughing up the cash.

For what reason? They’re not doing anything illegal, nothing at all.

Buy this book, brilliant read, especially the bit on Corporate Tax..

Yep, but it will never happen.

probably, but does even have to, just get the press to bounce the idea around a bit talk of draconian chinese style firewalls, cracking down etc, just enough to make the advertisers nervous and see what comes out in the wash.

just get the press to bounce the idea around a bit

That would be the same UK press, which bar The Guardian, is owned by less than 10 billionaires[/url], all of whom want to pay as little tax as possible.

Whose side do you think they are on?

They use the same scams to avoid paying tax in the UK….

though they would still report it, even to call it bonkers.