Google fights back on tax
“We’re not accusing you of being illegal we’re accusing you of being immoral” cried Margaret Hodge, the increasingly combative chair of the public accounts committee. Matt Brittin, the Google VP, at whom the barb was directed looked a little fed up. Now normally Google doesn’t really engage on the topic of tax.
But the tide on tax has been turning. Google, Starbucks and Amazon have been lumped in together by politicians on all sides and accused of avoiding tax in a legal but morally wrong way. Even Boris Johnson, the great defender of the the banks, had a pop saying it would be wrong to bring in a mansion tax on homes of the rich while people like Google were paying “zero”. So I got in touch with Google with a proposition: show us Google’s contribution to Britain and argue your case on Channel 4 News.
Google products are free to British consumers at the point of use but British business pays around £2.5bn pounds for Google advertising services every year. So some politicians and tax campaigners have been outraged to hear Google UK paid around £6m pounds in corporation tax last year. Even if you add payroll taxes for the 1500 workforce of Google UK it isn’t a lot. That’s because, according to the rules of the European single market, British businesses actually buy from Google in Ireland. Google UK acts as an agent, marketing Google services, for which it is paid an agent’s fee of around 10 per cent. That’s why Google UK’s reported revenues were just £395m. Once allowable deductions are made profits can be a small fraction of that – and corporation tax is paid on profit, not revenue.
You might think “Ok, at least they pay tax in Ireland”, and they do. But not much more. That’s because, they say, Google is an American business and all the technology is designed and built there. Google Ireland doesn’t own any of that so it must pay Google in America a licence fee for the use of it. In theory that fee would be taxed in America, where corporation tax is double the rate in Ireland.
Read more: Can Google build a future beyond search?
Except that doesn’t quite happen either. Google Ireland ends up paying the licencing fee via a complex mechanism to Google in Bermuda, where the money sits not being taxed at all. Google points out it isn’t being spent either and when it is it will have to be brought onshore and taxed. But what that means is that the majority of the £2.5bn pounds spent by British business in a year is currently not being taxed at all. That’s why people are questioning the morality.
Over 24 hours or so Google’s VP in the UK Matt Brittin explained his argument to me. Not only, he says, is Google primarily an American business, but it should be judged by the whole contribution to Britain not just the corporation tax bill. That can broadly be broken down into the growth of British business through Google’s internet advertising, the impact on how consumers use the internet through Google products like search and YouTube, employment and investment in the digital economy and internet start-ups and corporate charitable spending. And that’s what he showed me. Whether it adds up to make you think they are acting in a moral way is the big question – and one for every viewer to decide for themselves.
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There are 17 comments on this post
Hi all, a big fan of Channel 4 News, if you hired Emily M we would watch nothing else! That’s the good bit…why does the media, including yourselves, never employ or use accountants in the tax planning industry, to research, to explain and to prime on the real questions? In a former life for example, I was employed by the owner of Paramount Films, by their Tax Department as that was the name of Finance there. My task – to get the tax “expense” as low as possible, preferably nil, that was part of the interview I had. We did, creating the largest asset leasing operation in the UK at the time, with the assistance of…Barclays again, only closed down with a legislative change. Let’s have an informed debate here? PS The Select Committee were embarrassing in their naive questioning!!!
Krish,
Google? Just another gang of Yank carpet baggers full of MBA excreta. I wouldn’t buy anything from them or their advertisers. There are plenty of alternatives.
As for Boris Johnson, does anybody of reasonable intelligence pay the slightest bit of attention to that moron? Anybody voting for that tenth rate buffoon deserves everything they get.
I wonder whether Philip Edwards and the rest of us have thought what life would be like if other nations took much the same dislike to our international companies as you’re showing to theirs?
After all, we are much more dependent on the Corporation Taxes paid here by our international companies than they are. So, if Amazon where required to pay some of its Corporation taxes here, they would certainly pay less – because our tax rate is 24% and USA’s is 35% – but suppose Diageo, BP, Barclays and many others had to pay a ‘fair share’ of tax to foreign governments, would you be prepared to make up for the shortfall in tax revenues?
why on earth would anyone expect a big corporation to ‘act in a moral way’? anyway, most tax havens are strongly linked to the city of london which, in turn, has a major voice in government, so don’t expect change any time soon. committee grandstanding is an excellent way to avoid looking hard at the structure of interests that underpin the corporate tax regime.
Moral? Why do we give aid to China and India when they even admit they don’t need it. Why are we so tied up in knots with Europe…it seems that government ministers are clutching at straws by targeting profits of large corporations
That was the most shameless and shameful puff piece I have seen for a long time.
Google’s PR people must be laughing their socks off. I know, let’s take C4N around all the good things we do, they’re that gullible, they’ll broadcast it.
Krishnan, I think you should retire now before you turn into David Frost. But even Frost at his most sycophantic and toothless would have done a less naive job.
I found it difficult to listen to the rubbish spouted by Matt Britten (?) – companies like John Lewis don’t go to such extreme measures to pay as little tax as they can! Since the company does operate in Britain, shouldn’t they pay our corporation tax? Why do they feel it is ok to pay their company tax at another cheaper rate – if they can do that, why can’t I pay tax in whatever country I choose – preferably the cheapest I can find! And as for their entrepreneurial “Campus” – please pass me the sick bucket!!!
Our press and media are being pretty two faced at the moment considering the large number of big British multinationals who use the same taxation practices to reduce their tax bills in other countries. Where do we start? BP, Vodafone, Shell, Barclays, RBS…. The list goes on.
The fact is that nothing will change until all countries get in on the act and change the laws. With the UK having a fairly low tax regime, the UK probably gets more out of the rest of the world rather than the other way around.
If we are going to read stories like these in the future, it might be helpful if Channel four journalists actually both to do some proper research on the issue. Looking at the bigger picture to start of course would have been helpful.
I’m afraid “helicopter thinking” is rare bird on these shores.
Very good point, well made.
Thanks Google for the products and being involved with the community. Guess what – that’s what any large company does and should be doing!
From C4 data: £6M tax in UK and £8M (Euro?) in Ireland on the £2.5B on UK turnover- clearly Orwellian doublespeak!. The use of intellectutal property rights, commission etc is their way of decreasing their UK profits and thus decreasing their tax liabilty. This is PATENTLY wrong, Any company will partake in a market in which it can make a profit – it will do everything that it can to limit the tax on that business. The important thing to remember is that the company WANTS to be in the market – the idea that Google would happily pull out of the UK market and exist on the business it carries out in Ireland- never mind Bermuda is ridiculous. So, the key is setting the tax laws such that companies profits have to be linked to their turnover- clearly a company with so many UK emploees and collateral can’t realistically be bringing in £6M in profits, so the Inland Revenue needs to be given the powers to forensically examine their accounts and determine an expectation of profits on their turnover. I ASSURE YOU – the threat of this will quickly prompt a review by companies of how they will determine their profits! Also, any idea that by doing so, Google would pull out of the UK – Nonsense, they want to make money and they’ll stay in still one of the major world markets! If not, so what, there are many other search engine companies out there!
Google is complying the tax law. The Tax law explicitly says entities pay tax where effective management and control performed or place of inco-orpration . Instead, if the rule changes to Tax is collectable where the revenue is gained no matter where the dummy compnies in corporated then the so called “moral companies” like googles might not have travelled to remote islands to avoid Tax. So it is the Government responsiblity to narrow down the Tax rules.
Paying taxes raises two completely different sorts of issue: purposive and moral. By and large, the anglo-saxon tax ideology is purposive: i.e. it’s entirely reasonable to pay as little tax to the benefits of the cpompany’s shareholders & customers (supposing lower prices result). In other parts of the world, tax ideology is more moral: that taxes contribute to the cohesion of the community and therefore should not be avoided. I think I would put the years after 1979 when the UK moved decisively away from the moral standpoint. And when the benefits of reducing company tax liabilities were largely shared by shareholders and customers, there may not have been an immense diffrence in the outcomes. But in the last twenty years or so, it’s the executives who have creamed off an increasingly large share of profits – at the expense of shareholders & customers. Losing tax revenues, governments have cut expenditure – affecting poorer people proportionately more and going alongside the development of an hourglass economy with a relatively small top section doing extremely well and a much larger bottom segment on low wages/unemployed/part time whose chances of joining the upper tier are increasingly small. Along with a radical change in their attitude to the environment (see Jon Snow’s blog today), companies need to understand that people don’t comprehend why when they are making massive profits in the UK, they are paying virtually no tax, while people on modest incomes get no opportunity to avoid tax. Instead of their self serving “corporate citizenship” programmes, which are largely the means for self-publicity, they should pay the tax due in any country without using tax avoidance measures.
Companies do not exist to subsidise government spending. They exist to make money for their shareholders and they do this by serving their customers well.
In fact, in today’s market “well” is not good enough. They have to do it to perfection.
They are obligated to obey the law and do so happily. If lawmakers choose to allow them to minimise their tax liabilities, they will. (Incidentally, so would you).
The blame does NOT lay with companies who legitimately reduce their costs. It lies with governments who are too lazy or ignorant to frame tax laws that are fit for purpose in the 21st century.
We should all take action and stop buying from these tax avoiding corporations!
Channel 4 News is the best by far, well done everyone. I have watched some of the PAC live and got the impression that Margaret Hodge and her team haven’t a clue what they are talking about. If they want to talk sales then they have to look at the tax that comes out of every cup of coffee in the case of Starbucks. First of all there is VAT, then business rates, then employees income tax, employees NI and employers NI. There is considerable transport involved in moving coffee around and that includes fuel duty and VAT. All of that tax comes out of your lattes. Anyway this is not the point. I decided to find out about Margaret Hodge and discovered that her and her husband own almost 10% of Stemcor Holdings Ltd which has 24 subsidiaries all over the place. If there is only one R D Oppenheimer, who I assume is her husband but maybe wrong, he has further interest in the company’s shares. One of the subsidiaries is Stemcor Ltd. According to filed accounts this company made zero sales in the years 96 to 04 then magically in 2005 made sales of £2.86 Billion! Yes that is Billion. This incredible sales growth didn’t last. In the years 2007 to 2011 the sales were all zero again! There may be a perfectly innocent explanation to this. Another could be tax avoidance.
Mrs Hodge is yet another champagne Islington socialist.
Their operating motto seems to be “Do as I say, not as I do.”
Her period as leader of the Council there was marked by some right-on. fairly crack pot ideas.
She was known as “Enver” Hodge (Google it) in recognition of her warm and inclusive leadership style!
I was wrong about R D Oppenheimer as I suggested I might be. He is in fact the brother of Margaret Hodge. I thought he was her husband because two blocks of share holding were in the names of M E Hodges & R D Oppenheimer. It is not unusual now for professional women to use their maiden names. One block of shares have a nominal value of £1,376,800 and the other £2,671,620. The real worth is almost certainly greatly in excess of this as the company had sales of £6.25 Billion in 2011. This however raises another question. Are both names mentioned because they are the beneficial owners of the shares through two trusts? If so are these trusts off shore for tax avoidance purposes?